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Investor calls on American Midstream directors to reject ArcLight's buyout bid

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Investor calls on American Midstream directors to reject ArcLight's buyout bid

A shareholder of American Midstream Partners LP urged the three independent directors to turn down private equity heavyweight ArcLight Capital Partners LLC's unsolicited offer to buy out the debt-ridden energy infrastructure partnership.

Craig Thomas, who owns 130,000, or 0.24%, of American Midstream's common units, said in a Jan. 10 statement that ArcLight and its affiliates "have engaged in a campaign of self-interested tactics and timing designed to take AMID [American Midstream] private at an extremely low price per unit while AMID's profitability and distribution are at temporary and short-lived lows."

The private equity firm is already the largest institutional holder of American Midstream, owning about a quarter of the partnership's common units and the majority of American Midstream's general partner.

Thomas alleged that ArcLight has irresponsibly steered American Midstream's internal operations and strategy, including the "delinquent" filing of SEC forms, a failed merger with Southcross Energy Partners LP that required a $17 million breakup fee, and using a cash distribution cut and suspension to lower the buyout price.

ArcLight in September 2018 offered to buy all of the American Midstream common units that it and its partners do not already own for $6.10 per common unit, and it revised that offer to $4.50 per common unit Jan. 3, in tandem with the partnership's plummeting stock price, which lost 69.2% since the beginning of 2018 to settle at $4.11 on Jan. 9. In July 2018, the partnership instituted a 75% distribution cut and an announcement that it would not distribute cash to investors for the fourth quarter of 2018.

Under an amended credit agreement, American Midstream cannot pay any cash distributions unless its leverage ratio is less than 5x. S&P Global Ratings downgraded American Midstream's senior unsecured debt deeper into junk territory, to B from B+, in September 2018.

Claiming that American Midstream's units are worth at least $9, Thomas on Jan. 10 called on the partnership's independent directors to allow it to remain public until at least August so that it can unload more noncore assets, lower its leverage and resume distribution payments. In the meantime, Thomas advised American Midstream to hire bankers to look for a nonaffiliated buyer.

Thomas added in an email that he is "in touch with other supportive unit holders who own in aggregate approximately 2 million units" of American Midstream, including the hedge fund ELCO Management Co. LLC, which owned 221,845 shares as of Sept. 30, 2018, according to S&P Global Market Intelligence data.

"Private equity has ... acted badly here," ELCO portfolio manager Paul Doran said in an interview. "They took advantage of shareholders."

Neither ArcLight nor American Midstream had returned requests for comment at the time of publication.

ArcLight has been actively buying North American midstream assets, including its 2018 purchase of Enbridge Inc.'s Midcoast Operating LP for $1.10 billion. In 2019 so far, the firm has already also announced plans to acquire natural gas storage assets in Mississippi, Alabama and Colorado.