sv4za
As filed with the Securities and Exchange Commission on
October 14, 2010
Registration
No. 333-169437
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Enterprise Products Partners
L.P.
(Exact name of registrant as
specified in its charter)
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Delaware
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1321
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76-0568219
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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1100 Louisiana Street, 10th Floor
Houston, Texas 77002
(713) 381-6500
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Stephanie C. Hildebrandt, Esq.
1100 Louisiana Street, 10th Floor
Houston, Texas 77002
(713) 381-6500
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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David C. Buck, Esq.
Andrews Kurth LLP
600 Travis
Suite 4200
Houston, Texas 77002
(713) 220-4200
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Donald W. Brodsky, Esq.
Baker & Hostetler LLP
1000 Louisiana
Suite 2000
Houston, Texas 77002
(713) 751-1600
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Douglas E. McWilliams, Esq.
Vinson & Elkins L.L.P.
1001 Fannin
Suite 2500
Houston, Texas 77002
(713) 758-2222
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective and upon consummation
of the merger described in the enclosed proxy
statement/prospectus.
If the securities being registered on this Form are to be
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act
of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender
Offer) o
Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender
Offer) o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary proxy statement/prospectus is
not complete and may be changed. Enterprise Products Partners
L.P. may not distribute or issue the securities being registered
pursuant to this registration statement until the registration
statement, as filed with the Securities and Exchange Commission
(of which this preliminary proxy statement/prospectus is a
part), is effective. This preliminary proxy statement/prospectus
is not an offer to sell nor should it be considered a
solicitation of an offer to buy the securities described herein
in any state where the offer or sale is not permitted.
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PRELIMINARY SUBJECT
TO COMPLETION DATED OCTOBER 14, 2010
Dear Enterprise GP Holdings L.P.
Unitholders:
On September 3, 2010, Enterprise Products Partners L.P.
(the Partnership), Enterprise Products GP, LLC (the
Partnership GP), which is the general partner of the
Partnership, Enterprise ETE LLC (MergerCo), which is
a wholly owned subsidiary of the Partnership, Enterprise GP
Holdings L.P. (Holdings), and EPE Holdings, LLC
(Holdings GP), which is the general partner of
Holdings, entered into a merger agreement (the merger
agreement). Pursuant to the merger agreement, Holdings
will merge with and into MergerCo (the merger), a
wholly owned subsidiary of the Partnership, and will cease to
exist, the outstanding limited partner interests in Holdings
(Holdings units) will be cancelled in exchange for
common units representing limited partner interests in the
Partnership (Partnership common units) and Holdings
GP will become the general partner of the Partnership. The
Partnership GP is owned by Holdings, and Holdings GP is owned by
Dan Duncan LLC (DDLLC), an affiliate of Enterprise
Products Company (EPCO), a private company formerly
named EPCO, Inc. EPCO and DDLLC together beneficially own
approximately 76% of the outstanding Holdings units. EPCO and
DDLLC are each controlled by three voting trustees pursuant to
separate voting trusts. In connection with the merger and in
accordance with an amended and restated agreement of limited
partnership of the Partnership to be effective upon the
consummation of the merger (the Sixth Partnership
Agreement), the incentive distribution rights of the
Partnership (IDRs) currently held by the Partnership
GP will be cancelled and the 2.0% economic general partner
interest of the Partnership will be converted into a
non-economic general partner interest. The merger agreement is
attached as Annex A to this proxy statement/prospectus and
is incorporated into this proxy statement/prospectus by
reference. The form of the Sixth Partnership Agreement is
attached as Annex B to this proxy statement/prospectus and
is incorporated into this proxy statement/prospectus by
reference.
In the merger, Holdings unitholders will receive 1.50
Partnership common units for each Holdings unit owned.
Consequently, the Partnership expects to issue, in the
aggregate, 208,813,477 Partnership common units in the merger.
The 21,563,177 Partnership common units currently owned by
Holdings will be cancelled by the Partnership immediately after
the merger. A privately held affiliate of EPCO will agree to
designate and waive its rights to quarterly distributions with
respect to a specified number of Partnership common units over a
five-year period after the merger closing date as set forth in a
distribution waiver agreement, the form of which is attached as
Annex C to this proxy statement/prospectus and is
incorporated into this proxy statement/prospectus by reference.
The merger agreement and the merger must receive the affirmative
vote of the Holdings unitholders holding at least a majority of
the outstanding Holdings units. Affiliates of EPCO have agreed
to vote approximately 105.7 million Holdings units,
representing approximately 76% of the outstanding Holdings
units, in favor of the merger agreement and the merger, subject
to the terms and conditions of a support agreement, a copy of
which is attached to this proxy statement/prospectus as
Annex D and is incorporated into this proxy
statement/prospectus by reference. Holdings has scheduled a
special meeting of its unitholders to vote on the merger
agreement and the merger on November 22, 2010 at 8:00 a.m.,
local time, at 1100 Louisiana Street, 10th Floor, Houston, Texas
77002. Voting instructions are set forth inside this proxy
statement/prospectus.
The members of the Audit, Conflicts and Governance Committee
of the board of directors of Holdings GP (the Holdings
Board) who participated in the merger evaluation and
negotiation process (the Holdings ACG Committee)
have unanimously determined that the merger agreement and the
merger are fair and reasonable, advisable to and in the best
interests of Holdings and the Holdings unaffiliated unitholders.
Holdings unaffiliated unitholders means Holdings
unitholders other than those, including EPCO and its affiliates,
controlling, controlled by or under common control with Holdings
GP. Accordingly, the Holdings ACG Committee has recommended that
the Holdings Board approve the merger agreement and the merger.
Based on the Holdings ACG Committees determination and
recommendation, the Holdings Board has unanimously approved and
declared the advisability of the merger agreement and the merger
and, together with the Holdings ACG Committee, recommends that
the Holdings unaffiliated unitholders vote in favor of the
merger proposal.
This proxy statement/prospectus provides you with detailed
information about the proposed merger and related matters.
Holdings encourages you to read the entire document carefully.
In particular, please read Risk Factors beginning
on page 26 of this proxy statement/prospectus for a
discussion of risks relevant to the merger and the
Partnerships business following the merger.
The Partnerships common units are listed on the New York
Stock Exchange (NYSE) under the symbol
EPD, and Holdings units are listed on the NYSE
under the symbol EPE. The last reported sale price
of the Partnerships common units on the NYSE on
October 13, 2010 was $41.55. The last reported sale price
of the Holdings units on the NYSE on October 13, 2010 was
$61.65.
Dr. Ralph S. Cunningham
President and Chief Executive
Officer
EPE Holdings, LLC
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued under this proxy statement/prospectus or
has determined if this document is truthful or complete. Any
representation to the contrary is a criminal offense.
All information in this document concerning the Partnership has
been furnished by the Partnership. All information in this
document concerning Holdings has been furnished by Holdings. The
Partnership has represented to Holdings, and Holdings has
represented to the Partnership, that the information furnished
by and concerning it is true and correct in all material
respects.
This proxy statement/prospectus is dated
October , 2010 and is being first mailed to
Holdings unitholders on or about October 22, 2010.
Houston,
Texas
October , 2010
Notice of
Special Meeting of Unitholders
To the Unitholders of Enterprise GP Holdings L.P.:
A special meeting of unitholders of Enterprise GP Holdings L.P.
(Holdings) will be held on November 22, 2010 at
8:00 a.m., local time, at 1100 Louisiana Street, 10th Floor,
Houston, Texas 77002, for the following purposes:
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To consider and vote upon the approval of the Agreement and Plan
of Merger dated as of September 3, 2010, by and among
Enterprise Products Partners L.P., Enterprise Products GP, LLC,
Enterprise ETE LLC, Holdings and EPE Holdings, LLC
(Holdings GP), as it may be amended from time to
time (the merger agreement) and the merger
contemplated by the merger agreement (the
merger); and
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To transact other business as may properly be presented at the
meeting or any adjournments or postponements of the meeting.
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Pursuant to the Holdings partnership agreement, approval of the
merger agreement and the merger requires the affirmative vote of
the Holdings unitholders owning at least a majority of
Holdings outstanding units. Affiliates (the Holdings
supporting unitholders) of Enterprise Products Company
(EPCO), which collectively beneficially own
approximately 76% of the outstanding Holdings units, have agreed
to vote all of their Holdings units in favor of the merger
agreement and the merger, subject to the terms and conditions of
a support agreement described in the attached proxy
statement/prospectus. The Holdings supporting unitholders have a
sufficient number of Holdings units to approve the merger
agreement and the merger without the affirmative vote of any
other Holdings unitholder. As a result of the support agreement,
the approval of the merger proposal at the special meeting is
assured unless the conditions of the support agreement are not
met and the support agreement is terminated. Failures to vote,
abstentions and broker non-votes will have the same effect as a
vote against the merger proposal for purposes of the majority
vote required under the Holdings partnership agreement.
The members of the Audit, Conflicts and Governance Committee
of the board of directors of Holdings GP (the Holdings
Board) who participated in the merger evaluation and
negotiation process (the Holdings ACG Committee)
have unanimously determined that the merger agreement and the
merger are fair and reasonable, advisable to and in the best
interests of Holdings and the Holdings unaffiliated unitholders.
Holdings unaffiliated unitholders means Holdings
unitholders other than those, including EPCO and its affiliates,
controlling, controlled by or under common control with Holdings
GP. Accordingly, the Holdings ACG Committee has recommended that
the Holdings Board approve the merger agreement and the merger.
Based on the Holdings ACG Committees determination and
recommendation, the Holdings Board has unanimously approved and
declared the advisability of the merger agreement and the merger
and, together with the Holdings ACG Committee, recommends that
the Holdings unaffiliated unitholders vote in favor of the
merger proposal.
Only unitholders of record at the opening of business on
October 13, 2010 are entitled to notice of and to vote at
the meeting and any adjournments or postponements of the
meeting. A list of unitholders entitled to vote at the meeting
will be available for inspection at Holdings offices in
Houston, Texas for any purpose relevant to the meeting during
normal business hours for a period of 10 days before the
meeting and at the meeting.
We urge you to carefully consider the information contained in
the attached proxy statement/prospectus. You may vote by
signing, dating and returning the enclosed proxy card.
By order of the Board of Directors of EPE Holdings, LLC, as the
general partner of Enterprise GP Holdings L.P.
Stephanie C. Hildebrandt
Senior Vice President, General Counsel and Secretary
EPE Holdings, LLC
PROXY
STATEMENT/PROSPECTUS
TABLE OF
CONTENTS
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iv
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v
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vi
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1
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1
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2
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3
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3
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5
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5
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6
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6
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6
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8
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8
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9
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11
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12
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13
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15
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17
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20
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24
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25
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26
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26
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28
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30
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32
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34
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34
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36
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36
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45
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48
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48
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51
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61
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61
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61
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61
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61
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62
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64
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64
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64
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65
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66
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69
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71
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83
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91
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101
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101
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105
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110
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116
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ii
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120
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120
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121
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124
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133
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136
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137
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138
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139
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150
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152
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154
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154
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155
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155
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156
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156
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F-1
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ANNEX A Agreement and Plan
of Merger dated as of September 3, 2010
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ANNEX B Form of Sixth
Amended and Restated Agreement of Limited Partnership of
Enterprise Products Partners L.P.
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ANNEX C Form of Distribution
Waiver Agreement
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ANNEX D Support Agreement
dated as of September 3, 2010
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ANNEX E Opinion of Holdings
ACG Committees Financial Advisor
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EX-5.1 |
EX-8.1 |
EX-8.2 |
EX-23.1 |
EX-23.2 |
EX-23.3 |
EX-99.1 |
EX-99.2 |
iii
IMPORTANT
NOTE ABOUT THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus, which forms part of a
registration statement on
Form S-4
filed with the Securities and Exchange Commission, which is
referred to as the SEC or the
Commission, constitutes a proxy statement of
Holdings under Section 14(a) of the Securities Exchange Act
of 1934, as amended, which is referred to as the Exchange
Act, with respect to the solicitation of proxies for the
special meeting of Holdings unitholders to, among other things,
approve the merger agreement and the merger. This proxy
statement/prospectus is also a prospectus of the Partnership
under Section 5 of the Securities Act of 1933, as amended,
which is referred to as the Securities Act, for
Partnership common units that will be issued to Holdings
unitholders in the merger pursuant to the merger agreement.
As permitted under the rules of the SEC, this proxy
statement/prospectus incorporates by reference important
business and financial information about the Partnership and
Holdings from other documents filed with the SEC that are not
included in or delivered with this proxy statement/prospectus.
Please read Where You Can Find More Information
beginning on page 155. You can obtain any of the documents
incorporated by reference into this document from the
Partnership or Holdings, as the case may be, or from the
SECs website at
http://www.sec.gov.
This information is also available to you without charge
upon your request in writing or by telephone from the
Partnership or Holdings at the following addresses and telephone
numbers:
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Enterprise Products Partners L.P.
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Enterprise GP Holdings L.P.
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1100 Louisiana Street, 10th Floor
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1100 Louisiana Street, 10th Floor
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Attention: Investor Relations
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Attention: Investor Relations
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Houston, Texas 77002
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Houston, Texas 77002
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Telephone:
(713) 381-6500
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Telephone: (713) 381-6500
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Please note that copies of the documents provided to you will
not include exhibits, unless the exhibits are specifically
incorporated by reference into the documents or this proxy
statement/prospectus.
You may obtain certain of these documents at the
Partnerships website, www.epplp.com, by selecting
Investor Relations and then selecting SEC
Filings, and at Holdings website,
www.enterprisegp.com, by selecting Investor
Resources and then selecting SEC Filings.
Information contained on Holdings and the
Partnerships websites is expressly not incorporated by
reference into this proxy statement/prospectus.
In order to receive timely delivery of the documents in
advance of the Holdings special meeting of unitholders, your
request should be received no later than November 12, 2010.
If you request any documents, the Partnership or Holdings will
mail them to you by first class mail, or another equally prompt
means, within one business day after receipt of your request.
The Partnership and Holdings have not authorized anyone to give
any information or make any representation about the merger, the
Partnership
and/or
Holdings that is different from, or in addition to, that
contained in this proxy statement/prospectus or in any of the
materials that have been incorporated by reference into this
proxy statement/prospectus. Therefore, if anyone distributes
this type of information, you should not rely on it. If you are
in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this proxy statement/prospectus or the solicitation
of proxies is unlawful, or you are a person to whom it is
unlawful to direct these types of activities, then the offer
presented in this proxy statement/prospectus does not extend to
you. The information contained in this proxy
statement/prospectus speaks only as of the date of this proxy
statement/prospectus, or in the case of information in a
document incorporated by reference, as of the date of such
document, unless the information specifically indicates that
another date applies. All information in this document
concerning the Partnership has been furnished by the
Partnership. All information in this document concerning
Holdings has been furnished by Holdings. The Partnership has
represented to Holdings, and Holdings has represented to the
Partnership, that the information furnished by and concerning it
is true and correct in all material respects.
iv
DEFINITIONS
The following terms have the meanings set forth below for
purposes of this proxy statement/prospectus, unless the context
otherwise indicates:
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DDLLC means Dan Duncan LLC, a private affiliate of
EPCO. The membership interests of DDLLC are owned of record by a
voting trust formed on April 26, 2006, pursuant to the Dan
Duncan LLC Voting Trust Agreement dated April 26, 2006
(the DDLLC Voting Trust Agreement), among DDLLC
and Dan L. Duncan (as the record owner of all of the membership
interests of DDLLC immediately prior to the entering into of the
DDLLC Voting Trust Agreement and as the initial sole voting
trustee);
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DDLLC voting trustees means the three voting
trustees under the DDLLC Voting Trust Agreement. The DDLLC
voting trustees collectively are the record owners of all of the
DDLLC membership interests. The current DDLLC voting trustees
are Randa Duncan Williams, Ralph S. Cunningham and Richard H.
Bachmann;
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EPCO means Enterprise Products Company, a private
company formerly named EPCO, Inc. A majority of the outstanding
voting capital stock of EPCO is owned of record by a voting
trust formed on April 26, 2006, pursuant to the EPCO Inc.
Voting Trust Agreement (the EPCO Voting Trust
Agreement), among EPCO and Dan L. Duncan (as the
record owner of a majority of the outstanding voting capital
stock of EPCO immediately prior to the entering into of the EPCO
Voting Trust Agreement and as the initial sole voting
trustee);
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EPCO voting trustees means the three voting trustees
under the EPCO Voting Trust Agreement. The EPCO voting trustees
collectively are the record owners of a majority of the
outstanding voting capital stock of EPCO. The current EPCO
voting trustees are Randa Duncan Williams, Ralph S. Cunningham
and Richard H. Bachmann;
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Holdings means Enterprise GP Holdings L.P.;
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Holdings GP means EPE Holdings, LLC, the general
partner of Holdings;
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Holdings supporting unitholders means certain
affiliates of EPCO that have entered into a support agreement to
vote their Holdings units in favor of the merger and related
transactions;
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Holdings unaffiliated unitholders means the Holdings
unitholders other than those controlling, controlled by or under
common control with Holdings GP, including EPCO and its
affiliates;
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Partnership means Enterprise Products
Partners L.P.;
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Partnership GP means Enterprise Products GP, LLC,
the general partner of the Partnership;
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Partnerships partnership agreement means
either the Partnerships existing partnership agreement or
the Sixth Partnership Agreement, or both, as the context
requires;
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Sixth Partnership Agreement means the Sixth Amended
and Restated Agreement of Limited Partnership of the Partnership
to be entered into in connection with and at the time of the
merger; and
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Special Approval under the Holdings partnership
agreement means the approval of a majority of the members of the
Holdings ACG Committee.
