(Adds CEO, analyst comment, updates shares)
HOUSTON/NEW YORK Oct 21 (Reuters) - Devon Energy Corp said on Monday it would combine most of its U.S. pipeline and processing businesses with those owned by Crosstex Energy Inc and Crosstex Energy LP to form a new midstream company.
The new business will consist of two still-unnamed publicly traded companies, a master limited partnership (MLP) and a general partner that will control the MLP. Devon will have a controlling stake in both entities.
U.S. exploration and production companies that own the infrastructure needed to process and move oil and gas frequently form MLPs, structures favored by energy companies for tax efficiency and a lower cost of capital.
Devon said it was contributing $4.8 billion in assets to the partnership - a fraction of the total assets of the company, which has a market capitalization of about $26 billion.
At Friday's close, Crosstex Energy LP had been worth around $1.8 billion, while Crosstex Energy Inc had been worth just under $1 billion.
Devon, which had previously contemplated an initial public offering of its pipeline and processing assets, opted for a merger instead because it accelerates what Devon could do on its own through the creation of a larger company.
"We were well advanced on doing our own standalone MLP," Devon Chief Executive John Richels said in an interview. "This combination certainly gives us a bigger company. It has a much more diverse asset base and we believe diversification enhances long-term shareholder value."
Shares of Devon rose nearly 4 percent, Crosstex Energy Inc shares rose about 60 percent, while units of shares of Crosstex Energy LP soared more than 30 percent.
"This deal allows Crosstex to gain a lot bigger scope and scale in the new entity and will allow it to regain some competiveness in the midstream space," said Jason Stevens, MLP analyst at Morningstar. "It will be interesting to see what they do with this."
In MLPs, income is not taxed and is paid out to investors, called unitholders, in the form of quarterly distributions.
The new company will have 7,300 miles of gathering and transportation pipelines, 13 natural gas processing plants with 3.3 billion cubic feet per day of net capacity and other infrastructure assets, the companies said in a statement.
Crosstex Energy Inc shareholders will receive one unit in the new general partner, plus $2 per share in cash, for each Crosstex Energy Inc share they own. Crosstex Energy LP's unitholders will end up with a 40 percent stake in the new MLP.
The new company will be based in Dallas and will be headed by Crosstex's current Chief Executive Barry Davis. The deal, which requires regulatory and unitholder approvals, is expected to close in the first quarter.
Shares of Devon rose $2.20 to $65.41 in afternoon New York Stock Exchange trading. Crosstex Energy Inc shares rose $12.37 to $32.97 and Crosstex units climbed $6.86 to $27.21 on Nasdaq.
(Reporting by Michael Erman in New York and Anna Driver in Houston, additional reporting by Swetha Gopinath in Bangalore; Editing by Alden Bentley and Terry Wade)