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UPDATE 3-Gavilon deal for $890 mln kicks off commodity trader sales

Wednesday, 6 Nov 2013 | 1:04 PM ET

* Gavilon has oil storage and pipelines in Oklahoma, Texas, Louisiana

* Gavilon owned by Soros Fund Management, Ospraie Management and General Atlantic

Nov 6 (Reuters) - U.S. energy logistics firm Gavilon LLC has kicked off the first of several big trading house deals that are set to recast the market landscape in a $890 million sale to propane gas supplier NGL Energy Partners LP.

The deal, which came in less than the estimated $1 billion value of the firm a year ago, highlights the ongoing scramble for U.S. energy assets amid a surge in shale oil output that has upended domestic markets - and also the buying power of tax-advantaged master limited partnerships like NGL.

The deal gives the three-year-old NGL a modest but potent platform of infrastructure and assets, including 8 million barrels of owned and leased oil storage tanks in Cushing, Oklahoma; a Gulf Coast pipeline and terminal network; and leases for some 200 trucks, 350 railcars and eight barges.

"This fills some of the gaps we had at NGL around storage hubs like Cushing and some feed-based pipeline businesses," David Kehoe, executive vice president at NGL, said on a call with analysts on Wednesday.

"We will be integrated along the crude oil midstream chain throughout North America from the producer to the refiner and end user."

The deal also provides an exit for hedge fund manager Dwight Anderson's hedge fund Ospraie Management, which alongside a fund owned by George Soros and General Atlantic, established Gavilon five years ago after buying the cross-commodity trading division of ConAgra foods for $2.8 billion.

The Gavilon energy arm was put on the block after the rest of the merchant was bought earlier this year by Japan's Marubeni Corp for $2.6 billion. That value was marked down from $3.6 billion after carving out the energy portion.

The deal will heighten the focus on a handful of other trading houses that are also seeking buyers, including global physical energy trader Hess Trading (Hetco), the physical commodities arm of JPMorgan Chase & Co and Morgan Stanley's global oil, power and gas business.

NGL said it would retain Gavilon's personnel, which includes a substantial trading operation.

Gavilon also markets or supplies some 94,000 barrels per day (bpd) of gasoline and diesel, and another 9,000 bpd of ethanol and biodiesel, NGL said in a presentation.

RISE OF MLPs

The deal will expand the terminal business for NGL, a MLP which sells propane to residential, agricultural and industrial customers and provides related storage to retailers, wholesalers and refiners.

Many energy companies have recently created tax-efficient MLPs, which allow companies to raise money in the stock market, while having income taxed only at the unit holder level, avoiding corporate income taxes.

Gavilon LLC mainly operates integrated oil storage, terminal and pipeline assets in Oklahoma, Texas and Louisiana and has a complementary crude oil and refined products supply, marketing and logistics business, NGL said.

Gavilon was previously part of Gavilon Group, whose agriculture business stored and distributed agricultural products to food manufacturers and farmers.

The purchase price, which represents about 7.5 times Gavilon's estimated run-rate earnings before interest, taxes, depreciation and amortization for 2014, includes about $200 million of working capital, it said.

NGL said it would sell about $240 million of common units in a private placement and expects to use the proceeds to fund part of the acquisition.

The company also increased its revolving loan facility by $621 million to $1.67 billion, part of which it said would be used to fund the purchase. The deal is expected to close in December.

UBS Investment Bank was NGL's financial adviser and Locke Lord LLP was its legal counsel. Barclays advised Gavilon and the sellers on financial matters. Jones Day and McGrath North provided legal advice to Gavilon.