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v
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Important Information and Risks. The
following are brief answers to some questions that you may have
regarding the proposed merger and the proposals being considered
at the special meeting of Holdings unitholders. You should read
and consider carefully the remainder of this proxy
statement/prospectus, including the Risk Factors beginning on
page 26 and the attached Annexes, because the information
in this section does not provide all of the information that
might be important to you. Additional important information and
descriptions of risk factors are also contained in the documents
incorporated by reference in this proxy statement/prospectus.
Please read Where You Can Find More Information
beginning on page 155.
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Q: |
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Why am I receiving these materials? |
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A: |
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The Partnership and Holdings have agreed to combine by merging
Holdings with a wholly owned subsidiary of the Partnership. The
merger cannot be completed without the approval of the holders
of a majority of the outstanding units of Holdings. The Holdings
supporting unitholders, which collectively directly own
approximately 76% of the outstanding Holdings units, have agreed
to vote all of their Holdings units in favor of the merger
agreement and the merger, subject to the terms and conditions of
the support agreement described in this proxy
statement/prospectus. Accordingly, the approval of the merger
agreement and the merger is assured without the vote of any
other Holdings unitholder unless the conditions of the support
agreement are not met and the support agreement is terminated.
For additional information regarding the support agreement,
please read The Merger Transactions Related to
the Merger Support Agreement. |
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Q: |
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Who is soliciting my proxy? |
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Holdings GP is sending you this proxy statement/prospectus in
connection with its solicitation of proxies for use at
Holdings special meeting of unitholders. Certain directors
and officers of Holdings GP and certain employees of EPCO and
its affiliates who provide services to Holdings, and BNY Mellon
Shareowner Services (a proxy solicitor), may also solicit
proxies on Holdings behalf by mail, telephone, fax or
other electronic means, or in person. |
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Q: |
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What are the proposed transactions? |
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A: |
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The Partnership and Holdings have agreed to combine by merging
Holdings with and into MergerCo, a Delaware limited liability
company and wholly owned subsidiary of the Partnership, under
the terms of a merger agreement that is described in this proxy
statement/prospectus and attached as Annex A to this proxy
statement/prospectus. Pursuant to the merger agreement,
(i) immediately prior to the effective time of the merger,
Holdings existing partnership agreement will be amended to
provide for the transformation of the approximate 0.01% economic
interest of the general partner in Holdings owned by Holdings GP
into 13,921 Holdings units representing an approximate 0.01%
limited partner interest in Holdings and a non-economic general
partner interest in Holdings; (ii) immediately following
this transformation, the Partnership GP (currently a wholly
owned subsidiary of Holdings) will merge with and into Holdings,
with Holdings surviving such merger (the GP merger),
thus succeeding the Partnership GP as an interim general partner
of the Partnership; and (iii) immediately following the
effective time of the GP merger, at the effective time of the
merger, Holdings will merge into MergerCo, with MergerCo
surviving as a wholly owned subsidiary of the Partnership. As a
result of the merger, Holdings GP will succeed Holdings as the
non-economic general partner of the Partnership and each
outstanding Holdings unit (other than Holdings units held by
Holdings, the Partnership or their respective subsidiaries) will
be converted into the right to receive 1.50 Partnership common
units. The 21,563,177 Partnership common units currently owned
by Holdings will be cancelled by the Partnership immediately
after the merger. |
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In addition, pursuant to the merger agreement and the Sixth
Partnership Agreement, the form of which is attached as
Annex B to this proxy statement/prospectus, to be executed
at the closing of the merger, the current 2% economic general
partner interest in the Partnership and the IDRs in the
Partnership held by Holdings GP will be cancelled, and the
non-economic general partner interest in Holdings held by
Holdings GP will be cancelled and converted into the right to
receive the non-economic general partner interest in the
Partnership. |
vi
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The merger will become effective on the date and at the time
that the certificate of merger is filed with the Secretary of
State of the State of Delaware, or a later date and time if set
forth in the certificate of merger. Throughout this proxy
statement/prospectus, this is referred to as the effective
time of the merger. |
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In connection with the merger, a privately held affiliate of
EPCO will also agree to designate and waive its rights to
quarterly distributions with respect to a specified number of
Partnership common units over a five-year period after the
merger closing date as set forth in a distribution waiver
agreement, a copy of which is attached as Annex C to this
proxy statement/prospectus and is incorporated into this proxy
statement/prospectus by reference. For additional information on
the distribution waiver agreement, please read The
Merger Transactions Related to the
Merger Distribution Waiver Agreement. |
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Why are the Partnership and Holdings proposing the merger? |
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The Partnership and Holdings believe that the merger will
benefit both the Partnership common unitholders and the Holdings
unitholders by combining into a single partnership that is
better positioned to compete in the marketplace. |
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Please read The Merger Recommendation of the
Holdings ACG Committee and the Holdings Board and Reasons for
the Merger and The Merger The
Partnerships Reasons for the Merger. |
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What will happen to Holdings as a result of the merger? |
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As a result of the merger, Holdings will merge with and into a
wholly owned subsidiary of the Partnership, and Holdings will
cease to exist. |
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Q: |
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What will Holdings unitholders receive in the merger? |
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If the merger is completed, Holdings unitholders will be
entitled to receive 1.50 Partnership common units in exchange
for each Holdings unit that the unitholders own. This exchange
ratio is fixed and will not be adjusted, regardless of any
change in price of either the Partnership common units or the
Holdings units prior to completion of the merger. If the
exchange ratio would result in a Holdings unitholder being
entitled to receive a fraction of a Partnership common unit,
that unitholder will receive cash from the Partnership in lieu
of such fractional interest in an amount equal to such
fractional interest multiplied by the average of the closing
price of Partnership common units for the ten consecutive full
NYSE trading days ending on the full NYSE trading day
immediately preceding the day the merger closes. For additional
information regarding exchange procedures, please read The
Merger Agreement Exchange of Certificates;
Fractional Units. |
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Where will my units trade after the merger? |
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A: |
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Partnership common units will continue to trade on the NYSE
under the symbol EPD. Holdings units will no longer
be publicly traded. |
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Q: |
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What will Partnership common unitholders receive in the
merger? |
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A: |
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Partnership common unitholders will simply retain Partnership
common units they currently own. They will not receive any
additional Partnership common units in the merger. |
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Q: |
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What happens to my future distributions? |
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Once the merger is completed and Holdings units are exchanged
for Partnership common units, when distributions are approved
and declared by the general partner of the Partnership and paid
by the Partnership, former Holdings unitholders will receive
distributions on the Partnership common units they receive in
the merger in accordance with the Partnerships partnership
agreement. Based on an expectation that the merger will close
during the fourth quarter of 2010, Holdings unitholders will
receive distributions on their Holdings units for the quarter
ended September 30, 2010, and will receive distributions on
the Partnership common units they receive in the merger for the
quarter ended December 31, 2010 to be declared and paid
during 2011. Holdings unitholders will not receive distributions
from both Holdings and the Partnership for the same quarter. For
additional information, please read Market Prices and
Distribution Information. |
vii
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Current Partnership common unitholders will continue to receive
distributions on their common units in accordance with the
Partnerships partnership agreement. Distributions are made
in accordance with the Partnerships partnership agreement
and at the discretion of the Partnership Board. For a
description of the distribution provisions of the
Partnerships partnership agreement, please read
Comparison of the Rights of Partnership and Holdings
Unitholders. |
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The current annualized distribution rate per Holdings unit is
$2.30 (based on the quarterly distribution rate of $0.5750 per
Holdings unit declared with respect to the third quarter of
2010). Based on the exchange ratio, the annualized distribution
rate for each Holdings unit exchanged for 1.50 Partnership
common units would be approximately $3.50 (based on the
quarterly distribution rate of $0.5825 per Partnership common
unit declared with respect to the third quarter of 2010).
Accordingly, based on current distribution rates and the 1.50
exchange ratio, a Holdings unitholder would initially receive
approximately 52% more in quarterly cash distributions on an
annualized basis after giving effect to the merger. For
additional information, please read Comparative Per Unit
Information and Market Prices and Distribution
Information. |
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Management of the Partnership GP currently intends to recommend
that the Partnership Board increase the Partnerships
quarterly cash distribution to $0.590 per Partnership common
unit, or $2.36 per unit on an annualized basis, with respect to
the fourth quarter 2010 distribution that would be paid in
February 2011. |
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Q: |
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If I am a holder of Holdings units represented by a unit
certificate, should I send in my certificates representing
Holdings units now? |
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No. After the merger is completed, Holdings unitholders who
hold their units in certificated form will receive written
instructions for exchanging their certificates representing
Holdings units. Please do not send in your certificates
representing Holdings units with your proxy card. If you own
Holdings units in street name, the merger
consideration should be credited by your broker to your account
within a few days following the closing date of the merger. |
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What constitutes a quorum? |
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A majority of Holdings outstanding units on the record
date present in person or by proxy at the special meeting will
constitute a quorum and will permit Holdings to conduct the
proposed business at the special meeting. Your units will be
counted as present at the special meeting if you: |
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are present and vote in person at the
meeting; or
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have submitted a properly executed proxy card.
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Proxies received but marked as abstentions will be counted as
units that are present and entitled to vote for purposes of
determining the presence of a quorum. If an executed proxy is
returned by a broker or other nominee holding units in
street name indicating that the broker does not have
discretionary authority as to certain units to vote on the
proposals (a broker non-vote), such units will be
considered present at the meeting for purposes of determining
the presence of a quorum but cannot be included in the vote;
therefore, broker non-votes have the same effect as a vote
against the merger. |
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Pursuant to a support agreement, the Holdings supporting
unitholders, which collectively own approximately 76% of
Holdings outstanding units, have agreed to ensure that
their units are counted as present at the special meeting for
purposes of determining a quorum. For additional information,
please read The Merger Transactions Related to
the Merger Support Agreement. |
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What is the vote required of Holdings unitholders to approve
the merger agreement and the merger? |
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Under Holdings partnership agreement, the affirmative vote
of the holders of at least a majority of Holdings
outstanding units is required to approve the merger proposal.
Failures to vote, abstentions and broker non-votes will have the
same effect as a vote against the merger proposal for purposes
of the majority vote required under the Holdings partnership
agreement. |
viii
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The Holdings supporting unitholders have agreed with the
Partnership pursuant to a support agreement to vote an aggregate
of 105,739,220 Holdings units, representing approximately 76% of
Holdings outstanding units, in favor of the merger
proposal, which is sufficient to approve the merger proposal
without the affirmative vote of any other Holdings unitholder. |
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When do you expect the merger to be completed? |
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A number of conditions must be satisfied before the Partnership
and Holdings can complete the merger, including approval of the
merger agreement and the merger by the unitholders of Holdings.
Although the Partnership and Holdings cannot be sure when all of
the conditions to the merger will be satisfied, the Partnership
and Holdings expect to complete the merger as soon as
practicable following the Holdings unitholder meeting (assuming
the merger proposal is approved by the unitholders). For
additional information, please read The Merger
Agreement Conditions to the Merger. |
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Q: |
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What is the recommendation of the Holdings ACG Committee and
the Holdings Board? |
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A: |
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The Holdings ACG Committee and the Holdings Board recommend that
you vote FOR the merger proposal. |
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On September 3, 2010, the Holdings ACG Committee
unanimously determined that the merger agreement and the merger
are fair and reasonable, advisable to and in the best interests
of Holdings and the Holdings unaffiliated unitholders and
recommended that the merger agreement and the merger be approved
by the Holdings Board and the Holdings unaffiliated unitholders. |
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Based on the Holdings ACG Committees determination and
recommendation, the Holdings Board unanimously approved the
merger agreement and the merger and recommended that the
Holdings unaffiliated unitholders vote in favor of the merger
proposal. |
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Q: |
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What are the expected U.S. federal income tax consequences to
a Holdings unitholder as a result of the transactions
contemplated by the merger agreement? |
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Under current law, it is anticipated that for U.S. federal
income tax purposes no income or gain should be recognized by a
Holdings unitholder solely as a result of the merger, other than
an amount of income or gain, which Holdings expects to be
relatively small on a per unit basis, due to (i) any
decrease in a Holdings unitholders share of partnership
liabilities pursuant to Section 752 of the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code)
or (ii) any cash received in lieu of any fractional
Partnership common unit in the merger. |
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Please read Risk Factors Tax Risks Related to
the Merger and Material U.S. Federal Income Tax
Consequences of the Merger Tax Consequences of the
Merger to Holdings and Its Unitholders. |
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Under what circumstances could the merger result in a
Holdings unitholder recognizing taxable income or gain? |
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As a result of the merger, Holdings unitholders who receive
Partnership common units will become limited partners of the
Partnership and will be allocated a share of the
Partnerships nonrecourse liabilities. Each Holdings
unitholder will be treated as receiving a deemed cash
distribution equal to the excess, if any, of such
unitholders share of nonrecourse liabilities of Holdings
immediately before the merger over such unitholders share
of nonrecourse liabilities of the Partnership immediately
following the merger. If the amount of the deemed cash
distribution received by a Holdings unitholder exceeds the
unitholders basis in his Holdings units, such unitholder
will recognize gain in an amount equal to such excess. The
Partnership and Holdings do not expect any Holdings unitholders
to recognize gain in this manner. For additional information,
please read Material U.S. Federal Income Tax Consequences
of the Merger. |
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To the extent a holder of Holdings units receives cash in lieu
of fractional Partnership common units in the merger, such
unitholder will recognize gain or loss equal to the difference
between the cash received and the unitholders adjusted tax
basis allocated to such fractional Partnership common units. |
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The Partnership will be deemed for U.S. federal income tax
purposes to have assumed the liabilities of Holdings and its
subsidiaries in the merger. A Holdings unitholder would
recognize gain or loss to the extent any portion of the
liabilities of Holdings or its subsidiaries assumed by the
Partnership was deemed |
ix
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to be the proceeds of a disguised sale of assets to
the Partnership. The Partnership and Holdings believe that all
of the liabilities of Holdings will qualify for one or more
exceptions to the disguised sale rules and that no
gain or loss will be recognized by Holdings or its unitholders
under the disguised sale rules. |
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Although it is not anticipated, circumstances may exist under
which a Holdings unitholders share of Holdings basis
(including basis resulting from Section 743 adjustments) in
the distributed Partnership common units exceeds the
unitholders basis in its Holdings units, in which case the
merger may result in recognition of gain by such unitholder
equal to that excess under
Section 731(c)
of the Internal Revenue Code. |
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Q: |
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What are the expected U.S. federal income tax consequences
for a Holdings unitholder of the ownership of Partnership common
units after the merger is completed? |
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Each Holdings unitholder who becomes a Partnership unitholder as
a result of the merger will, as is the case for existing
Partnership unitholders, be required to report on its U.S.
federal income tax return such unitholders distributive
share of the Partnerships income, gains, losses,
deductions and credits. In addition to U.S. federal income
taxes, such a holder will be subject to other taxes, including
state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangibles taxes that may be imposed by
the various jurisdictions in which the Partnership conducts
business or owns property or in which the unitholder is
resident. Please read U.S. Federal Income Taxation of
Ownership of Partnership Common Units. |
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Are Holdings unitholders entitled to appraisal rights? |
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No. Holdings unitholders do not have appraisal rights under
applicable law or contractual appraisal rights under the
Holdings partnership agreement or the merger agreement. |
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Q: |
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How do I vote my units if I hold my units in my own name? |
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After you have read this proxy statement/prospectus carefully,
please respond by completing, signing and dating your proxy card
and returning it in the enclosed postage-paid envelope as soon
as possible in accordance with the instructions provided under
The Special Unitholder Meeting Voting
Procedures Voting by Holdings Unitholders
beginning on page 34. |
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Q: |
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If my Holdings units are held in street name by
my broker or other nominee, will my broker or other nominee vote
my units for me? |
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No. Your broker cannot vote your Holdings units held in
street name for or against the merger proposal
unless you tell the broker or other nominee how you wish to
vote. To tell your broker or other nominee how to vote, you
should follow the directions that your broker or other nominee
provides to you. Please note that you may not vote your Holdings
units held in street name by returning a proxy card
directly to Holdings or by voting in person at the special
meeting of Holdings unitholders unless you provide a legal
proxy, which you must obtain from your broker or other
nominee. If you do not instruct your broker or other nominee on
how to vote your Holdings units, your broker or other nominee
may not vote your Holdings units, which will have the same
effect as a vote against the merger for purposes of the vote
required under the Holdings partnership agreement. You should
therefore provide your broker or other nominee with instructions
as to how to vote your Holdings units. |
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What if I do not vote? |
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If you do not return your proxy card or if you abstain from
voting, or a broker non-vote is made, it will have the same
effect as a vote against the merger proposal for purposes of the
vote required under the Holdings partnership agreement. If you
sign and return your proxy card but do not indicate how you want
to vote, your proxy will be counted as a vote in favor of the
merger proposal. |
x
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Who can attend and vote at the special meeting of Holdings
unitholders? |
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All Holdings unitholders of record as of the opening of business
on October 13, 2010, the record date for the special
meeting of Holdings unitholders, are entitled to receive notice
of and vote at the special meeting of Holdings unitholders. |
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When and where is the special meeting? |
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The special meeting will be held on November 22, 2010, at
8:00 a.m., local time, at 1100 Louisiana Street, 10th Floor,
Houston, Texas 77002. |
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Q: |
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If I am planning on attending the special meeting in person,
should I still vote by proxy? |
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Yes. Whether or not you plan to attend the special meeting, you
should vote by proxy. Your units will not be voted if you do not
return your proxy card or if you do not vote in person at the
scheduled special meeting of the unitholders of Holdings to be
held on November 22, 2010. This would have the same effect
as a vote against the merger proposal for purposes of the vote
required under the Holdings partnership agreement. |
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Q: |
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Can I change my vote after I have voted by proxy? |
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Yes. If you own your units in your own name, you may revoke your
proxy at any time prior to its exercise by: |
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giving written notice of revocation to the Secretary of Holdings
GP at or before the special meeting;
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appearing and voting in person at the special meeting; or
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properly completing and executing a later dated proxy and
delivering it to the Secretary of Holdings GP at or before the
special meeting.
