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Antero Midstream (AMGP) to Acquire MLP & Create New Entity

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Antero Midstream GP LP (AMGP - Free Report) recently agreed to acquire Antero Midstream Partners LP (AM - Free Report) through a cash-and-stock deal, in a bid to simplify the company’s structure and create a corporation. The combined entity will be named Antero Midstream Corporation, once the transaction completes, which is expected to occur in the first quarter of 2019. Following the announcement of the acquisition, Antero Midstream units gained approximately 9.2% yesterday.

The new entity intends to pay dividend of $1.24 per share in 2019, which can grow 29% in 2020, and 20% in 2021 and 2022, each.

Transaction Details

Antero Midstream will buy all the outstanding units (188.1 million) of Antero Midstream Partners, including those (98.9 million) owned by Antero Resources Corporation (AR - Free Report) . The aggregate consideration to be received by Antero Resources is valued at $30.43 per unit of Antero Midstream Partners, reflecting a premium of 7%. The unitholders of Antero Midstream Partners will receive an aggregate consideration of $31.41 for each unit they hold. The values are calculated based on the closing price of Oct 8. Notably, the unitholders of Antero Midstream Partners are entitled to receive a total cash consideration of around $598 million, while the rest will be paid in stock.

Deal Rationale

During the period of 2011-14, numerous energy companies created master limited partnerships (MLPs) to gain more profit amid the then business environment. Given the current commodity price environment, the companies are either going back to the traditional corporate structure or bringing the MLPs back to their businesses, which they once formed. The recent move by Antero Midstream and Antero Midstream Partners shows a similar story. The new entity can now have a place in retirement accounts of investors (IRAs), wherein current MLPs cannot go. 

Moreover, the move is expected to enable Antero Midstream to save $375 million from tax payments over the 2019-22 period. The new entity is expected not to pay any tax till 2024. Additionally, Antero Midstream Corporation’s tax shield is estimated to provide it with tax savings of $800 million.

Price Performance

Antero Midstream stocks have lost 8.7% in the past year against the 0.5% collective growth of the industry it belongs to.



Zacks Rank and A Stock to Consider

Antero Midstream currently carries a Zacks Rank #4 (Sell). A better-ranked player in the oil and gas sector is Petroleo Brasileiro S.A. (PBR - Free Report) or Petrobras, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Petrobras is the largest integrated energy firm in Brazil and one of the major players in Latin America. It pulled off an average positive earnings surprise of 10.4% in the last four quarters.

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