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SemGroup Investors Nod to Energy Transfer's Acquisition Bid

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SemGroup Corporation SEMG recently announced that its shareholders voted in favour of the $5.1-billion merger contract wherein it will be acquired by the pipeline giant Energy Transfer (ET - Free Report) .

The deal, which includes the assumption of debt and liabilities, comprises $6.80 in cash and 0.7275 units of Energy Transfer for each outstanding share of SemGroup, which also implies 40% cash and 60% equity.

The buyout agreement is expected to unlock significant value for the combined entity’s shareholders, generating anticipated annual run-rate synergies of approximately $170 million consisting of $80 million of commercial and operational synergies, $50 million of financial savings and $40 million of Expense savings.

For the oil and natural gas midstream player in particular, this transaction is a win-win proposition for its stockholders in which they receive a substantial premium and get an opportunity to participate in one of the biggest midstream operations in the country with access to all major U.S. production basins.

The merger, if successful, will boost Energy Transfer’s crude oil shipping and export prospects with the inclusion of the Houston Fuel Oil Terminal possessing 18.2 million barrels of crude oil storage capacity. The takeover also looks promising to drive this Dallas, TX-based partnership’s energy infrastructure system by adding SemGroup’s crude gathering facilities to Colorado’s DJ Basin and Oklahoma’s Anadarko Basin. Moreover, this integration will consolidate the oil and NGL pipelines between DJ and Anadarko Basins  with the crude oil terminals in Cushing, OK.

Notably, the transaction is supposed to be completed today, subject to customary conditions. Upon closure, SemGroup’s stakeholders will be entitled to hold 2.2% of Energy Transfer’s outstanding common units.

Zacks Rank & Key Picks

SemGroup carries a Zacks Rank #4 (Sell).

Better-ranked players in the energy space include HollyFrontier Corporation HFC and World Fuel Services Corporation INT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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