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Your presence without voting at the meeting will not
automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken.
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Q: |
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What should I do if I receive more than one set of voting
materials for the special meeting of Holdings unitholders? |
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You may receive more than one set of voting materials for the
special meeting of Holdings unitholders and the materials may
include multiple proxy cards or voting instruction cards. For
example, you will receive a separate voting instruction card for
each brokerage account in which you hold units. If you are a
holder of record registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date
and return each proxy card and voting instruction card that you
receive according to the instructions on it. |
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Whom do I call if I have further questions about voting, the
meeting or the merger? |
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Holdings unitholders may call Holdings Investor Relations
department at (866)
230-0745 for
additional copies, without charge, of this proxy
statement/prospectus or for questions about the merger,
including the procedures for voting Holdings units. BNY Mellon
Shareowner Services (a proxy solicitor) may also solicit proxies
on Holdings behalf by mail, telephone, fax or other
electronic means, or in person. |
xi
SUMMARY
This summary highlights some of the information in this proxy
statement/prospectus. It may not contain all of the information
that is important to you. To understand the merger fully and for
a more complete description of the terms of the merger, you
should read carefully this document, the documents incorporated
by reference, and the Annexes to this document, including the
full text of the merger agreement and the form of the Sixth
Partnership Agreement included as Annex A and Annex B,
respectively. Please also read Where You Can Find More
Information.
The
Merger Parties Businesses (page 98)
Enterprise
Products Partners L.P.
The Partnership is a publicly traded Delaware limited
partnership, the common units of which are listed on the NYSE
under the ticker symbol EPD. The Partnership was
formed in April 1998 to own and operate certain natural gas
liquids (NGLs) related businesses of EPCO. The
Partnership is a leading North American provider of midstream
energy services to producers and consumers of natural gas, NGLs,
crude oil, refined products and certain petrochemicals. The
Partnerships energy asset network links producers of
natural gas, NGLs and crude oil from some of the largest supply
basins in the United States, Canada and the Gulf of Mexico with
domestic consumers and international markets. The
Partnerships assets include: 49,100 miles of onshore
and offshore pipelines; approximately 200 million barrels
of storage capacity for NGLs, refined products and crude oil;
and 27 billion cubic feet of natural gas storage capacity.
The Partnerships midstream energy operations include:
natural gas transportation, gathering, processing and storage;
NGL transportation, fractionation, storage, and import and
export terminaling; crude oil and refined products
transportation, storage and terminaling; offshore production
platforms; petrochemical transportation and storage; and a
marine transportation business that operates primarily on the
United States Inland and Intracoastal Waterway systems and in
the Gulf of Mexico.
The Partnerships principal executive offices are located
at 1100 Louisiana Street, 10th Floor, Houston, Texas 77002,
and its telephone number is
(713) 381-6500.
Enterprise
GP Holdings L.P.
Holdings is a publicly traded Delaware limited partnership, the
limited partnership interests of which are listed on the NYSE
under the ticker symbol EPE. The business of
Holdings consists of the ownership of general and limited
partner interests of publicly traded partnerships engaged in the
midstream energy industry and related businesses.
Holdings owns the following direct and indirect interests in the
Partnership:
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the indirect ownership of all of the outstanding IDRs in the
Partnership, through its ownership of all of the outstanding
limited liability company interests in Partnership GP;
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the indirect ownership of the general partner interest in the
Partnership (representing a 2.0% economic interest in the
Partnership), through its ownership of all of the outstanding
limited liability company interests in Partnership GP; and
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21,563,177 Partnership common units, representing an approximate
3.4% limited partner interest in the Partnership.
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Holdings also owns (i) 38,976,090 common units of Energy
Transfer Equity, L.P. (Energy Transfer Equity)
representing approximately 17.5% of Energy Transfer
Equitys outstanding common units and (ii) a
non-controlling member interest in its general partner, LE GP,
LLC (LE GP).
Holdings is owned 99.99% by its limited partners and 0.01% by
Holdings GP. Holdings GP is a wholly owned subsidiary of DDLLC,
a privately held affiliate of EPCO, the membership interests of
which are currently owned of record collectively by three
trustees (the DDLLC voting trustees) under the Dan
Duncan
1
LLC Voting Trust Agreement (the DDLLC Voting
Trust Agreement). Holdings has no operations apart
from its investing activities and indirectly overseeing the
management of the entities it controls.
The following table summarizes the cash distributions Holdings
received for the years ended December 31, 2007, 2008 and
2009 and the six months ended June 30, 2010 (dollars in
millions):
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For the Six
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Months
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|
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Ended
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For the Year Ended December 31,
|
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June 30,
|
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|
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2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Cash distributions to Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in the Partnership and Partnership GP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From IDRs
|
|
$
|
104.7
|
|
|
$
|
123.9
|
|
|
$
|
161.3
|
|
|
$
|
110.8
|
|
From Partnership common units
|
|
|
25.8
|
|
|
|
27.5
|
|
|
|
33.5
|
|
|
|
24.1
|
|
From 2% economic general partner interest in the Partnership
|
|
|
16.9
|
|
|
|
18.2
|
|
|
|
21.8
|
|
|
|
14.4
|
|
Investment in Energy Transfer Equity and LE GP(1)
|
|
|
29.9
|
|
|
|
76.5
|
|
|
|
82.7
|
|
|
|
42.5
|
|
Investment in TEPPCO and TEPPCO GP(2)
|
|
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60.3
|
|
|
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67.4
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|
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56.1
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|
|
|
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|
|
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|
|
|
|
|
|
|
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|
|
|
|
Total cash distributions received by Holdings
|
|
$
|
237.6
|
|
|
$
|
313.5
|
|
|
$
|
355.4
|
|
|
$
|
191.8
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
|
Includes 38,976,090 common units of Energy Transfer Equity and a
member interest in LE GP. |
|
(2) |
|
Included 4,400,000 common units of TEPPCO Partners L.P.
(TEPPCO) and the 2% general partner interest and
IDRs in TEPPCO. On October 26, 2009, the TEPPCO merger was
completed and TEPPCO and Texas Eastern Products Pipeline
Company, LLC (TEPPCO GP) became wholly owned
subsidiaries of the Partnership. As a result, Holdings
ownership interest in the TEPPCO units was converted into
5,456,000 Partnership common units. In addition, Holdings
membership interests in TEPPCO GP were exchanged for
(i) 1,331,681 Partnership common units and (ii) an
increase in the capital account of Partnership GP in the
Partnership to maintain its 2% economic general partner interest
in the Partnership. The issuance of Partnership common units in
the TEPPCO merger also resulted in Holdings benefiting from
increased distributions with respect to the IDRs in the
Partnership. |
Holdings principal executive offices are located at 1100
Louisiana Street, 10th Floor, Houston, Texas 77002, and its
phone number is
(713) 381-6500.
Relationship
of the Partnership and Holdings (page 101)
The Partnership and Holdings are closely related. Holdings
currently owns 100% of the limited liability company interests
in the Partnership GP and 21,563,177 Partnership common units.
The Partnership GP currently directly owns a 2% economic general
partner interest in the Partnership and all of the
Partnerships IDRs. Through its indirect ownership
interests of the Partnership GPs 2% economic general
partner interest in the Partnership and the Partnerships
IDRs, Holdings is entitled to receive: (i) approximately
2.0% of all distributions made by the Partnership (on account of
the general partner interest) and (ii) increasing
percentages, up to the current maximum of 23%, of the amount of
incremental cash distributed by the Partnership above certain
target distribution levels in excess of the minimum quarterly
distribution of $0.225 per Partnership common unit in any
quarter (on account of the IDRs). As a result, Holdings is
currently entitled to receive distributions attributable to the
general partner interest and IDRs of approximately 25% of the
aggregate amount of distributions to the Partnerships
partners in excess of $0.3085 per common unit. In addition, as
the owner of 21,563,177 Partnership common units, Holdings is
entitled to receive approximately 3.4% of the total limited
partner distributions paid by the Partnership. Since
Holdings initial public offering in August 2005,
distributions by the Partnership have increased from $0.430 per
Partnership common unit for the quarter ended September 30,
2005 to $0.5825 per Partnership common unit for the quarter
ended September 30, 2010; and as a result, distributions
from the Partnership to Holdings (including through the
Partnership GP) have increased.
2
Certain executive officers of Holdings GP are also officers of
the Partnership GP. Richard H. Bachmann, W. Randall Fowler,
William Ordemann, Bryan F. Bulawa and Michael J. Knesek are all
executive officers of both the Partnership GP and
Holdings GP. For information about the common executive
officers of the Partnership GP and Holdings GP and these
executive officers relationships with EPCO and its
affiliates and the resulting interests of Holdings GP directors
and officers in the merger, please read Certain
Relationships; Interests of Certain Persons in the Merger.
Structure
of the Merger (page 64)
Pursuant to the merger agreement, at the effective time of the
merger, Holdings will merge with and into a wholly owned
subsidiary of the Partnership, and each outstanding unit of
Holdings will be converted into the right to receive 1.50
Partnership common units. This merger consideration represented
a 16% premium to the closing price of Holdings units based on
the closing price of Holdings units as compared to Partnership
common units on September 3, 2010, the last trading day
before the public announcement of the proposed merger.
If the exchange ratio would result in a Holdings unitholder
being entitled to receive a fraction of a Partnership common
unit, that unitholder will receive cash from the Partnership in
lieu of such fractional interest in an amount equal to such
fractional interest multiplied by the average of the closing
price of Partnership common units for the ten consecutive full
NYSE trading days ending on the full NYSE trading day
immediately preceding the day the merger closes.
Once the merger is completed and Holdings units are exchanged
for Partnership common units (and cash in lieu of fractional
units, if applicable), when distributions are declared by the
general partner of the Partnership and paid by the Partnership,
former Holdings unitholders will receive distributions on their
Partnership common units in accordance with the
Partnerships partnership agreement. For a description of
the distribution provisions of the Partnerships
partnership agreement, please read Comparison of the
Rights of Partnership and Holdings Unitholders.
Transactions
Related to the Merger (page 62)
Support
Agreement
In connection with the merger agreement, the Partnership entered
into a support agreement, dated as of September 3, 2010
(the support agreement), by and among the
Partnership, on one hand, and DD Securities LLC, DFI GP
Holdings, L.P., EPCO Holdings, Inc., Duncan Family Interests,
Inc., DDLLC and DFI Delaware Holdings L.P. (DFIDH)
(collectively referred to in this proxy statement/prospectus as
the Holdings supporting unitholders), all privately
held affiliates of EPCO, on the other hand. Pursuant to the
support agreement, the Holdings supporting unitholders, who
directly own 105,739,220 Holdings units (representing
approximately 76% of the outstanding Holdings units and a
sufficient vote for approval of the merger agreement if voted in
favor therefor), agreed to vote their Holdings units (i) in
favor of the adoption of the merger agreement, any transactions
contemplated by the merger agreement and any other action
reasonably requested by the Partnership in furtherance thereof,
submitted for the vote or written consent of Holdings
unitholders, (ii) against any action or agreement that
would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Holdings or
Holdings GP or any of their subsidiaries contained in the merger
agreement, and (iii) against any action, agreement or
transaction that would impede, interfere with, delay, postpone,
discourage, frustrate the purposes of or adversely affect the
merger or the transactions contemplated by the merger agreement.
The support agreement will terminate automatically on
December 31, 2010 or upon any earlier termination of the
merger agreement. In addition, the Holdings supporting
unitholders may terminate their obligations under the support
agreement, including their obligations to execute and deliver
the distribution waiver agreement, (i) after any change in
recommendation by the Holdings ACG Committee permitted under the
merger agreement, (ii) after any change in, or a failure to
maintain, the Holdings ACG Committees Special
Approval in accordance with the Holdings partnership
agreement and (iii) after the occurrence of
3
certain specified changes in U.S. federal income tax law if
such changes occur prior to the closing of the merger.
The foregoing description of the support agreement is qualified
in its entirety by reference to the full text of the support
agreement, a copy of which is attached as Annex D to this
proxy statement/prospectus and is incorporated into this proxy
statement/prospectus by reference.
Fourth
Amendment to the Holdings Partnership Agreement
Pursuant to the merger agreement and immediately prior to the
effective time of the merger, Holdings existing
partnership agreement will be amended to provide for the
transformation of the approximate 0.01% economic interest of the
general partner in Holdings owned by Holdings GP into 13,921
Holdings units representing an approximate 0.01% limited partner
interest in Holdings and a non-economic general partner interest
in Holdings, in accordance with a Fourth Amendment to the First
Amended and Restated Agreement of Limited Partnership of
Holdings, the form of which is attached as Annex A to the
merger agreement.
GP
Merger
Immediately following the transformation of the general partner
interest in Holdings and pursuant to an Agreement and Plan of
Merger, dated as of September 3, 2010, by and among the
Partnership GP, Holdings and Holdings GP (the GP merger
agreement), the Partnership GP (currently a wholly owned
subsidiary of Holdings) will merge with and into Holdings, with
Holdings surviving the GP merger. In accordance with an
amendment to the Partnerships existing partnership
agreement to be executed in connection with the merger, Holdings
will succeed the Partnership GP as an interim general partner of
the Partnership immediately prior to the effective time of the
merger.
Sixth
Amended and Restated Agreement of Limited Partnership of the
Partnership
Immediately following the effective time of the GP merger, at
the effective time of the merger, Holdings will merge into
MergerCo, with MergerCo surviving as a wholly owned subsidiary
of the Partnership. As a result of the merger and in accordance
with the Sixth Partnership Agreement of the Partnership, the
form of which is attached as Annex B to this proxy
statement/prospectus and which will be executed in connection
with the merger, the IDRs in the Partnership will be cancelled,
the current 2% economic general partner interest in the
Partnership will be converted to a non-economic general partner
interest in the Partnership and Holdings GP will succeed
Holdings as the new general partner of the Partnership.
Distribution
Waiver Agreement
In connection with the merger, DFIDH, an affiliate of EPCO, will
agree to designate and waive its rights to quarterly
distributions with respect to the specified number of
Partnership common units listed below over a five-year period
after the merger closing date as set forth in a distribution
waiver agreement, the form of which is attached as Annex C
to this proxy statement/prospectus (the distribution
waiver agreement), which agreement will be executed in
connection with the merger. The number of Partnership common
units on which distributions are waived is initially 30,610,000
Partnership common units, which number of units decreases
annually for a five-year period after the merger closing date as
follows:
|
|
|
|
|
|
|
Number of Partnership
|
|
|
Common Units on Which
|
Period
|
|
Distributions Are Waived
|
|
First four-quarter period following closing
|
|
|
30,610,000
|
|
Second four-quarter period following closing
|
|
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26,130,000
|
|
Third four-quarter period following closing
|
|
|
23,700,000
|
|
Fourth four-quarter period following closing
|
|
|
22,560,000
|
|
Fifth four-quarter period following closing
|
|
|
17,690,000
|
|
4
Based on the quarterly distribution rate for Partnership common
units of $0.5825 declared with respect to the third quarter of
2010, the distributions waived would aggregate approximately
$281 million during these distribution periods.
