Kaminsky's Call: Home Run Merger


Here's a deal that you might have missed: Enterprise Products Partners and Enterprise GP Holdingsannounced a merger that results in the latter becoming a wholly-owned subsidiary of EPD.

Deal, Handshake

Enterprise GP Holdings jumped over 11 percent on the news—the deal will give holders a cash distribution increase of 54 percent.

Why is this deal of interest to me? It's not just the fact that my team at Neuberger Berman was the major institutional owner of EPD . When a merger is a home run, I take notice.

Enterprise Products Partners is not the first to rid itself of the general partnerships, but they are in a select group of MLP's (master limited partnerships) that have done so. But the others were much smaller deals. EPD can now compete on a much larger scale for new projects.

EPD could end up growing faster than their competition now, such as Kinder Morgan. They and other rivals will have a great deal of pressure to come up with better deals than this one. This will be a tall order.

It will furthermore be interesting to see how this could impact the possible IPO of Kinder Morgan. We have indicated on The Strategy Session that KMP's LBO (leveraged buyout) was not only a winner for Richard Kinder, but also a major Goldman Sachs victory. If it is to come back to market before year-end as an IPO, this Enterprise Products Partners deal could affect it dramatically. A precedent might have been set here.

The big question as to why EPD would do this now is quite apparent. Closing by year-end, the company will remove uncertainty from a tax standpoint. Cost of capital is lowered, organizational structure simplifies, and there is no effect on the balance sheet as it is an equity-for-equity transaction.

Combining with excellent geographic diversity and the recognition the company has as a one-stop shop for hydrocarbons, EPD's deal is a top illustration of how to strike a merger that deploys cash successfully.

Read up on deals like this. They teach lessons of savvy that cannot be found anywhere else but by visceral example.

Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

Gary Kaminsky does not hold any equity positions.

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