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NuStar rejects Energy Transfer takeover to stay the course on simplification

A key NuStar GP Holdings LLC shareholder rebuked a recent takeover offer by Energy Transfer Equity LP, with the shareholder preferring the general partner's announced plans to merge with master limited partnership NuStar Energy LP.

According to a March 14 SEC filing, Energy Transfer chief Kelcy Warren contacted NuStar GP Holdings and NuStar Energy CEO Bradley Barron on March 2 to tell him the pipeline giant would send a formal proposal to the general partner's board. The board received Energy Transfer's letter March 5. In the letter, Energy Transfer proposed acquiring NuStar GP Holdings for $14.70 per unit in cash and urged board Chairman William Greehey, who as of Feb. 20 owns 21% of NuStar GP Holdings' common stock, to withdraw his support for the unit-for-unit merger with NuStar Energy that was announced Feb. 8.

Greehey on March 7 sent a letter to Nustar GP Holdings' conflict committee saying he would not support the transaction with Energy Transfer.

Analysts at CreditSights said in a March 15 note to clients that the failed bid resembles the attempted acquisition of Williams Cos. Inc. The transaction fell apart in June 2016 after Energy Transfer walked. The analysts added that a merger between NuStar and Energy Transfer would "significantly dilute" Greehey's influential ownership.

According to CBRE Clarion Securities' Hinds Howard, the offer itself provides more clues about if and when the Energy Transfer family will eliminate Energy Transfer Partners LP's required cash payments to its general partner and consolidate the corporate structure.

"[It] makes me think they [will] hold on to their own [incentive distribution rights] structure at ETP for longer than the market would prefer," he said in an email. "[It is] not a positive readthrough for their views on simplification."

While NuStar is eliminating the incentive distribution rights agreement with its MLP as part of the merger, Energy Transfer has eschewed calls from analysts to get rid of the structure, which the analysts believe handicaps partnerships' cost of capital by depleting cash available for reinvesting in the business.