DFIDH will have no obligation to execute and deliver the
distribution waiver agreement in the event of a termination of
the support agreement as described above under
Support Agreement.
The foregoing description of the distribution waiver agreement
is qualified in its entirety by reference to the full text of
the distribution waiver agreement, which is attached as
Annex C to this proxy statement/prospectus and is
incorporated into this proxy statement/prospectus by reference.
Directors
and Officers of the Partnership GP and Holdings GP
(page 110)
DDLLC, the sole member of Holdings GP, has the power to appoint
and remove all of the directors of Holdings GP. DDLLC is
controlled by the DDLLC voting trustees under the DDLLC Voting
Trust Agreement. The DDLLC voting trustees have not yet
determined which directors of the Partnership GP and Holdings GP
will continue as directors of Holdings GP as the successor
general partner of the Partnership following the merger. In the
absence of any changes, the current directors of Holdings GP
will continue as directors of the successor general partner of
the Partnership following the merger.
The following individuals are currently executive officers of
the Partnership GP and those persons signified with an asterisk
(*) also currently serve as executive officers of
Holdings GP. The individuals below are expected to be the
executive officers of Holdings GP as the successor general
partner of the Partnership following the merger.
|
|
|
|
|
Michael A. Creel
|
|
|
|
W. Randall Fowler*
|
|
|
|
Richard H. Bachmann*
|
|
|
|
A. James Teague
|
|
|
|
William Ordemann*
|
|
|
|
Lynn L. Bourdon, III
|
|
|
|
Bryan F. Bulawa*
|
|
|
|
James M. Collingsworth
|
|
|
|
Mark Hurley
|
|
|
|
Michael J. Knesek*
|
|
|
|
Christopher Skoog
|
|
|
|
Thomas M. Zulim
|
Market
Prices of Partnership Common Units and Holdings Units Prior to
Announcing the Proposed Merger (page 25)
The Partnerships common units are traded on the NYSE under
the ticker symbol EPD. Holdings units are
traded on the NYSE under the ticker symbol EPE. The
following table shows the closing prices of Partnership common
units and Holdings units on September 3, 2010 (the last
full trading day before the Partnership and Holdings announced
the proposed merger) and the average closing price of
Partnership common units and Holdings units during the
20-day
trading period prior to and including September 3, 2010.
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
Holdings
|
Date/Period
|
|
Common Units
|
|
Units
|
|
September 3, 2010
|
|
$
|
38.45
|
|
|
$
|
49.90
|
|
20-day
Average
|
|
$
|
37.17
|
|
|
$
|
48.79
|
|
5
The
Special Unitholder Meeting (page 34)
Where and when: The Holdings special
unitholder meeting will take place at 1100 Louisiana Street,
10th Floor, Houston, Texas 77002 on November 22, 2010 at
8:00 a.m., local time.
What you are being asked to vote on: At the
Holdings meeting, Holdings unitholders will vote on the approval
of the merger agreement and the merger. Holdings unitholders
also may be asked to consider other matters as may properly come
before the meeting. At this time, Holdings knows of no other
matters that will be presented for the consideration of its
unitholders at the meeting.
Who may vote: You may vote at the Holdings
meeting if you owned Holdings units at the opening of business
on the record date, October 13, 2010. On that date, there
were 139,195,064 Holdings units outstanding. You may cast one
vote for each outstanding Holdings unit that you owned on the
record date.
What vote is needed: Under Holdings
partnership agreement, the affirmative vote of the holders of at
least a majority of Holdings outstanding units is required
to approve the merger agreement and merger. Holdings supporting
unitholders, which collectively directly own approximately 76%
of the outstanding Holdings units, have agreed to vote all of
their Holdings units in favor of the merger agreement and the
merger. Accordingly, the Holdings supporting unitholders own a
sufficient number of Holdings units to approve the merger
without the affirmative vote of any other Holdings unitholder.
The Holdings supporting unitholders are not required to vote in
favor of the merger in certain circumstances, including if there
is a change in recommendation by the Holdings Board, or the
merger has not been completed on or prior to December 31,
2010.
Recommendation
to Holdings Unitholders (page 45)
The members of the Holdings ACG Committee who participated in
the merger review and negotiation process considered the
benefits of the merger and the related transactions as well as
the associated risks and unanimously determined that the merger
agreement and the merger are fair and reasonable, advisable to
and in the best interests of Holdings and the Holdings
unaffiliated unitholders and recommended that the merger
agreement and the merger be approved by the Holdings Board and
the Holdings unaffiliated unitholders. Based on the Holdings ACG
Committees determination and recommendation, the Holdings
Board has also unanimously approved and declared the
advisability of the merger agreement and the merger and,
together with the Holdings ACG Committee, recommends that the
Holdings unaffiliated unitholders vote to approve the merger
agreement and the merger.
Holdings unitholders are urged to carefully review the
background and reasons for the merger described under The
Merger and the risks associated with the merger described
under Risk Factors.
Holdings
Reasons for the Merger (page 45)
The Holdings ACG Committee considered many factors in
determining that the merger agreement and the merger are fair
and reasonable, advisable to and in the best interests of
Holdings and the Holdings unaffiliated unitholders. The Holdings
ACG Committee viewed the following factors, among others
described in greater detail under The Merger
Recommendation of the Holdings ACG Committee and the Holdings
Board and Reasons for the Merger, as being generally
positive or favorable in coming to this determination and its
related recommendations:
|
|
|
|
|
The pro forma increase of approximately 54% in quarterly cash
distributions expected to be received by Holdings unitholders,
based upon the 1.50 exchange ratio and quarterly cash
distribution rates paid by Holdings and the Partnership in
August 2010, together with the expectation that the merger will
be accretive to cash distributions received by Holdings
unitholders in each year through 2015 (the period for which
projections were provided).
|
|
|
|
In the merger, Holdings unitholders will receive common units
representing limited partner interests in the Partnership, which
Partnership common units have substantially more liquidity than
Holdings units because of the Partnership common units
larger average daily trading volume, as well as the
|
6
|
|
|
|
|
Partnership being a significantly larger entity with a broader
investor base and a larger public float, along with less
volatility in the trading market for the Partnership common
units.
|
|
|
|
|
|
The exchange ratio in the merger, which based upon the closing
prices of Holdings units and Partnership common units on
September 3, 2010, the last trading date before the
Holdings ACG Committee and Holdings Board approved the merger
agreement, represented a premium of:
|
|
|
|
|
|
approximately 16% above the closing price of Holdings units of
$49.90 on September 3, 2010; and
|
|
|
|
approximately 40% above the average closing price of Holdings
units of $41.32 during the one-year period ended on
September 3, 2010.
|
|
|
|
|
|
The opinion of the Holdings ACG Committees financial
advisor, Morgan Stanley & Co. Incorporated
(Morgan Stanley), rendered to the Holdings ACG
Committee on September 3, 2010 to the effect that, as of
such date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
written opinion, the exchange ratio under the merger agreement
was fair, from a financial point of view, to the Holdings
unitholders (other than the Holdings supporting unitholders).
|
|
|
|
That the merger provides Holdings unitholders with an
opportunity to benefit from price appreciation and increased
distributions through ownership of Partnership common units,
which should benefit from the lower long-term cost of capital
associated with the permanent cancellation of the IDRs and the
Partnerships enhanced ability to compete for future
acquisitions and finance organic growth projects.
|
|
|
|
The stronger credit profile of the Partnership relative to that
of Holdings.
|
|
|
|
That Holdings unitholders, generally, should not recognize any
income or gain, for U.S. federal income tax purposes,
solely as a result of the receipt of the Partnership common
units pursuant to the merger.
|
The Holdings ACG Committee considered the following factors,
among others described in greater detail under The
Merger Recommendation of the Holdings ACG Committee
and the Holdings Board and Reasons for the Merger, to be
generally negative or unfavorable in making its determination
and recommendations:
|
|
|
|
|
The risk that the merger might not be completed in a timely
manner, or that the merger might not be consummated as a result
of a failure to satisfy the conditions contained in the merger
agreement, including any failure to close by December 31,
2010, which would result in the termination of the obligations
of (i) the Holdings supporting unitholders under the
support agreement and (ii) DFIDH to execute the
distribution waiver agreement, and that any failure to complete
the merger could negatively impact the trading price of Holdings
units.
|
|
|
|
That the exchange ratio is fixed, and the possibility that the
Partnership common unit price could decline relative to the
Holdings unit price prior to closing, reducing the premium
available to Holdings unitholders.
|
|
|
|
The possibility that Holdings unitholders could be foregoing
appreciation principally associated with the IDRs, which might
be realized either in the form of increased distributions or
appreciation in unit value if the business of the Partnership
performs materially better than anticipated and the Partnership
increases its distributions to levels substantially higher than
anticipated.
|
|
|
|
The possibility that the proposed carried interest
federal tax legislation could be enacted with an effective date,
or a retroactive effective date, before consummation of the
merger, and the potential material tax liabilities that could be
incurred by Holdings unitholders as a consequence thereof.
|
|
|
|
|
|
The limitations on Holdings considering unsolicited offers from
third parties not affiliated with Holdings GP.
|
Overall, the Holdings ACG Committee believed that the advantages
of the merger outweighed the negative factors.
7
Opinion
of Holdings ACG Committees Financial Advisor
(page 51)
In connection with the merger, the Holdings ACG Committee
retained Morgan Stanley as its financial advisor. On
September 3, 2010, Morgan Stanley rendered to the Holdings
ACG Committee its written opinion to the effect that, as of such
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio under to the merger
agreement was fair, from a financial point of view, to the
holders of Holdings units (other than the Holdings supporting
unitholders). The full text of Morgan Stanleys written
opinion, which sets forth, among other things, the assumptions
made, specified work performed, procedures followed, matters
considered and qualifications and limitations on the scope of
the review undertaken by Morgan Stanley in rendering its
opinion, is attached as Annex E to this proxy
statement/prospectus. The opinion was directed to the Holdings
ACG Committee and addresses only the fairness from a financial
point of view of the exchange ratio pursuant to the merger
agreement to the holders of Holdings units (other than the
Holdings supporting unitholders) on the date of the opinion. The
opinion does not address any other aspect of the merger or
related transactions and does not constitute a recommendation to
any Holdings unitholder as to how to vote or act on any matter
with respect to the merger or related transactions.
Certain
Relationships; Interests of Certain Persons in the Merger
(page 101)
The Partnership and Holdings have extensive and ongoing
relationships with EPCO and its affiliates, which include both
the Partnership GP and Holdings GP, as well as DDLLC.
Holdings GP is a wholly owned subsidiary of DDLLC, which is
controlled by the DDLLC voting trustees pursuant to the DDLLC
Voting Trust Agreement. EPCO is also controlled by three
voting trustees (the EPCO voting trustees) under the
EPCO Voting Trust Agreement. The EPCO voting trustees and the
DDLLC voting trustees are the same three individuals: Randa
Duncan Williams, Richard H. Bachmann and Ralph S. Cunningham.
As of October 13, 2010, the DDLLC voting trustees and the
EPCO voting trustees, in their capacities as such trustees, as
executors and individually, collectively owned or controlled
approximately 29% of the Partnerships outstanding common
units, approximately 77% of the limited partner interests in
Holdings and 100% of the limited liability company interests in
Holdings GP. The Holdings supporting unitholders, who have
agreed to vote in favor of the merger and the merger agreement,
directly own approximately 76% of Holdings outstanding
units. The directors, executive officers and other affiliates of
Holdings collectively owned or controlled an additional 1.4% of
Holdings outstanding units.
The officers of Holdings are employees of EPCO. A number of EPCO
employees who provide services to Holdings also provide services
to the Partnership, often serving in the same positions.
Holdings has an extensive and ongoing relationship with the
Partnership, EPCO and other entities controlled by the DDLLC
voting trustees and the EPCO voting trustees.
Further, Holdings GPs directors and executive officers
have interests in the merger that may be different from, or in
addition to, your interests as a unitholder of Holdings,
including:
|
|
|
|
|
The non-management directors of Holdings GP hold equity-based
awards under Holdings benefit plans that will generally be
converted into equity awards with respect to Partnership common
units, adjusted for the exchange ratio.
|
|
|
|
All of the directors and executive officers of Holdings GP will
receive continued indemnification for their actions as directors
and executive officers.
|
|
|
|
Most of the directors of Holdings GP directly or beneficially
own Partnership common units, including Ms. Williams,
Dr. Cunningham, Mr. Bachmann, Thurmon M. Andress, O.S.
Andras and Edwin E. Smith.
|
|
|
|
In addition to serving as a director and Executive Vice
President of Holdings GP, Mr. Bachmann also serves as the
Executive Vice President, Chief Legal Officer and Secretary of
the Partnership GP, and has certain duties to the limited
partners of the Partnership.
|
8
|
|
|
|
|
Three of the directors of Holdings GP, Ms. Williams,
Mr. Bachmann and Dr. Cunningham (who is also CEO of
Holdings GP), also serve as both the DDLLC voting trustees and
the EPCO voting trustees. These three individuals also serve as
independent executors of the estate of Dan L. Duncan.
Through these positions, these persons effectively own or
control approximately 76% of the outstanding Holdings units and
approximately 28% of the outstanding Partnership common units
and Class B units, collectively, which securities
represented an aggregate fair market value of approximately
$5.3 billion and $7.0 billion, respectively, based on
the closing prices of the Holdings units and Partnership common
units on September 3, 2010, the last trading day before
announcement of the merger. In their capacities as trustees of
those voting trusts or as a majority of the directors of certain
affiliated entities, Ms. Williams, Mr. Bachmann and
Dr. Cunningham have authorized or caused the Holdings
supporting unitholders to enter into the support agreement,
pursuant to which the Holdings supporting unitholders have
agreed to vote approximately 76% of the outstanding Holdings
units in favor of the merger agreement and the merger.
|
Each of the executive officers of the Partnership GP is
currently expected to be elected to serve as an executive
officer of Holdings GP as the new general partner of the
Partnership. The persons who will be elected as directors of
Holdings GP following the merger have not yet been determined.
The
Merger Agreement (page 64)
The merger agreement is attached to this proxy
statement/prospectus as Annex A and is incorporated by
reference into this document. You are encouraged to read the
merger agreement because it is the legal document that governs
the merger.
What
Needs to be Done to Complete the Merger
The Partnership and Holdings will complete the merger only if
the conditions set forth in the merger agreement are satisfied
or, in some cases, waived. The obligations of the Partnership
and Holdings to complete the merger are subject to, among other
things, the following conditions:
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the approval of the merger agreement and the merger by the
requisite vote of the Holdings unitholders, which approval is
contractually assured by the Holdings supporting
unitholders agreement to vote in favor of the merger and
the merger agreement unless the support agreement is terminated
upon, among other things, a termination of the merger agreement
or a change in recommendation by the Holdings ACG Committee;
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the making of all required filings and the receipt of all
required governmental consents, approvals, permits and
authorizations from any applicable governmental authorities
prior to the merger effective time, except where the failure to
obtain such consent, approval, permit or authorization would not
be reasonably likely to result in a material adverse effect on
Holdings or the Partnership;
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the absence of any decree, order, injunction or law that
enjoins, prohibits or makes illegal the consummation of any of
the transactions contemplated by the merger agreement, and any
action, proceeding or investigation by any governmental
authority seeking to restrain, enjoin, prohibit or delay such
consummation;
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the continued effectiveness of the registration statement of
which this proxy statement/prospectus is a part;
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the approval for listing on the NYSE of the Partnership common
units to be issued in the merger, subject to official notice of
issuance;
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the consummation of the GP merger;
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the execution of the Sixth Partnership Agreement of the
Partnership, the form of which is attached as Annex B to
this proxy statement/prospectus, and the admittance of Holdings
GP as the new general partner of the Partnership; and
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the execution and delivery by certain affiliates of EPCO of the
distribution waiver agreement.
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9
Please read Transactions Related to the
Merger above for information about the GP merger, the
Sixth Partnership Agreement and the distribution waiver
agreement.
The Partnerships obligation to complete the merger is
further subject to the following conditions:
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the representations and warranties of each of Holdings and
Holdings GP set forth in the merger agreement being true and
correct in all material respects, and Holdings and Holdings GP
having performed all of their obligations under the merger
agreement in all material respects;
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The Partnership having received an opinion of Andrews Kurth LLP,
counsel to the Partnership (Andrews Kurth), as to
the treatment of the merger for U.S. federal income tax
purposes and as to certain other tax matters; and
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No material adverse effect (as defined under the merger
agreement) having occurred with respect to Holdings.
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Holdings obligation to complete the merger is further
subject to the following conditions:
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the representations and warranties of each of the Partnership
and Partnership GP set forth in the merger agreement being true
and correct in all material respects, and the Partnership and
Partnership GP having performed all of their obligations under
the merger agreement in all material respects;
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Holdings having received an opinion of Vinson & Elkins
L.L.P., counsel to Holdings (Vinson & Elkins),
as to the treatment of the merger for U.S. federal income
tax purposes and as to certain other tax matters; and
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No material adverse effect (as defined under the merger
agreement) having occurred with respect to the Partnership.
