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Genesis Energy Eyes Chemical Industry with Alkali Unit Buyout

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Oil and gas transportation and refining partnership, Genesis Energy, L.P. (GEL - Free Report) recently announced that it will enter the chemical industry with the acquisition of the alkali business of Stamford, CT-based, Tronox Limited. Per the deal, Genesis Energy will be shelling out $1.325 billion in cash to the chemicals and minerals maker for the assets.

Funding of the Deal

To fund the deal, Genesis Energy is planning to raise around $750 million with the issuance of convertible preferred units. The Houston-based partnership is looking forward to receive investments to fund the deal from New York private equity firms, KKR Global Infrastructure and a subsidiary of The Blackstone Group L.P. (BX - Free Report) , GSO Capital Partners. Genesis will issue 8.75% units for the two private investors. The two will buy around 22.2 million units at $33.71 each.  

About the Assets

We would like investors to know that Tronox's alkali business, located at its Green River, WY. facilities, which is one of the biggest in the world, includes the trona and trona-based marketing, mining, exploring, processing, producing, and selling operations. It produces approximately 28% - 4 million tons - of the world's natural soda ash (sodium bicarbonate) output every year. It is used for various purposes like glass making, baking of goods, detergents, industrial chemical production, etc. Genesis Energy believes the alkali business has a reserve life of more than 100 years.

Deal Rationale

The buyout will help Genesis Energy in terms of its current asset base and aid the partnership to serve the refineries and petrochemical facilities connected with its pipelines better. It is in line with Genesis Energy’s strategy to diversify its business. Per the partnership, the soda ash assets generate stable cash flow, which might help with its $3.02 billion debt, as reported in second-quarter 2017. The estimated EBITDA from the business for the last 12-month period, which ended on Jun 30, 2017, was $166 million.

The deal with Tronox is Genesis Energy's biggest after the 2015 acquisition of a pipeline network in the Gulf of Mexico from Enterprise Products Partners L.P. (EPD - Free Report) , for $1.5 billion.

As far as Tronox is concerned, the company will use the proceeds from the transaction to fund the bulk of the cash portion for its $1.7 billion acquisition of Cristal's titanium dioxide business.   

About the Partnership    

Genesis Energy operates crude oil common carrier pipelines. It is an independent gatherer and marketer of crude oil in North America, with operations concentrated in Texas, Louisiana, Alabama, Florida, Mississippi and New Mexico.

Price Performance

Genesis Energy has lost 16.8% of its value in the last six months compared with 13.9% decline of its industry.

Zacks Rank and Stock to Consider

Genesis Energy presently has a Zacks Rank #4 (Sell).

A better-ranked stock in the oil and energy sector is Braskem S.A. (BAK - Free Report) . It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem’s sales for 2017 are expected to increase 11% year over year. The company delivered an average positive earnings surprise of 107.8% in the last four quarters.

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