Morningstar | All for One and One for All: Energy Transfer Closes Its Merger as Expected
Energy Transfer will begin trading as one entity on Oct. 19 after 98.2% of Energy Transfer Partners' common unitholders approved the proposed $27 billion merger. We are reaffirming our $22 per unit value for Energy Transfer Equity, which will be the surviving entity. We think this is an attractive price for a partnership yielding 5.5% as of mid-October.The long-anticipated transaction relieves burdens on both entities, creating what we consider a win-win. ETP unitholders received a 28% premium and are freed from incentive distribution rights, or IDR, but will suffer an effective 31% cut in their distribution. We thought ETP's distribution could have been at risk for a cut anyway once ETE's IDR subsidies expired. ETE can now self-fund its growth investments without suffering any dilution from different market costs of capital.
We expect Energy Transfer to maintain ETE's $0.305 per unit quarterly distribution payment in the near term with the potential for modest growth to start in 2020. That growth will depend on how many growth projects Energy Transfer can find. We forecast the combined entity will invest about $2.5 billion annually in 2019-21, but it should have sufficient capital to invest more if the right projects come available.
We expect Energy Transfer to report strong results for at least the next few quarters with favorable natural gas volumes across the country.
Energy Transfer Partners, through its subsidiaries, conduct activities such as natural gas operations; and interstate natural gas transportation and storage; and crude oil, natural gas liquid and refined product. The company's segment includes: Intrastate Transportation and Storage, which owns and operates a natural gas open-access interstate pipeline network; Midstream, which consists of natural gas gathering, compression, treating, processing, storage, and transportation; NGL and Refined Products Transportation and Services, which transport, store and execute acquisition and marketing activities utilizing a network of pipelines, storage and blending facilities.
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