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Each of the Partnership and Holdings may choose to complete the
merger even though any condition to its obligation has not been
satisfied if the necessary unitholder approval has been obtained
and the law allows it to do so.
No
Solicitation
Holdings GP and Holdings have agreed that they will not, and
they will use their commercially reasonable best efforts to
cause their representatives not to, directly or indirectly,
initiate, solicit, knowingly encourage or facilitate any
inquiries or the making or submission of any proposal that
constitutes, or may reasonably be expected to lead to, an
acquisition proposal, or participate in any discussions or
negotiations regarding, or furnish to any person any non-public
information with respect to, any acquisition proposal, unless
the Holdings ACG Committee, after consultation with its outside
legal counsel and financial advisors, determines in good faith
that such acquisition proposal constitutes or is likely to
result in a superior proposal and the failure to do so would be
inconsistent with its duties under the Holdings partnership
agreement and applicable law. Please read The Merger
Agreement Covenants Acquisition
Proposals; Change in Recommendation for more information
about what constitutes an acquisition proposal and a superior
proposal.
Change
in Recommendation
The Holdings ACG Committee is permitted to withdraw, modify or
qualify in any manner adverse to the Partnership its
recommendation of the merger or publicly approve or recommend,
or publicly propose to approve or recommend, any acquisition
proposal, referred to in this proxy statement/prospectus as a
change in recommendation in certain circumstances.
Specifically, if, prior to receipt of Holdings unitholder
approval, the Holdings ACG Committee concludes in good faith,
after consultation with its outside legal counsel and financial
advisors, that a failure to change its recommendation would be
inconsistent with its duties under the Holdings partnership
agreement and applicable law, the Holdings ACG Committee may
determine to make a change in recommendation.
10
Termination
of the Merger Agreement
The Partnership and Holdings can agree to terminate the merger
agreement by mutual written consent at any time without
completing the merger, even after the Holdings unitholders have
approved the merger agreement and the merger. In addition,
either party may terminate the merger agreement on its own upon
written notice to the other without completing the merger if:
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the merger is not completed on or before December 31, 2010;
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any legal prohibition to completing the merger has become final
and non-appealable, provided that the terminating party is not
in breach of its covenant to use commercially reasonable best
efforts to complete the merger promptly; or
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any condition to the closing of the merger cannot be satisfied.
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The Partnership may terminate the merger agreement at any time
if the Holdings ACG Committee, upon written notice to the
Partnership, determines to make a change in recommendation in
accordance with the merger agreement.
Holdings may terminate the merger agreement if (i) the
Holdings ACG Committee determines, in accordance with the merger
agreement, to make a change in recommendation and subsequently
determines not to hold the Holdings special meeting or
(ii) the necessary unitholder approval is not obtained at
the Holdings special meeting.
Holdings may terminate the merger agreement upon written notice
to the Partnership, at any time prior to the Holdings special
meeting, if Holdings receives an acquisition proposal from a
third party, the Holdings ACG Committee concludes in good faith
that such acquisition proposal constitutes a superior proposal,
the Holdings ACG Committee has made a change in recommendation
pursuant to the merger agreement with respect to such superior
proposal, Holdings has not knowingly and intentionally breached
the no solicitation covenants contained in the merger agreement,
and the Holdings ACG Committee concurrently approves, and
Holdings concurrently enters into, a definitive agreement with
respect to such superior proposal. Notwithstanding anything in
the merger agreement to the contrary, without the prior written
consent of the Audit, Conflicts and Governance Committee of the
Partnership Board (the Partnership ACG Committee),
no acquisition proposal will constitute a superior proposal if
such acquisition proposal is conditioned on completion of an
acquisition of the Partnership that would require approval by
the Partnership ACG Committee under the Partnerships
partnership agreement.
Finally, either party may terminate the merger agreement upon
30 days written notice to the other if, as a result of a
change in U.S. federal income tax law, the completion of
the merger or the transactions contemplated by the merger
agreement (taking into account any available elections) could
reasonably be expected to materially increase the amount of
U.S. federal income tax due from any holder of Holdings
units or Partnership common units, as the case may be, as a
result of owning or disposing of Partnership common units,
whether acquired pursuant to or owned prior to such
transactions, as compared to the amount of U.S. federal
income tax due from such holder as a result of owning or
disposing of any Holdings units or Partnership common units, as
the case may be, in the event the transactions contemplated by
the merger agreement did not occur; provided that no termination
of the merger agreement will be effective in the event that,
within 30 days after receipt of such notice, the
non-terminating party has provided to the terminating party the
opinion of nationally recognized tax counsel, reasonably
acceptable to the terminating party, to the effect that such
holder of Holdings units or Partnership common units, as the
case may be, should not be liable for such increased tax as a
result of owning or disposing of Partnership common units.
Material
U.S. Federal Income Tax Consequences of the Merger
(page 132)
Tax matters associated with the merger are complicated. The
U.S. federal income tax consequences of the merger to a
Holdings unitholder will depend on such unitholders own
situation. The tax discussions in this proxy
statement/prospectus focus on the U.S. federal income tax
consequences generally applicable to individuals who are
residents or citizens of the United States that hold their
Holdings units as capital assets,
11
and these discussions have only limited application to other
unitholders, including those subject to special tax treatment.
Holdings unitholders are urged to consult their tax advisors for
a full understanding of the U.S. federal, state, local and
foreign tax consequences of the merger that will be applicable
to them.
Holdings expects to receive an opinion from Vinson &
Elkins to the effect that no gain or loss should be recognized
by the holders of Holdings units to the extent Partnership
common units are received in exchange therefor as a result of
the merger, other than gain resulting from either (i) any
decrease in partnership liabilities pursuant to Section 752
of the Internal Revenue Code, or (ii) any cash received in
lieu of any fractional Partnership common units. The Partnership
expects to receive an opinion from Andrews Kurth to the effect
that no gain or loss should be recognized by Partnership
unaffiliated unitholders as a result of the merger (other than
gain resulting from any decrease in Partnership liabilities
pursuant to Section 752 of the Internal Revenue Code).
Partnership unaffiliated unitholders means
Partnership unitholders other than those controlling, controlled
by or under common control with the Partnership GP and Holdings.
Opinions of counsel, however, are subject to certain limitations
and are not binding on the Internal Revenue Service, or
IRS, and no assurance can be given that the IRS
would not successfully assert a contrary position regarding the
merger and the opinions of counsel.
The U.S. federal income tax consequences described above
may not apply to some holders of Partnership common units and
Holdings units. Please read Material U.S. Federal
Income Tax Consequences of the Merger beginning on
page 132 for a more complete discussion of the
U.S. federal income tax consequences of the merger.
Other
Information Related to the Merger
No
Appraisal Rights (page 61)
Holdings unitholders do not have appraisal rights under
applicable law or contractual appraisal rights under the
Holdings partnership agreement or the merger agreement.
Antitrust
and Regulatory Matters (page 61)
The merger is subject to both state and federal antitrust laws.
Under the rules applicable to partnerships, no filing is
required under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the HSR Act).
However, the Partnership or Holdings may receive requests for
information concerning the proposed merger and related
transactions from the Federal Trade Commission, or FTC, the
Antitrust Division of the Department of Justice, or DOJ, or
individual states.
Listing
of Common Units to be Issued in the Merger
(page 61)
The Partnership expects to obtain approval to list on the NYSE
the Partnership common units to be issued pursuant to the merger
agreement, which approval is a condition to the merger.
Accounting
Treatment (page 61)
The merger will be accounted for in accordance with Financial
Accounting Standards Board Accounting Standards Codification
810, Consolidations Overall Changes
in Parents Ownership Interest in a Subsidiary, which
is referred to as FASB ASC 810. Holdings is considered as
the surviving consolidated entity for accounting purposes rather
than the Partnership, which is the surviving consolidated entity
for legal and reporting purposes. Therefore, the changes in
Holdings ownership interest will be accounted for as an
equity transaction and no gain or loss will be recognized as a
result of the merger.
Comparison
of the Rights of Partnership and Holdings Unitholders
(page 116)
Holdings unitholders will own Partnership common units following
the completion of the merger, and their rights associated with
Partnership common units will be governed by, in addition to
Delaware law, the Sixth Partnership Agreement, which differs in
a number of respects from Holdings partnership agreement.
12
Pending
Litigation (page 61)
On September 9, 2010 Sanjay Israni, a purported Holdings
unitholder, filed a complaint in the Court of Chancery of the
State of Delaware (the Court), as a putative class
action on behalf of Holdings unitholders, captioned Sanjay
Israni v. EPE Holdings LLC, Enterprise GP Holdings L.P.,
Enterprise Products Company, Enterprise Products Partners L.P.,
Oscar S. Andras, Ralph S. Cunningham, Richard H. Bachmann, Randa
Duncan Williams, Thurmon M. Andress, Charles E. McMahen, Edwin
E. Smith and B.W. Waycaster (the Israni
Complaint). The Israni Complaint alleges, among other
things, that the named directors, EPCO and the Partnership have
breached fiduciary duties in connection with the proposed merger
and that Holdings aided and abetted in these alleged breaches of
fiduciary duties.
On September 24, 2010 Richard Fouke, another purported
Holdings unitholder, filed a complaint in the Court, as a
putative class action on behalf of Holdings unitholders,
captioned Richard Fouke v. EPE Holdings LLC, Enterprise
GP Holdings L.P., Enterprise Products Company, Enterprise
Products Partners L.P., Enterprise Products GP, LLC, Oscar S.
Andras, Ralph S. Cunningham, Richard H. Bachmann, Randa Duncan
Williams, Thurmon M. Andress, Charles E. McMahen, Edwin E. Smith
and B.W. Waycaster (the Fouke Complaint). The
Fouke Complaint alleges, among other things, that the named
directors, Holdings GP, the Partnership, the Partnership GP and
EPCO breached the implied contractual covenant of good faith and
fair dealing in connection with the proposed merger and that
Holdings and other defendants aided and abetted in the alleged
breach.
Additionally, on September 28, 2010, Eugene
Lonergan, Sr., a third purported Holdings unitholder, filed
a complaint in the Court, as a putative class action on behalf
of Holdings unitholders, captioned Eugene
Lonergan, Sr. v. EPE Holdings LLC, Enterprise GP
Holdings L.P., Oscar S. Andras, Ralph S. Cunningham,
Richard H. Bachmann, Randa Duncan Williams, Thurmon M. Andress,
Charles E. McMahen, Edwin E. Smith and B.W. Waycaster (the
Lonergan Complaint). The Lonergan Complaint alleges
that the named directors and Holdings GP breached the implied
contractual covenant of good faith and fair dealing, including
failing to make adequate disclosures, in connection with the
proposed merger. On October 8, 2010, the Court held a
hearing on a motion by the plaintiff to expedite the
proceedings. On October 11, 2010, the Court denied the
motion.
Finally, on October 11, 2010, John Psomas, a purported
Partnership unitholder, filed a complaint in the Court, as a
putative class action on behalf of Partnership unitholders,
captioned John Psomas v. Enterprise Products Partners
L.P., Enterprise Products GP, LLC, Michael A. Creel, W. Randall
Fowler, A. James Teague, Michael J. Knesek, E. William Barnett,
Charles M. Rampacek and Rex C. Ross (the Psomas
Complaint). The Psomas Complaint alleges that the
Partnership and the Partnership GP breached the
Partnerships partnership agreement by failing to submit
the merger agreement to a Partnership unitholder vote and that
the named directors breached their fiduciary duties of candor
and full disclosure.
Each of these complaints seeks to enjoin the proposed merger
transaction and, in the event the merger is consummated, the
Psomas Complaint seeks a Partnership unitholder vote to ratify
approval of the merger and damages resulting from the
directors alleged breaches of fiduciary duties. The
Partnership and Holdings cannot predict the outcome of these or
any other lawsuits that might be filed subsequent to the date of
the filing of this proxy statement/prospectus, nor can the
Partnership and Holdings predict the amount of time and expense
that will be required to resolve these lawsuits. The Partnership
and Holdings intend to vigorously defend against these and any
other actions.
Summary
of Risk Factors (page 26)
You should consider carefully all the risk factors together with
all of the other information included in this proxy
statement/prospectus before deciding how to vote. The risks
related to the merger and the related transactions, the
Partnerships business, the Partnership common units and
risks resulting from the
13
Partnerships organizational structure are described under
the caption Risk Factors beginning on page 26
of this proxy statement/prospectus. Some of these risks include,
but are not limited to, those described below:
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Holdings partnership agreement limits the fiduciary duties
of Holdings GP to unitholders and restricts the remedies
available to unitholders for actions taken by Holdings GP that
might otherwise constitute breaches of fiduciary duty.
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The directors and executive officers of Holdings GP may have
interests relating to the merger that differ in certain respects
from the interests of the Holdings unaffiliated unitholders.
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The exchange ratio is fixed and the market value of the merger
consideration to Holdings unitholders will be equal to 1.50
times the price of Partnership common units at the closing of
the merger, which market value will decrease if the market value
of the Partnerships common units decreases.
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The transactions contemplated by the merger agreement may not be
consummated even if Holdings unitholders approve the merger
agreement and the merger.
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Financial projections by the Partnership and Holdings may not
prove accurate.
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The merger agreement may be terminated and the support agreement
will automatically terminate on December 31, 2010 if the
merger has not been completed, and the failure to complete the
merger for any reason could negatively impact the price of
Holdings units and Partnership common units.
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The number of outstanding Partnership common units will increase
as a result of the merger, which could make it more difficult to
maintain the Partnerships current positive distribution
coverage ratio or increase the level of future quarterly
distributions.
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While the merger agreement is in effect, Holdings may lose
opportunities to enter into different business combination
transactions with other parties on more favorable terms, and
both the Partnership and Holdings may be limited in their
ability to pursue other attractive business opportunities.
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No ruling has been requested with respect to the U.S. federal
income tax consequences of the merger.
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The intended U.S. federal income tax consequences of the
merger are dependent upon each of the Partnership and Holdings
being treated as a partnership for U.S. federal income tax
purposes.
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The U.S. federal income tax treatment of the merger is
subject to potential legislative change and differing judicial
or administrative interpretations.
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Holdings unitholders could recognize taxable income or gain for
U.S. federal income tax purposes as a result of the merger.
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14
Organizational
Chart
Before
the Merger
The following diagram depicts the organizational structure of
the Partnership and Holdings as of October 13, 2010 before
the consummation of the merger and the other transactions
contemplated by the merger agreement.
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(1) |
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Includes Holdings units beneficially owned by the estate of Dan
L. Duncan, Randa Duncan Williams, and certain trusts and
privately held affiliates. |
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(2) |
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EPCO and its private affiliates beneficially own an approximate
27.0% limited partner interest in the Partnership. |
15
After
the Merger
The following diagram depicts the organizational structure of
the Partnership and Holdings immediately after giving effect to
the merger, the other transactions contemplated by the merger
agreement and a planned contribution by the Partnership of
MergerCo to EPO immediately thereafter.
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Partnership
|
Beneficial Owners of Limited
Partner Units (as of
October 13, 2010)
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Partnership
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Holdings
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Pro Forma
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EPCO and privately held affiliates(1)
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27.5
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%
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76.6
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%
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40.6
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%
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Holdings
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3.4
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%
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%
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Public unitholders
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69.1
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%
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23.4
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%
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59.4
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%
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Total
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100.0
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%
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100.0
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%
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100.0
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%
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(1) |
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Partnership percentage includes 4,520,431 Class B units of
the Partnership owned by a privately held affiliate of EPCO.
Holdings percentage includes 13,921 Holdings units to be issued
in connection with the GP merger immediately prior to the merger
as part of a transformation of the current 0.01% general partner
interest in Holdings. Partnership Pro Forma percentage also
includes 30,610,000 Partnership common units designated
initially under a distribution waiver agreement. Please read
The Merger Transactions Related to the
Merger Distribution Waiver Agreement. |
16
SUMMARY
HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION OF
THE PARTNERSHIP AND HOLDINGS
The following tables set forth, for the periods and at the dates
indicated, summary historical financial and operating
information for the Partnership and Holdings and summary
unaudited pro forma financial information for the Partnership
after giving effect to the proposed merger with Holdings. The
summary historical financial data as of and for each of the
years ended December 31, 2007, 2008 and 2009 are derived
from and should be read in conjunction with the audited
financial statements and accompanying footnotes of the
Partnership and Holdings, respectively. The summary historical
financial data as of and for the six-month periods ended
June 30, 2009 and 2010 are derived from and should be read
in conjunction with the unaudited financial statements and
accompanying footnotes of the Partnership and Holdings,
respectively. The Partnerships and Holdings
consolidated balance sheets as of December 31, 2008 and
2009 and as of June 30, 2010, and the related statements of
consolidated operations, comprehensive income, cash flows and
equity for each of the three years in the period ended
December 31, 2009 and the six months ended June 30,
2010 and 2009 are incorporated by reference into this proxy
statement/prospectus from the Partnerships and
Holdings respective annual reports on
Form 10-K
for the year ended December 31, 2009, and the quarterly
reports on
Form 10-Q
for the period ended June 30, 2010.
