Carlin Conner

SemGroup CEO Carlin Conner. STEPHEN PINGRY/Tulsa World file

Dallas-based Energy Transfer LP plans to acquire the Tulsa-headquartered midstream company SemGroup for about $5.1 billion, assuming debt and other liabilities, it announced Monday.

Energy Transfer’s offer was simply too attractive to pass up, SemGroup CEO Carlin Conner said.

“It’s a compelling premium for our shareholders,” he said by phone. “It really does lock in a tremendous amount of value for our shareholder. … It’s one of the most significant premiums to be seen in the energy space on an M&A (mergers and acquisitions) basis. …

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“We felt like we needed to execute on the offer. Our other options just did not measure up to that.”

Both SemGroup and Energy Transfer will continue to operate separately until the transaction’s close, SemGroup spokesman Tom Droege said.

SemGroup will maintain all its current charitable commitments, including a $5 million pledge to the Gathering Place, Conner said.

The merger agreement stipulates that Energy Transfer will maintain a presence in Tulsa for at least two years.

“We’ll just have to wait and see what that really means,” Conner said. “From an employee point of view, there’s not a lot we can say about what we think is going to be the ultimate set-up.

“But our employees have done a fantastic job of building this business. That has created this value for our shareholders. This company has been built on really good core values around being safe, being efficient and executing.”

The merger reflects on the Tulsa area’s success in cultivating energy sector companies, said Tulsa Regional Chamber CEO Mike Neal.

“For more than a century, Tulsa has offered a strong foundation for the growth of energy companies,” Neal said in a statement. “This sector continues to drive our region’s thriving economy, which we forecast will grow faster than both the Oklahoma and U.S. economies this year.

“SemGroup has capitalized on these strengths as a major player in the North American energy industry and is one of the Tulsa region’s outstanding corporate citizens. … We look forward to working with both SemGroup and Energy Transfer LP to support them during this transition.”

Details of the deal

Unanimously OK’d by the boards of both companies, the deal’s terms mandate that SemGroup shareholders will receive $6.80 per share in cash and 0.7275 of an ET common unit for each SemGroup share, or roughly 40% cash and 60% equity. The equity consideration received is expected to be treated as a tax-free transaction.

The transaction values SemGroup at $17 per share and represents a 65% premium to SemGroup’s closing share price of $10.28 on Sept. 13 and an 87% premium to SemGroup’s 20-day volume weighted average price as of the same date. Upon closing, SemGroup shareholders are expected to own about 2.2% of ET’s outstanding common units.

Energy Transfer LP owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all of the major domestic production basins.

“The combined entity’s size, scale and financial profile will ensure that SemGroup’s assets, including our Gulf Coast terminal, mid-continent footprint and our Canadian joint venture SemCAMS Midstream, benefit from significant growth well into the future,” Conner said in a statement. “We look forward to leveraging the increased pipeline connectivity and expanded terminalling infrastructure that the combined entity provides.”

The transaction is expected to close by late 2019 or early 2020, subject to regulatory approvals, SemGroup shareholder approval and other customary closing conditions.

SemGroup LP was formed in 2000 by Tom Kivisto, Gregory Wallace and Kevin Foxx. The privately held firm grew exponentially over its first seven years, but margin calls on oil futures trading sapped its cash flow and forced it into Chapter 11 bankruptcy by the summer of 2008.

SemGroup emerged out of Chapter 11 in late 2009 as a publicly traded firm with a new corporate structure. It now employs about 175 in Tulsa and a total of 875 in the United States and Canada.

Energy Transfer LP is a reincarnation of Energy Transfer Equity, which tried to take over Tulsa-based Williams Cos. before a merger was called off in 2016.

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Rhett Morgan