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$5B Energy Transfer deal report sets off Wall Street speculators, sleuths

A report that the private equity giant Blackstone Group LP is looking to buy a multibillion-dollar stake in Energy Transfer Partners LP projects or assets sent analysts and stock traders to their tea leaves.

The Wall Street Journal reported Dec. 22 that Blackstone was kicking some ETP tires, citing "people familiar with the matter." The report touched off rallies in ETP stock, as well as in Energy Transfer Equity LP and Sunoco Logistics Partners LP, though few specifics were offered in the Journal article beyond a source's assertion that the stake could be valued at $5 billion or more.

Another twist: The Journal report said former Energy Transfer Equity CFO Jamie Welch was involved in the talks. Welch was ousted from the Energy Transfer family without public explanation Feb. 5 after Energy Transfer Equity's deal to merge with Williams Cos. Inc. began to fall apart amid crumbling commodity and equity prices.

Welch sued his former employer, claiming he was owed pay and bonuses, as well as a chance to invest in ETP's Lake Charles LNG development. A confidential settlement was reached in August and the court dismissed the matter with prejudice the next month, according to an SEC filing.

"The deal seems a little strange to us given former CFO Welch sued Energy Transfer after he was fired earlier this year," CreditSights analysts told their clients Dec. 22.

Given that ETP is in the process of being merged into another Energy Transfer Equity master limited partnership, Sunoco Logistics, in an all-stock deal, the number of projects that might be on offer is limited, CreditSights said.

"A stake in the $11 billion [Lake Charles LNG] export terminal could be part of the deal because Jamie Welch sued for his personal interest in the project after he was ousted from the company," CreditSights said. "An interest in the $3.8 billion [Rover Pipeline LLC] is another reasonable assumption as management has previously said they would consider this after selling a stake in Dakota Access for $2 billion to [Enbridge Energy Partners LP] and [MPLX LP]."

"A sale would clearly be beneficial for bondholders as proceeds would be used to reduce debt and fund capex," CreditSights concluded.

Reached late Dec. 22, Energy Transfer spokeswoman Vicki Granado said, "We don't comment on speculation."