The summary unaudited pro forma condensed consolidated financial
statements of the Partnership show the pro forma effect of the
Partnerships proposed merger with Holdings. Holdings will
be treated as the surviving consolidated entity for accounting
purposes, even though the Partnership will be the surviving
consolidated entity for legal and reporting purposes. For
accounting purposes, Holdings is considered the accounting
acquiror of the Partnerships noncontrolling interests. For
a complete discussion of the pro forma adjustments underlying
the amounts in the table on the following page, please read
Unaudited Pro Forma Condensed Consolidated Financial
Statements beginning on page F-2 of this document.
The unaudited pro forma condensed consolidated financial
statements have been prepared to assist in the analysis of
financial effects of the proposed merger between the Partnership
and Holdings. The unaudited pro forma condensed statements of
consolidated operations for the six months ended June 30,
2010 and the year ended December 31, 2009 assume the
merger-related transactions occurred on January 1, 2009.
The unaudited pro forma condensed consolidated balance sheet
shows the financial effects of the merger-related transactions
as if they had occurred on June 30, 2010. The unaudited pro
forma condensed consolidated financial statements are based upon
assumptions that the Partnership believes are reasonable under
the circumstances, and are intended for informational purposes
only. They are not necessarily indicative of the financial
results that would have occurred if the transactions described
herein had taken place on the dates indicated, nor are they
indicative of the future consolidated results of the combined
entity.
The Partnerships non-generally accepted accounting
principles, or non-GAAP, financial measures of gross operating
margin and Adjusted EBITDA are presented in the summary
historical and pro forma financial information. Please read
Non-GAAP Financial Measures, which
provides the necessary explanations and reconciliations for
these non-GAAP financial measures.
For information regarding the effect of the merger on pro forma
distributions to Holdings unitholders, please read
Comparative Per Unit Information.
17
Summary
Historical and Pro Forma Financial and Operating Information of
the Partnership
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Partnership Pro Forma
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Partnership Consolidated Historical
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For the
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For the
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For the Six Months
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Year Ended
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Six Months
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For the Year Ended December 31,
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Ended June 30,
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December 31,
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Ended June 30,
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2007
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2008
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2009
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2009
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2010
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2009
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2010
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(In millions, except per unit amounts)
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(Unaudited)
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(Unaudited)
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Income statement data:
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Revenues
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$
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26,713.8
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$
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35,469.6
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$
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25,510.9
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|
$
|
10,321.2
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|
$
|
16,087.9
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|
$
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25,510.9
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|
$
|
16,087.9
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|
Costs and expenses
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|
25,529.3
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|
33,756.1
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|
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|
23,738.1
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|
|
|
9,482.1
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|
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|
15,021.6
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|
23,748.6
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|
15,026.9
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Equity in income of unconsolidated affiliates
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10.5
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34.9
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|
51.2
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|
17.0
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|
32.7
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|
|
|
92.3
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|
37.6
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Operating income
|
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1,195.0
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|
1,748.4
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|
1,824.0
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|
856.1
|
|
|
|
1,099.0
|
|
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|
1,854.6
|
|
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|
1,098.6
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(413.0
|
)
|
|
|
(540.7
|
)
|
|
|
(641.8
|
)
|
|
|
(311.0
|
)
|
|
|
(317.2
|
)
|
|
|
(687.3
|
)
|
|
|
(337.1
|
)
|
Other, net
|
|
|
71.7
|
|
|
|
12.2
|
|
|
|
(1.8
|
)
|
|
|
2.0
|
|
|
|
0.5
|
|
|
|
(1.7
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(341.3
|
)
|
|
|
(528.5
|
)
|
|
|
(643.6
|
)
|
|
|
(309.0
|
)
|
|
|
(316.7
|
)
|
|
|
(689.0
|
)
|
|
|
(336.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
853.7
|
|
|
|
1,219.9
|
|
|
|
1,180.4
|
|
|
|
547.1
|
|
|
|
782.3
|
|
|
|
1,165.6
|
|
|
|
762.0
|
|
Provision for income taxes
|
|
|
(15.7
|
)
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(19.1
|
)
|
|
|
(15.2
|
)
|
|
|
(25.3
|
)
|
|
|
(15.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
838.0
|
|
|
|
1,188.9
|
|
|
|
1,155.1
|
|
|
|
528.0
|
|
|
|
767.1
|
|
|
|
1,140.3
|
|
|
|
746.8
|
|
Net income attributable to noncontrolling interests
|
|
|
(304.4
|
)
|
|
|
(234.9
|
)
|
|
|
(124.2
|
)
|
|
|
(116.1
|
)
|
|
|
(32.1
|
)
|
|
|
(110.7
|
)
|
|
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Partnership
|
|
$
|
533.6
|
|
|
$
|
954.0
|
|
|
$
|
1,030.9
|
|
|
$
|
411.9
|
|
|
$
|
735.0
|
|
|
$
|
1,029.6
|
|
|
$
|
714.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit
|
|
$
|
0.95
|
|
|
$
|
1.84
|
|
|
$
|
1.73
|
|
|
$
|
0.73
|
|
|
$
|
0.97
|
|
|
$
|
1.60
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit
|
|
$
|
0.95
|
|
|
$
|
1.84
|
|
|
$
|
1.73
|
|
|
$
|
0.73
|
|
|
$
|
0.96
|
|
|
$
|
1.53
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit (declared with respect to period)
|
|
$
|
1.9475
|
|
|
$
|
2.0750
|
|
|
$
|
2.1950
|
|
|
$
|
1.0825
|
|
|
$
|
1.1425
|
|
|
$
|
2.1950
|
|
|
$
|
1.1425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,515.5
|
|
|
$
|
24,211.6
|
|
|
$
|
26,151.6
|
|
|
$
|
25,545.4
|
|
|
$
|
28,289.5
|
|
|
|
n/a
|
|
|
$
|
29,740.1
|
|
Total long-term debt, including current maturities
|
|
|
8,771.1
|
|
|
|
11,637.9
|
|
|
|
11,346.4
|
|
|
|
12,139.5
|
|
|
|
12,671.5
|
|
|
|
n/a
|
|
|
|
13,766.3
|
|
Total equity
|
|
|
9,016.5
|
|
|
|
9,295.9
|
|
|
|
10,042.3
|
|
|
|
9,516.8
|
|
|
|
10,925.4
|
|
|
|
n/a
|
|
|
|
11,276.9
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,953.6
|
|
|
$
|
1,567.1
|
|
|
$
|
2,377.2
|
|
|
$
|
635.0
|
|
|
$
|
900.3
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cash used in investing activities
|
|
|
2,871.8
|
|
|
|
3,246.9
|
|
|
|
1,546.9
|
|
|
|
887.3
|
|
|
|
1,891.8
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cash provided by (used in) financing activities
|
|
|
946.3
|
|
|
|
1,690.7
|
|
|
|
(837.1
|
)
|
|
|
261.5
|
|
|
|
1,431.2
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Distributions received from unconsolidated affiliates
|
|
|
87.0
|
|
|
|
80.8
|
|
|
|
86.6
|
|
|
|
33.5
|
|
|
|
58.8
|
|
|
$
|
169.3
|
|
|
$
|
101.3
|
|
Total gross operating margin(1)
|
|
|
1,964.4
|
|
|
|
2,609.0
|
|
|
|
2,839.8
|
|
|
|
1,336.2
|
|
|
|
1,610.1
|
|
|
|
2,880.9
|
|
|
|
1,615.0
|
|
Adjusted EBITDA(1)
|
|
|
2,004.6
|
|
|
|
2,546.1
|
|
|
|
2,686.1
|
|
|
|
1,279.8
|
|
|
|
1,577.2
|
|
|
|
2,760.0
|
|
|
|
1,615.6
|
|
|
|
|
(1) |
|
Unaudited. Please read Non-GAAP Financial
Measures below beginning on page 21 for a
reconciliation of non-GAAP total gross operating margin and
Adjusted EBITDA to their most closely-related GAAP measures. |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership Consolidated Historical
|
|
|
|
|
For the Six Months
|
|
|
For the Year Ended December 31,
|
|
Ended June 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
Selected volumetric operating data by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes (MBPD)
|
|
|
1,877
|
|
|
|
2,021
|
|
|
|
2,196
|
|
|
|
2,057
|
|
|
|
2,217
|
|
NGL fractionation volumes (MBPD)
|
|
|
405
|
|
|
|
441
|
|
|
|
461
|
|
|
|
450
|
|
|
|
468
|
|
Equity NGL production (MBPD)
|
|
|
88
|
|
|
|
108
|
|
|
|
117
|
|
|
|
116
|
|
|
|
124
|
|
Fee-based natural gas processing
(MMcf/d)
|
|
|
2,565
|
|
|
|
2,524
|
|
|
|
2,650
|
|
|
|
2,908
|
|
|
|
2,833
|
|
Onshore Natural Gas Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
8,465
|
|
|
|
9,612
|
|
|
|
10,435
|
|
|
|
10,506
|
|
|
|
11,300
|
|
Onshore Crude Oil Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil transportation volumes (BBtus/d)
|
|
|
652
|
|
|
|
696
|
|
|
|
680
|
|
|
|
698
|
|
|
|
675
|
|
Offshore Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
1,641
|
|
|
|
1,408
|
|
|
|
1,420
|
|
|
|
1,501
|
|
|
|
1,359
|
|
Crude oil transportation volumes (MBPD)
|
|
|
163
|
|
|
|
169
|
|
|
|
308
|
|
|
|
219
|
|
|
|
338
|
|
Platform natural gas processing
(MMcf/d)
|
|
|
494
|
|
|
|
632
|
|
|
|
700
|
|
|
|
765
|
|
|
|
600
|
|
Platform crude oil processing (MBPD)
|
|
|
24
|
|
|
|
15
|
|
|
|
12
|
|
|
|
6
|
|
|
|
18
|
|
Petrochemical Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes (MBPD)
|
|
|
90
|
|
|
|
86
|
|
|
|
97
|
|
|
|
95
|
|
|
|
86
|
|
Propylene fractionation volumes (MBPD)
|
|
|
68
|
|
|
|
58
|
|
|
|
68
|
|
|
|
67
|
|
|
|
79
|
|
Octane additive production volumes (MBPD)
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
7
|
|
|
|
12
|
|
Transportation volumes, primarily refined products and
petrochemicals (MBPD)
|
|
|
882
|
|
|
|
818
|
|
|
|
806
|
|
|
|
814
|
|
|
|
795
|
|
/d = per day
BBtus = billion British thermal units
MBPD = thousand barrels per day
MMcf = million cubic feet
19
Summary
Historical Financial Information of Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings Consolidated Historical
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In millions, except per unit amounts)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
26,713.8
|
|
|
$
|
35,469.6
|
|
|
$
|
25,510.9
|
|
|
$
|
10,321.2
|
|
|
$
|
16,087.9
|
|
Costs and expenses
|
|
|
25,534.0
|
|
|
|
33,763.7
|
|
|
|
23,748.6
|
|
|
|
9,488.8
|
|
|
|
15,026.9
|
|
Equity in income of unconsolidated affiliates
|
|
|
13.6
|
|
|
|
66.2
|
|
|
|
92.3
|
|
|
|
43.6
|
|
|
|
37.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,193.4
|
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
876.0
|
|
|
|
1,098.6
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(487.4
|
)
|
|
|
(608.3
|
)
|
|
|
(687.3
|
)
|
|
|
(337.3
|
)
|
|
|
(337.1
|
)
|
Other, net
|
|
|
71.8
|
|
|
|
12.3
|
|
|
|
(1.7
|
)
|
|
|
2.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(415.6
|
)
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(335.2
|
)
|
|
|
(336.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
777.8
|
|
|
|
1,176.1
|
|
|
|
1,165.6
|
|
|
|
540.8
|
|
|
|
762.0
|
|
Provision for income taxes
|
|
|
(15.8
|
)
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(19.1
|
)
|
|
|
(15.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
762.0
|
|
|
|
1,145.1
|
|
|
|
1,140.3
|
|
|
|
521.7
|
|
|
|
746.8
|
|
Net income attributable to noncontrolling interests
|
|
|
(653.0
|
)
|
|
|
(981.1
|
)
|
|
|
(936.2
|
)
|
|
|
(419.7
|
)
|
|
|
(622.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Holdings
|
|
$
|
109.0
|
|
|
$
|
164.0
|
|
|
$
|
204.1
|
|
|
$
|
102.0
|
|
|
$
|
124.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit
|
|
$
|
0.97
|
|
|
$
|
1.33
|
|
|
$
|
1.48
|
|
|
$
|
0.75
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit
|
|
$
|
0.97
|
|
|
$
|
1.33
|
|
|
$
|
1.48
|
|
|
$
|
0.75
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit (declared with respect to period)
|
|
$
|
1.550
|
|
|
$
|
1.790
|
|
|
$
|
2.030
|
|
|
$
|
0.985
|
|
|
$
|
1.105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
24,084.4
|
|
|
$
|
25,780.4
|
|
|
$
|
27,686.3
|
|
|
$
|
27,109.2
|
|
|
$
|
29,786.8
|
|
Total long-term debt, including current maturities
|
|
|
9,861.2
|
|
|
|
12,714.9
|
|
|
|
12,427.9
|
|
|
|
13,208.0
|
|
|
|
13,766.3
|
|
Equity
|
|
|
9,530.0
|
|
|
|
9,759.4
|
|
|
|
10,473.1
|
|
|
|
9,984.3
|
|
|
|
11,300.9
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,936.8
|
|
|
$
|
1,566.4
|
|
|
$
|
2,410.3
|
|
|
$
|
650.6
|
|
|
$
|
920.4
|
|
Cash used in investing activities
|
|
|
4,541.1
|
|
|
|
3,246.9
|
|
|
|
1,547.7
|
|
|
|
888.1
|
|
|
|
1,891.8
|
|
Cash provided by (used in) financing activities
|
|
|
2,622.5
|
|
|
|
1,695.9
|
|
|
|
(863.9
|
)
|
|
|
253.0
|
|
|
|
1,412.5
|
|
Total cash distributions received
|
|
|
116.9
|
|
|
|
157.2
|
|
|
|
169.3
|
|
|
|
74.2
|
|
|
|
101.3
|
|
Total gross operating margin(1)
|
|
|
1,967.5
|
|
|
|
2,640.3
|
|
|
|
2,880.9
|
|
|
|
1,362.8
|
|
|
|
1,615.0
|
|
|
|
|
(1) |
|
Unaudited. Please read Non-GAAP Financial
Measures below beginning on page 21 for a
reconciliation of non-GAAP total gross operating margin to its
most closely-related GAAP measures. |
20
Non-GAAP Financial
Measures
This section provides reconciliations of the Partnerships
and Holdings non-GAAP financial measures included in this
proxy statement/prospectus to their most directly comparable
financial measures calculated and presented in accordance with
GAAP. The Partnership and Holdings both present the non-GAAP
financial measure of gross operating margin. The Partnership
also utilizes the non-GAAP financial measure of Adjusted EBITDA.
These non-GAAP financial measures should not be considered as an
alternative to GAAP measures such as net income, operating
income, net cash flows provided by operating activities or any
other measure of liquidity or financial performance calculated
and presented in accordance with GAAP. These non-GAAP financial
measures may not be comparable to similarly-titled measures of
other companies because they may not calculate such measures in
the same manner as the Partnership or Holdings does.
Gross
Operating Margin
The Partnership and Holdings evaluate segment performance based
on the non-GAAP financial measure of gross operating margin.
Gross operating margin (either in total or by individual
segment) is an important performance measure of the core
profitability of both the Partnerships and Holdings
operations. This measure forms the basis of the
Partnerships and Holdings internal financial
reporting and is used by management in deciding how to allocate
capital resources among business segments. The Partnership and
Holdings believe that investors benefit from having access to
the same financial measures that management uses in evaluating
segment results. The GAAP measure most directly comparable to
total segment gross operating margin is operating income. The
non-GAAP financial measure of total segment gross operating
margin should not be considered an alternative to GAAP operating
income.
The Partnership and Holdings define total segment gross
operating margin as operating income before:
(i) depreciation, amortization and accretion expense;
(ii) asset impairment charges; (iii) operating lease
expenses for which the Partnership and Holdings do not have the
payment obligation; (iv) gains and losses from asset sales
and related transactions; and (v) general and
administrative costs. Gross operating margin by segment is
calculated by subtracting segment operating costs and expenses
(net of the adjustments noted above) from segment revenues, with
both segment totals before the elimination of intercompany
transactions. In accordance with GAAP, intercompany accounts and
transactions are eliminated in consolidation. Gross operating
margin is presented on a 100% basis before the allocation of
earnings to noncontrolling interests.
