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Tallgrass Agrees to Higher Takeover Offer From Blackstone

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Tallgrass Energy, LP (TGE - Free Report) recently accepted the sweetened merger offer wherein Blackstone Infrastructure Partners (BX - Free Report) and its affiliates proposed to buy its publicly held outstanding units that they currently don’t own.

The deal offers a price of $22.45 per Class A unit in cash, up from the previously offered $19.50 per unit, signifying a 22.7% premium to the partnership’s closing price on Dec16, 2019.

Blackstone already holds 44.2% stake in Tallgrass Energy since January-end this year with 23.7 million Class A units. Thereafter, the firm’s units have plunged almost 25%. Factors responsible for this slump in unit price include crash in the overall energy sector plus Tallgrass Energy’s underperformance in the third quarter. In fact, its earnings history has been disappointing throughput as this Leawood-based partnership’s bottom line fell shy of the Zacks Consensus Estimate in all the trailing four quarters, the average negative surprise being 9.81%.

This oil and natural gas pipeline operator missed on both the top and the bottom line in the third quarter. Further, investors were concerned about the conflicts of interest arising from Blackstone’s initial transaction, which vests it with a general partner’s power and an effective control of a limited partner despite holding a minority interest.

The transaction, contingent upon pending approvals, is scheduled to be completed by mid-2020. Upon closure, Class A units will not be traded. Further, Tallgrass Energy will not give out distributions when the transaction is on course, per the merger agreement.

Blackstone, a private equity group, planned to own the remaining units wherein its sponsors are looking forward to purchase the Class A units with approximately $3 billion of equity while the balance of the funding required will be drawn from debt.

Several energy sector players had earlier privatized the struggling energy companies that they are in charge of. In May, Brookfield Business Partners LP offered to acquire the residual units of Teekay Offshore Partners LP, which they did not own earlier.

Zacks Rank & Key Picks

Tallgrass Energy carries a Zacks Rank #3 (Hold). Better-ranked players in the energy space include Phillips 66 (PSX - Free Report) and Marathon Petroleum Corporation (MPC - Free Report) , each holding 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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