Phillips 66 to buy rest of Partnership in a $3,4B all-stock deal


Phillips 66, a top US refiner, said this Wednesday it will buy out the units of the Phillips 66 Partners that it doesn’t already own in an all-stock deal worth $3,6 billion. The refiner aims to simplify its governance and corporate structure to better compete in today’s market environment.

Firstly, Phillips 66 Partners is a Master Limited Partnership (MLP) formed by the refiner to own; operate, develop and acquire primarily fee-based crude oil; refined petroleum products, natural gas liquids pipelines, terminals, and other midstream assets.

Indeed, the oil and gas industry has financed billions of dollars in pipeline and storage products under MLPs; since former President Ronald Reagan signed legislation in 1986 allowing them as a way to spur energy investment.

However, several pipeline companies, largely oil and natural gas pipeline firms, have restructured in recent years; after US regulators said they will no longer recover an income tax allowance as part of fees they charge to shippers under a “cost-of-service” rate structure.

In fact, the White House is backing a plan by Democrats in the House of Representatives to allow renewable energy companies to form Master Limited Partnerships. Which has created a discussion in Congress. According to Andrew Logan, senior director of oil and gas at Ceres; “the whole MLP structure is problematic from a governance perspective which has significantly dampened investor interest.”

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All-stock acquisition would give benefits to holders of Phillips 66 units

As a result, Phillips 66 decided to buy the rest of its MLP. Chief Executive Officer Greg Garland said in a statement. “We believe this acquisition will allow both PSX shareholders and PSXP unitholders to participate in the value creation of the combined entities, supported by the strong financial position of Phillips 66.”

In contrast, Jason Gableman, an analyst at Cowen, said in a note. “This roll-up suggests Phillips 66 may not have seen Phillips 66 Partners as a useful vehicle for industry consolidation, particularly given this likely would have required capital raises.”

“The Phillips 66 Complex has been frustrated with the midstream valuation and acknowledged the environment has shifted dramatically since the MLP was first conceived,” Spiro Dounis, an analyst at Credit Suisse, added.

Finally, as outlined above, the deal is an all-stock acquisition. It would close in the first quarter of 2022. It will offer each outstanding Partnership common unitholder 0.50 shares of PSX common stock for each PSXP common unit.

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