The following table presents a reconciliation of the
Partnerships non-GAAP financial measure of total gross
operating margin to the GAAP financial measure of operating
income, on a historical and pro forma basis, as applicable for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Partnership Consolidated Historical
|
|
|
For the
|
|
|
Six Months
|
|
|
|
|
|
|
For the Six Months
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Total segment gross operating margin
|
|
$
|
1,964.4
|
|
|
$
|
2,609.0
|
|
|
$
|
2,839.8
|
|
|
$
|
1,336.2
|
|
|
$
|
1,610.1
|
|
|
$
|
2,880.9
|
|
|
$
|
1,615.0
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(647.9
|
)
|
|
|
(725.4
|
)
|
|
|
(809.3
|
)
|
|
|
(396.9
|
)
|
|
|
(439.4
|
)
|
|
|
(809.3
|
)
|
|
|
(439.4
|
)
|
Non-cash asset impairment charges in operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
(2.3
|
)
|
|
|
(1.5
|
)
|
|
|
(33.5
|
)
|
|
|
(1.5
|
)
|
Operating lease expenses paid by EPCO
|
|
|
(2.1
|
)
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
(0.3
|
)
|
Gains from asset sales and related transactions in operating
costs and expenses
|
|
|
7.8
|
|
|
|
4.0
|
|
|
|
|
|
|
|
0.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
5.6
|
|
General and administrative costs
|
|
|
(127.2
|
)
|
|
|
(137.2
|
)
|
|
|
(172.3
|
)
|
|
|
(81.0
|
)
|
|
|
(75.5
|
)
|
|
|
(182.8
|
)
|
|
|
(80.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,195.0
|
|
|
|
1,748.4
|
|
|
|
1,824.0
|
|
|
|
856.1
|
|
|
|
1,099.0
|
|
|
|
1,854.6
|
|
|
|
1,098.6
|
|
Other expense, net
|
|
|
(341.3
|
)
|
|
|
(528.5
|
)
|
|
|
(643.6
|
)
|
|
|
(309.0
|
)
|
|
|
(316.7
|
)
|
|
|
(689.0
|
)
|
|
|
(336.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision of income taxes
|
|
$
|
853.7
|
|
|
$
|
1,219.9
|
|
|
$
|
1,180.4
|
|
|
$
|
547.1
|
|
|
$
|
782.3
|
|
|
$
|
1,165.6
|
|
|
$
|
762.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table presents a reconciliation of Holdings
non-GAAP financial measure of total gross operating margin to
the GAAP financial measure of operating income, on a historical
basis, for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings Consolidated Historical
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Total segment gross operating margin
|
|
$
|
1,967.5
|
|
|
$
|
2,640.3
|
|
|
$
|
2,880.9
|
|
|
$
|
1,362.8
|
|
|
$
|
1,615.0
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(647.9
|
)
|
|
|
(725.4
|
)
|
|
|
(809.3
|
)
|
|
|
(396.9
|
)
|
|
|
(439.4
|
)
|
Non-cash asset impairment charges in operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
(2.3
|
)
|
|
|
(1.5
|
)
|
Operating lease expenses paid by EPCO
|
|
|
(2.1
|
)
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Gains from asset sales and related transactions in operating
costs and expenses
|
|
|
7.8
|
|
|
|
4.0
|
|
|
|
|
|
|
|
0.4
|
|
|
|
5.6
|
|
General and administrative costs
|
|
|
(131.9
|
)
|
|
|
(144.8
|
)
|
|
|
(182.8
|
)
|
|
|
(87.7
|
)
|
|
|
(80.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,193.4
|
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
876.0
|
|
|
|
1,098.6
|
|
Other expense, net
|
|
|
(415.6
|
)
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(335.2
|
)
|
|
|
(336.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision of income taxes
|
|
$
|
777.8
|
|
|
$
|
1,176.1
|
|
|
$
|
1,165.6
|
|
|
$
|
540.8
|
|
|
$
|
762.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA of the Partnership
The Partnership defines Adjusted EBITDA as income from
continuing operations less equity in income from unconsolidated
affiliates; plus distributions received from unconsolidated
affiliates, interest expense, provision for income taxes and
depreciation, amortization and accretion expense. The GAAP
measure most directly comparable to Adjusted EBITDA is net cash
flows provided by operating activities. Adjusted EBITDA is
commonly used as a supplemental financial measure by management
and by external users of the Partnerships financial
statements, such as investors, commercial banks, research
analysts and rating agencies, to assess:
|
|
|
|
|
the financial performance of the Partnerships assets
without regard to financing methods, capital structures or
historical cost basis;
|
|
|
|
the ability of the Partnerships assets to generate cash
sufficient to pay interest cost and support our
indebtedness; and
|
|
|
|
the viability of projects and the overall rates of return on
alternative investment opportunities.
|
22
The following table presents the Partnerships calculation
of Adjusted EBITDA on a historical and pro forma basis and also
a reconciliation of the Partnerships non-GAAP financial
measure of Adjusted EBITDA to the GAAP financial measure of net
cash flows provided by operating activities on a historical
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership Pro Forma
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Partnership Consolidated Historical
|
|
|
For the
|
|
|
Six Months
|
|
|
|
|
|
|
For the Six Months
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
838.0
|
|
|
$
|
1,188.9
|
|
|
$
|
1,155.1
|
|
|
$
|
528.0
|
|
|
$
|
767.1
|
|
|
$
|
1,140.3
|
|
|
$
|
746.8
|
|
Adjustments to GAAP net income to derive
non-GAAP Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(10.5
|
)
|
|
|
(34.9
|
)
|
|
|
(51.2
|
)
|
|
|
(17.0
|
)
|
|
|
(32.7
|
)
|
|
|
(92.3
|
)
|
|
|
(37.6
|
)
|
Distributions received from unconsolidated affiliates
|
|
|
87.0
|
|
|
|
80.8
|
|
|
|
86.6
|
|
|
|
33.5
|
|
|
|
58.8
|
|
|
|
169.3
|
|
|
|
101.3
|
|
Interest expense (including related amortization)
|
|
|
413.0
|
|
|
|
540.7
|
|
|
|
641.8
|
|
|
|
311.0
|
|
|
|
317.2
|
|
|
|
687.3
|
|
|
|
337.1
|
|
Provision for income taxes
|
|
|
15.7
|
|
|
|
31.0
|
|
|
|
25.3
|
|
|
|
19.1
|
|
|
|
15.2
|
|
|
|
25.3
|
|
|
|
15.2
|
|
Depreciation, amortization and accretion in costs and expenses
|
|
|
661.4
|
|
|
|
739.6
|
|
|
|
828.5
|
|
|
|
405.2
|
|
|
|
451.6
|
|
|
|
830.1
|
|
|
|
452.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
2,004.6
|
|
|
$
|
2,546.1
|
|
|
$
|
2,686.1
|
|
|
$
|
1,279.8
|
|
|
$
|
1,577.2
|
|
|
$
|
2,760.0
|
|
|
$
|
1,615.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to non-GAAP Adjusted EBITDA to derive GAAP
net cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(413.0
|
)
|
|
|
(540.7
|
)
|
|
|
(641.8
|
)
|
|
|
(311.0
|
)
|
|
|
(317.2
|
)
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(15.7
|
)
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(19.1
|
)
|
|
|
(15.2
|
)
|
|
|
|
|
|
|
|
|
Operating lease expenses paid by EPCO
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Gain from asset sales and related transactions
|
|
|
(67.4
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
Loss on forfeiture of Texas Offshore Port System
|
|
|
|
|
|
|
|
|
|
|
68.4
|
|
|
|
68.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous non-cash and other amounts to reconcile Adjusted
EBITDA and net cash flows provided by operating activities
|
|
|
8.1
|
|
|
|
5.8
|
|
|
|
43.2
|
|
|
|
(5.5
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
Net effect of changes in operating accounts
|
|
|
434.9
|
|
|
|
(411.1
|
)
|
|
|
245.9
|
|
|
|
(377.5
|
)
|
|
|
(336.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,953.6
|
|
|
$
|
1,567.1
|
|
|
$
|
2,377.2
|
|
|
$
|
635.0
|
|
|
$
|
900.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
COMPARATIVE
PER UNIT INFORMATION
The following table sets forth (i) historical per unit
information of the Partnership, (ii) the unaudited pro
forma combined per unit information of the Partnership after
giving pro forma effect to the proposed merger and the
transactions contemplated thereby, including the
Partnerships issuance of 1.50 Partnership common units for
each outstanding Holdings unit, and (iii) the historical
and equivalent pro forma per unit information for Holdings.
You should read this information in conjunction with
(i) the summary historical financial information included
elsewhere in this proxy statement/prospectus, (ii) the
historical consolidated financial statements of Holdings and the
Partnership and related notes that are incorporated by reference
in this proxy statement/prospectus and (iii) the
Unaudited Pro Forma Condensed Consolidated Financial
Statements and related notes included elsewhere in this
proxy statement/prospectus. The unaudited pro forma combined per
unit information does not purport to represent what the actual
results of operations of Holdings and the Partnership would have
been had the partnerships been combined or to project
Holdings and the Partnerships results of operations
that may be achieved once the proposed merger is completed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Partnership
|
|
Holdings
|
|
|
|
|
Partnership
|
|
|
|
Equivalent
|
|
|
Historical
|
|
Pro Forma(1)
|
|
Historical
|
|
Pro Forma(2)
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.73
|
|
|
$
|
1.60
|
|
|
$
|
1.48
|
|
|
$
|
2.40
|
|
Diluted
|
|
$
|
1.73
|
|
|
$
|
1.53
|
|
|
$
|
1.48
|
|
|
$
|
2.30
|
|
Cash distributions declared per unit(3)
|
|
$
|
2.1950
|
|
|
$
|
2.1950
|
|
|
$
|
2.0300
|
|
|
$
|
3.2925
|
|
Book value per common unit
|
|
$
|
15.28
|
|
|
|
N/A
|
|
|
$
|
14.17
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
Partnership
|
|
Holdings
|
|
|
|
|
Partnership
|
|
|
|
Equivalent
|
|
|
Historical
|
|
Pro Forma(1)
|
|
Historical
|
|
Pro Forma(2)
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.97
|
|
|
$
|
0.91
|
|
|
$
|
0.89
|
|
|
$
|
1.37
|
|
Diluted
|
|
$
|
0.96
|
|
|
$
|
0.87
|
|
|
$
|
0.89
|
|
|
$
|
1.31
|
|
Cash distributions declared per unit(3)
|
|
$
|
1.1425
|
|
|
$
|
1.1425
|
|
|
$
|
1.1050
|
|
|
$
|
1.7138
|
|
Book value per common unit
|
|
$
|
15.94
|
|
|
$
|
12.97
|
|
|
$
|
13.99
|
|
|
$
|
19.46
|
|
|
|
|
(1) |
|
The Partnerships pro forma information includes the effect
of the merger on the basis described in the notes to the
Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this proxy
statement/prospectus. |
|
(2) |
|
Holdings equivalent pro forma earnings, book value and
cash distribution amounts have been calculated by multiplying
the Partnerships related Partnership pro forma per unit
amounts by the 1.50 exchange ratio. |
|
(3) |
|
Represents cash distributions per common unit declared and paid
with respect to the period. |
24
MARKET
PRICES AND DISTRIBUTION INFORMATION
The Partnership common units are traded on the NYSE under the
ticker symbol EPD, and the Holdings units are traded
on the NYSE under the ticker symbol EPE. The
following table sets forth, for the periods indicated, the range
of high and low sales prices per unit for Partnership common
units and Holdings units, on the NYSE composite tape, as well as
information concerning quarterly cash distributions declared and
paid on those units. The sales prices are as reported in
published financial sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership Common Units
|
|
Holdings Units
|
|
|
High
|
|
Low
|
|
Distributions(1)
|
|
High
|
|
Low
|
|
Distributions(1)
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
32.63
|
|
|
$
|
26.75
|
|
|
$
|
0.5075
|
|
|
$
|
36.86
|
|
|
$
|
27.86
|
|
|
|
$0.425
|
|
Second Quarter
|
|
$
|
32.64
|
|
|
$
|
29.04
|
|
|
$
|
0.5150
|
|
|
$
|
33.76
|
|
|
$
|
29.51
|
|
|
|
$0.440
|
|
Third Quarter
|
|
$
|
30.07
|
|
|
$
|
22.58
|
|
|
$
|
0.5225
|
|
|
$
|
30.64
|
|
|
$
|
21.16
|
|
|
|
$0.455
|
|
Fourth Quarter
|
|
$
|
26.30
|
|
|
$
|
16.00
|
|
|
$
|
0.5300
|
|
|
$
|
24.20
|
|
|
$
|
14.50
|
|
|
|
$0.470
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.20
|
|
|
$
|
17.71
|
|
|
$
|
0.5375
|
|
|
$
|
23.94
|
|
|
$
|
17.67
|
|
|
|
$0.485
|
|
Second Quarter
|
|
$
|
26.55
|
|
|
$
|
21.10
|
|
|
$
|
0.5450
|
|
|
$
|
29.60
|
|
|
$
|
22.04
|
|
|
|
$0.500
|
|
Third Quarter
|
|
$
|
29.45
|
|
|
$
|
24.50
|
|
|
$
|
0.5525
|
|
|
$
|
31.27
|
|
|
$
|
24.21
|
|
|
|
$0.515
|
|
Fourth Quarter
|
|
$
|
32.24
|
|
|
$
|
27.25
|
|
|
$
|
0.5600
|
|
|
$
|
39.51
|
|
|
$
|
29.16
|
|
|
|
$0.530
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.69
|
|
|
$
|
29.44
|
|
|
$
|
0.5675
|
|
|
$
|
45.19
|
|
|
$
|
36.20
|
|
|
|
$0.545
|
|
Second Quarter
|
|
$
|
36.73
|
|
|
$
|
29.05
|
|
|
$
|
0.5750
|
|
|
$
|
49.62
|
|
|
$
|
38.70
|
|
|
|
$0.560
|
|
Third Quarter
|
|
$
|
39.69
|
|
|
$
|
34.21
|
|
|
$
|
0.5825
|
(2)
|
|
$
|
58.72
|
|
|
$
|
45.90
|
|
|
|
$0.575
|
(2)
|
Fourth Quarter (through October 13, 2010)
|
|
$
|
41.93
|
|
|
$
|
39.69
|
|
|
|
(2
|
)
|
|
$
|
61.94
|
|
|
$
|
58.75
|
|
|
|
(2
|
)
|
|
|
|
(1) |
|
Represents cash distributions per Partnership common unit or
Holdings unit declared with respect to the quarter presented and
paid in the following quarter. |
|
|
|
(2) |
|
Cash distributions with respect to the third quarter of 2010
have been declared but not paid. Cash distributions with respect
to the fourth quarter of 2010 have not been declared or paid.
The merger will not be consummated until after the record date
for the third quarter 2010 distributions. |
The last reported sale price of Holdings units on the NYSE on
September 3, 2010, the last trading day before the public
announcement of the proposed merger, was $49.90. The last
reported sale price of Partnership common units on the NYSE on
September 3, 2010, the last trading day before the public
announcement of the proposed merger, was $38.45. The last
reported sale price of Holdings units on the NYSE on
October 13, 2010, the last trading day before the filing of
the registration statement of which this proxy
statement/prospectus is a part, was $61.65. The last reported
sale price of Partnership common units on the NYSE on
October 13, 2010, the last trading day before the filing of
the registration statement of which this proxy
statement/prospectus is a part, was $41.55.
As of October 13, 2010, the Partnership had 639,280,225
common units and 4,520,431 Class B units outstanding held
by approximately 1,853 holders of record. The Partnerships
partnership agreement requires it to distribute all of its
available cash, as defined in its partnership
agreement, within 45 days after the end of each quarter.
The payment of quarterly cash distributions by the Partnership
in the future, therefore, will depend on the amount of
available cash at the end of each quarter.
As of the record date for the special meeting, Holdings had
139,195,064 outstanding units held by approximately 103 holders
of record. Holdings partnership agreement requires it to
distribute all of its available cash, as defined in
its partnership agreement, within 50 days after the end of
each quarter. If the merger is not completed, the payment of
quarterly cash distributions by Holdings in the future will
depend on the amount of available cash at the end of
each quarter.
25
RISK
FACTORS
You should consider carefully the following risk factors,
together with all of the other information included in, or
incorporated by reference into, this proxy statement/prospectus
before deciding how to vote. In particular, please read
Part I, Item 1A, Risk Factors, in the
Annual Reports on
Form 10-K
for the year ended December 31, 2009 for each of the
Partnership and Holdings and Part II, Item 1A,
Risk Factors, in the Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2010 and
June 30, 2010 for each of the Partnership and Holdings, in
each case incorporated by reference herein. This document also
contains forward-looking statements that involve risks and
uncertainties. Please read Information Regarding
Forward-Looking Statements.
Risks
Related to the Merger
Holdings
partnership agreement limits the fiduciary duties of Holdings GP
to unitholders and restricts the remedies available to
unitholders for actions taken by Holdings GP that might
otherwise constitute breaches of fiduciary duty.
