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Dominion Energy (D) to Acquire Dominion Energy Midstream

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Dominion Energy, Inc. (D - Free Report) announced that it has entered into a definite agreement with Dominion Energy Midstream Partners, LP (DM - Free Report) to acquire all outstanding units of the latter in exchange of 0.2492 Dominion Energy common shares per unit.

The current offer reflects a 1% improvement from the original accord made by the company on Sep 19, 2018. The exchange ratio was 0.2468 Dominion Energy common shares per unit in the original offer.

Dominion Energy Midstream Partners is a partnership formed by Dominion Energy, in a bid to develop a portfolio of natural gas terminaling, processing, storage, transportation and related assets.

Reasons Behind the Offer

On Mar 15, the Federal Energy Regulatory Commission (“FERC”) revised a policy, which continues to have an impact on the unit prices of Dominion Energy Midstream Partners. FERC revised its 2005 Policy Statement for Recovery of Income Tax Costs, so that it no longer allows MLPs to recover an income tax allowance in the cost of service.

Since the Mar 15 revision, units of Dominion Energy Midstream Partners have lost 24% till Nov 26, 2018. This proposal is expected to address the negative impact of changes in FERC tax policy on future cash flow of current partnership assets and control the decline in unit prices.

This transaction is expected to be completed in the first quarter of 2019, subject to customary closing conditions.

Other Companies Following the Trend

To offset the negative impact of FERC announcement, other companies have also come forward to acquire units of the partnership they have promoted. On Aug 10, 2018, The Williams Companies, Inc. (WMB - Free Report) announced that it has acquired all outstanding units, which are not already owned, of Williams Partners L.P.

Similarly, Enbridge Inc. (ENB - Free Report) made an offer to acquire the remainder of Houston-based MLP operations in the wake of FERC policy changes, which is in turn hurting the MLPs.

Price Movement

In the past six months, shares of the company have gained nearly 15.3% compared with its industry's rally of 4.1%.

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