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KKR, Williams to acquire DJ Basin gas processor Discovery Midstream for $1.2B

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KKR, Williams to acquire DJ Basin gas processor Discovery Midstream for $1.2B

KKR & Co. and Williams Cos. Inc., through a newly formed joint venture, agreed to acquire DJ Basin gathering and processing operator Discovery Midstream Partners from TPG Growth for about $1.2 billion.

Discovery, based in Dallas, operates in the southern portion of Colorado's DJ Basin. The partnership's infrastructure and related facilities include a 60-MMcf/d gas processing plant and a 200-MMcf/d plant under construction and expected to be in service by the end of the year, across more than 250,000 dedicated acres, primarily in Weld and Adams counties. The Discovery assets also include 130 miles of natural gas pipeline and approximately 260,000 acres dedicated for gas gathering and processing and an additional 60,000 acres for oil gathering.

After closing the transaction in the third quarter, Williams would operate Discovery, hold majority of governance voting rights, and have an initial economic contribution and ownership of 40% of the purchase price. KKR would hold the remaining 60% of the initial economic contribution and ownership of Discovery. Williams said it will add additional capital to bring economic ownership to 50/50.

Discovery's management team will stay in place, according to July 30 news releases from KKR and Williams. Williams' release listed the purchase price as $1.17 billion.

Additionally, Williams may acquire a portion of KKR interests at predetermined, agreed-to terms until the sixth anniversary of close using the equity method of accounting.

"[T]his transaction allows Williams to take advantage of synergies between the Discovery assets and our downstream businesses via the DJ Lateral of Overland Pass Pipeline," Williams President and CEO Alan Armstrong said. "We will now have the opportunity to integrate output from these acquired assets with production from our existing processing footprint in the West segment into our advantaged downstream assets."

KKR and Williams' lead financial adviser was Simmons. Simpson Thacher & Bartlett acted as legal adviser to KKR, while Gibson Dunn served as legal counsel to Williams.

Williams also said its master limited partnership Williams Partners LP will divest its Four Corners area business in New Mexico and Colorado to Harvest Midstream Co. for $1.13 billion in cash.

The business includes 3,700 miles of pipeline, two gas processing plants and one carbon dioxide treating facility in San Juan and Rio Arriba Counties in New Mexico and La Plata County, Colo.

Subject to customary closing conditions, the transaction is expected to close in the second half of 2018, after the merger of Williams and Williams Partners is completed. Proceeds from the sale will be used to fund Williams' growth capital and investment expenditures, including opportunities related to the Discovery deal.

Morgan Stanley acted as Williams' lead financial adviser for the Four Corners deal, while Davis Polk was legal counsel.