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Public companies likely to avoid 'unwieldy' partial stake in Western Midstream

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Public companies likely to avoid 'unwieldy' partial stake in Western Midstream

Holding on to a minority stake in Western Midstream Partners LP would compromise Occidental Petroleum Corp.'s ability to attract bids for the remaining interest from public pipeline companies, sector observers said recently.

Midstream industry analysts said that while investors have discouraged most midstream firms from unnecessary spending, even those best-in-class companies that could afford to take on a majority share in Anadarko Petroleum Corp.'s master limited partnership would only want full control over it.

"On the strategic front, there are a few players who make sense, but [Occidental] wants cash, so that makes a deal with an existing cash-strapped midstream player challenging," master limited partnership expert and CBRE Clarion Securities portfolio manager Hinds Howard said in an email.

A June 24 Bloomberg News report said that the shale driller has tapped a financial adviser to offer half of Anadarko's interest in Western Midstream and its general partner, as well as 45% of the partnership that is traded publicly, leaving Occidental with a minority interest in the MLP.

The people familiar with the matter that the report cited also said that ONEOK Inc., Energy Transfer LP and Enterprise Products Partners LP could be willing to compete with private equity buyers for majority ownership. But Robert W. Baird & Co. analyst Ethan Bellamy said in an email that a public buyer "likely would want to control" Western Midstream, and Mizuho's Gabriel Moreen agreed in an interview that Occidental's retention of a minority share would be "unwieldy" for corporate governance.

A more likely scenario is that Western Midstream would look more like Tallgrass Energy LP or EnLink Midstream LLC, and remain a public company but with significant private equity ownership, Howard said.

Regardless of who takes over Anadarko's stake in the MLP, though, investors will likely no longer benefit from the exemplary relationship Western Midstream had with its parent once its combination with Occidental is complete, Howard said.

"[Anadarko] was the most supportive MLP sponsor we have seen in the space, so it will be hard to get excited about a new sponsor no matter who it is," he said.

Still, Raymond James' analyst Pavel Molchanov expects Occidental to be very selective in choosing a buyer.

"They emphasized that it would take time, there was no rush," he said in an interview, referring to a meeting with the company's management last week. "They want to get it done right rather than get it done quickly."