In light of conflicts of interest in connection with the merger
between the Partnership, Holdings GP and its controlling
affiliates, on the one hand, and Holdings and the Holdings
unaffiliated unitholders, on the other hand, the Holdings Board
referred the merger and related matters to the Holdings ACG
Committee to obtain approval of a majority of its members, which
is referred to as Special Approval in Holdings
partnership agreement. Under the Holdings partnership agreement:
|
|
|
|
|
any conflict of interest and any resolution thereof is permitted
and deemed approved by all parties and will not constitute a
breach of the partnership agreement of Holdings if approved by
Special Approval; and
|
|
|
|
the actions taken by the Holdings ACG Committee in granting
Special Approval are conclusive and binding on all
persons (including all partners) and do not constitute a breach
of the partnership agreement or any standard of care or duty
imposed by law.
|
The
directors and executive officers of Holdings GP may have
interests relating to the merger that differ in certain respects
from the interests of the Holdings unaffiliated
unitholders.
In considering the recommendations of the Holdings ACG Committee
and the Holdings Board to approve the merger agreement and the
merger, you should consider that some of the directors and
executive officers of Holdings GP may have interests that differ
from, or are in addition to, interests of Holdings unitholders
generally, including:
|
|
|
|
|
The non-management directors of Holdings GP hold equity-based
awards under Holdings benefit plans that will generally be
converted into equity awards with respect to Partnership common
units, adjusted for the exchange ratio.
|
|
|
|
All of the directors and executive officers of Holdings GP will
receive continued indemnification for their actions as directors
and executive officers.
|
|
|
|
Most of the directors of Holdings GP directly or
beneficially own Partnership common units, including
Ms. Williams, Dr. Cunningham, Mr. Bachmann,
Mr. Andress, Mr. Andras and Mr. Smith.
|
|
|
|
In addition to serving as a director and Executive Vice
President of Holdings GP, Mr. Bachmann also serves as the
Executive Vice President, Chief Legal Officer and Secretary of
the Partnership GP, and has certain duties to the limited
partners of the Partnership.
|
|
|
|
|
|
Three of the directors of Holdings GP, Ms. Williams,
Mr. Bachmann and Dr. Cunningham (who is also CEO of
Holdings GP), also serve as both the DDLLC voting trustees and
the EPCO voting trustees. These three individuals also serve as
independent executors of the estate of Dan L. Duncan. Through
these positions, these persons effectively own or control
approximately 76% of the outstanding Holdings units and
approximately 28% of the outstanding Partnership common units
and Class B units,
|
26
|
|
|
|
|
collectively, which securities represented an aggregate fair
market value of approximately $5.3 billion and
$7.0 billion, respectively, based on the closing prices of
the Holdings units and Partnership common units on
September 3, 2010, the last trading day before announcement
of the merger. In their capacities as trustees of those voting
trusts or as a majority of the directors of certain affiliated
entities, Ms. Williams, Mr. Bachmann and
Dr. Cunningham have authorized or caused the Holdings
supporting unitholders to enter into the support agreement,
pursuant to which the Holdings supporting unitholders have
agreed to vote approximately 76% of the outstanding Holdings
units in favor of the merger agreement and the merger.
|
|
|
|
|
|
Members of senior management who prepared projections with
respect to the Partnerships and Holdings future
financial and operating performance on a stand-alone basis and
on a combined basis (i) are officers of each of Holdings GP
and the Partnership GP, (ii) hold the same positions in
each entity, and (iii) own both Holdings units and
Partnership common units.
|
The
exchange ratio is fixed and the market value of the merger
consideration to Holdings unitholders will be equal to 1.50
times the price of Partnership common units at the closing of
the merger, which market value will decrease if the market value
of the Partnerships common units decreases.
The market value of the consideration that Holdings unitholders
will receive in the merger will depend on the trading price of
the Partnerships common units at the closing of the
merger. The 1.50x exchange ratio that determines the number of
Partnership common units that Holdings unitholders will receive
in the merger is fixed. This means that there is no price
protection mechanism contained in the merger agreement
that would adjust the number of Partnership common units that
Holdings unitholders will receive based on any decreases in the
trading price of Partnership common units. If the
Partnerships common unit price at the closing of the
merger is less than the Partnerships common unit price on
the date that the merger agreement was signed, then the market
value of the consideration received by Holdings unitholders will
be less than contemplated at the time the merger agreement was
signed.
Partnership common unit price changes may result from a variety
of factors, including general market and economic conditions,
changes in the Partnerships business, operations and
prospects, and regulatory considerations. Many of these factors
are beyond the Partnerships and Holdings control.
For historical and current market prices of Partnership common
units and Holdings units, please read the Market Prices
and Distribution Information section of this proxy
statement/prospectus.
The
transactions contemplated by the merger agreement may not be
consummated even if Holdings unitholders approve the merger
agreement and the merger.
The merger agreement contains conditions that, if not satisfied
or waived, would result in the merger not occurring, even though
Holdings unitholders may have voted in favor of the merger
agreement. In addition, Holdings and the Partnership can agree
not to consummate the merger even if Holdings unitholders
approve the merger agreement and the merger and the conditions
to the closing of the merger are otherwise satisfied.
Financial
projections by the Partnership and Holdings may not prove
accurate.
In performing its financial analyses and rendering its opinion
regarding the fairness from a financial point of view of the
exchange ratio, the financial advisor to the Holdings ACG
Committee reviewed and relied on, among other things, internal
financial analyses and forecasts for Holdings and the
Partnership prepared by their respective managements and by the
Partnerships financial advisor in conjunction with
management of the Partnership GP and Holdings GP. These
financial projections include assumptions regarding future
operating cash flows, expenditures, growth and distributable
income of the Partnership and Holdings. These financial
projections were not provided with a view to public disclosure,
are subject to significant economic, competitive, industry and
other uncertainties and may not be achieved in full, at all or
within projected timeframes. The failure of the
Partnerships or Holdings businesses to achieve
projected results, including projected cash flows or
distributable cash flows, could have a material adverse effect
on the Partnerships common unit price, financial position
and ability to maintain or increase its distributions following
the merger.
27
The
merger agreement may be terminated, and the support agreement
will automatically terminate, on December 31, 2010 if the
merger has not been completed, and the failure to complete the
merger for any reason could negatively impact the price of
Holdings units and Partnership common units.
The merger agreement can be terminated by either the Partnership
or Holdings if the merger has not been consummated on or before
December 31, 2010. In addition, the support agreement will
terminate at 11:59 pm (Eastern time) on December 31, 2010,
and the obligations of the EPCO affiliates who will be party to
the distribution waiver agreement to execute and deliver such
agreement will also terminate if the merger has not been
consummated on or before December 31, 2010. The failure to
complete the merger for these or any other reasons could
negatively impact the price of Holdings units
and/or
Partnership common units.
The
number of outstanding Partnership common units will increase as
a result of the merger, which could make it more difficult to
maintain the Partnerships current positive distribution
coverage ratio or increase the level of future quarterly
distributions.
As of October 13, 2010, there were 639,280,225 Partnership
common units and 4,520,431 Class B units of the Partnership
outstanding. The Partnership will issue 208,813,477 Partnership
common units in the merger. Even after taking into account both
the waiver by DFIDH of regular quarterly distributions with
respect to certain Partnership common units for a five-year
period after the merger closing date pursuant to the
distribution waiver agreement, and distributions no longer being
payable to the Partnerships general partner with respect
to its general partner interest and IDRs, incremental funds will
be required to pay the current per unit quarterly distributions
on all outstanding Partnership common units, which will increase
the potential that the Partnership would have diminishing excess
distributable cash flow. In that event, it will be more
difficult for the Partnership to maintain its current positive
distribution coverage ratio or increase future levels of
quarterly distributions to all Partnership unitholders.
While
the merger agreement is in effect, Holdings may lose
opportunities to enter into different business combination
transactions with other parties on more favorable terms, and
both the Partnership and Holdings may be limited in their
ability to pursue other attractive business
opportunities.
While the merger agreement is in effect, Holdings is prohibited
from initiating, soliciting, knowingly encouraging or
facilitating any inquiries or the making or submission of any
proposal that constitutes or may reasonably be expected to lead
to a proposal to acquire Holdings, or offering to enter into
certain transactions such as a merger, sale of assets or other
business combination, with any other person, subject to limited
exceptions. As a result of these provisions in the merger
agreement, Holdings may lose opportunities to enter into more
favorable transactions.
Both the Partnership and Holdings have also agreed to refrain
from taking certain actions with respect to their businesses and
financial affairs pending completion of the merger or
termination of the merger agreement. These restrictions and the
non-solicitation provisions (described in more detail below in
The Merger Agreement) could be in effect for an
extended period of time if completion of the merger is delayed
and the parties agree to extend the December 31, 2010
outside termination date.
In addition to the economic costs associated with pursuing a
merger, each of the Partnership GPs and Holdings GPs
management is devoting substantial time and other resources to
the proposed transaction and related matters, which could limit
the Partnerships and Holdings ability to pursue
other attractive business opportunities, including potential
joint ventures, stand-alone projects and other transactions. If
either the Partnership or Holdings is unable to pursue such
other attractive business opportunities, then its growth
prospects and the long-term strategic position of its business
and the combined business could be adversely affected.
Tax Risks
Related to the Merger
In addition to reading the following risk factors, you are urged
to read Material U.S. Federal Income Tax Consequences
of the Merger beginning on page 132 and
U.S. Federal Income Taxation of Ownership of
Partnership Common Units beginning on page 137 for a
more complete discussion of the expected material
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U.S. federal income tax consequences of the merger and
owning and disposing of Partnership common units received in the
merger.
No
ruling has been obtained with respect to the U.S. federal income
tax consequences of the merger.
No ruling has been or will be requested from the IRS with
respect to the U.S. federal income tax consequences of the
merger. Instead, the Partnership and Holdings are relying on the
opinions of their respective counsel as to the U.S. federal
income tax consequences of the merger, and counsels
conclusions may not be sustained if challenged by the IRS.
The
intended U.S. federal income tax consequences of the merger are
dependent upon each of the Partnership and Holdings being
treated as a partnership for U.S. federal income tax
purposes.
The treatment of the merger as nontaxable to the Partnership
unitholders and Holdings unitholders is dependent upon each of
the Partnership and Holdings being treated as a partnership for
U.S. federal income tax purposes. If either the Partnership
or Holdings were treated as a corporation for U.S. federal
income tax purposes, the consequences of the merger would be
materially different and the merger would likely be a fully
taxable transaction to a Holdings unitholder.
The
U.S. federal income tax treatment of the merger is subject to
potential legislative change and differing judicial or
administrative interpretations.
The U.S. federal income tax consequences of the merger
depend in some instances on determinations of fact and
interpretations of complex provisions of U.S. federal
income tax law. The U.S. federal income tax rules are
constantly under review by persons involved in the legislative
process, the IRS and the U.S. Treasury Department,
frequently resulting in revised interpretations of established
concepts, statutory changes, revisions to U.S. Treasury
regulations (the Treasury Regulations) and other
modifications and interpretations. Any modification to the
U.S. federal income tax laws or interpretations thereof may
or may not be applied retroactively and could change the
U.S. federal income tax treatment of the merger to
Partnership unitholders and Holdings unitholders. For example,
the U.S. House of Representatives has passed legislation
relating to the taxation of carried interests that
may treat transactions, such as the merger, occurring on or
after an effective date of January 1, 2011, as a taxable
exchange to a unitholder of a partnership such as Holdings. The
U.S. Senate is considering legislation that may have a
similar effect. We are unable to predict whether this proposed
legislation or any other proposals will ultimately be enacted,
and if so, whether any such proposed legislation would be
applied retroactively.
Holdings
unitholders could recognize taxable income or gain for U.S.
federal income tax purposes as a result of the
merger.
As a result of the merger, Holdings unitholders who receive
Partnership common units will become limited partners of the
Partnership and will be allocated a share of the
Partnerships nonrecourse liabilities. Each Holdings
unitholder will be treated as receiving a deemed cash
distribution equal to the excess, if any, of such
unitholders share of nonrecourse liabilities of Holdings
immediately before the merger over such unitholders share
of nonrecourse liabilities of the Partnership immediately
following the merger. If the amount of any deemed cash
distribution received by a Holdings unitholder exceeds the
unitholders basis in his Partnership common units, such
unitholder will recognize gain in an amount equal to such
excess. The Partnership and Holdings do not expect any Holdings
unitholders to recognize gain in this manner.
To the extent a Holdings unitholder receives cash in lieu of
fractional Partnership common units in the merger, such
unitholder will recognize gain or loss equal to the difference
between the cash received and the unitholders adjusted tax
basis allocated to such fractional Partnership common units.
The Partnership will be deemed for U.S. federal income tax
purposes to have assumed the liabilities of Holdings and its
subsidiaries in the merger. A Holdings unitholder would
recognize gain or loss to the extent any portion of the
liabilities of Holdings assumed by the Partnership was deemed to
be the proceeds of a
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disguised sale of assets to the Partnership. See
Material U.S. Federal Income Tax Consequences of the
Merger for a more complete discussion of these and other
tax matters.
Although it is not anticipated, circumstances may exist under
which a Holdings unitholders share of Holdings basis
(including basis resulting from Section 743 adjustments) in
the distributed Partnership common units exceeds the
unitholders basis in its Holdings units, in which case the
merger may result in recognition of gain by such unitholder
equal to that excess under Section 731(c) of the Internal
Revenue Code.
Risks
Related to the Partnerships Business After the
Merger
The
Partnerships cash distributions may vary based on its
operating performance and level of cash reserves.
Distributions will be dependent on the amount of cash the
Partnership generates and may fluctuate based on its
performance. Neither the Partnership nor Holdings can guarantee
that after giving effect to the merger the Partnership will
continue to pay distributions at the current level each quarter
or make any increases in the amount of distributions in the
future. The actual amount of cash that is available to be
distributed each quarter will depend upon numerous factors, some
of which will be beyond the Partnerships control and the
control of its general partner. These factors include but are
not limited to the following:
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the volume of products that the Partnership handles and the
prices it receives for its products and services;
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the level of the Partnerships operating costs;
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the level of competition from third parties;
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prevailing economic conditions, including the price of and
demand for NGLs, crude oil, natural gas and other products the
Partnership will process, transport, store and market;
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the level of capital expenditures the Partnership will make and
the availability of, and timing of completion of, organic growth
projects;
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the restrictions contained in the Partnerships debt
agreements and debt service requirements;
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fluctuations in the Partnerships working capital needs;
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the weather in the Partnerships operating areas;
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the availability and cost of acquisitions, if any;
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regulatory changes; and
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the amount, if any, of cash reserves established by the
Partnership GP (or Holdings GP after giving effect to the
merger) in its discretion.
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In addition, the Partnerships ability to pay the minimum
quarterly distribution each quarter will depend primarily on its
cash flow, including cash flow from financial reserves and
working capital borrowings, and not solely on profitability,
which is affected by non-cash items. As a result, the
Partnership may make cash distributions during periods when it
records losses, and the Partnership may not make distributions
during periods when it records net income.
The
Partnership will have substantial debt after the merger, which
could have a material adverse effect on its financial health and
limit its future operations.
Following the completion of the merger, the Partnership expects
to incur an additional $1.1 billion of consolidated debt as
part of its refinancing of Holdings revolving credit
facility and term loans. On a pro forma basis, the
Partnerships consolidated long-term debt as of
June 30, 2010 would have been approximately
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$13.8 billion. The amount of the Partnerships future
debt could have significant effects on its operations,
including, among other things:
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the Partnerships ability to obtain additional financing,
if necessary, to refinance existing debt for working capital,
capital expenditures, acquisitions or other purposes may be
impaired or such financing may not be available on favorable
terms;
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credit rating agencies may view the Partnerships debt
level negatively;
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covenants contained in the Partnerships credit and certain
other debt agreements will require the Partnership to continue
to meet financial tests that may adversely affect its
flexibility in planning for and reacting to changes in its
business, including possible acquisition opportunities;
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the Partnership may be at a competitive disadvantage relative to
similar companies that have less debt; and
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the Partnership may be more vulnerable to adverse economic and
industry conditions as a result of the Partnerships
significant debt level.
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The Partnerships public debt indentures currently do not
limit the amount of future indebtedness that it can create,
incur, assume or guarantee. Although the Multi-Year Revolving
Credit Facility of Enterprise Products Operating LLC
(EPO) restricts the Partnerships ability to
incur additional debt above certain levels, any debt the
Partnership may incur in compliance with these restrictions
could be substantial.
EPOs Multi-Year Revolving Credit Facility and each of its
indentures for public debt contain customary financial covenants
and other restrictions. As a result, the Partnership could be
prohibited from making distributions to its partners if such
distributions would cause an event of default or otherwise
violate a covenant under such agreements. In addition, under the
terms of EPOs junior subordinated notes, generally, if the
Partnership elects to defer interest payments thereon, the
Partnership would be restricted from making distributions with
respect to its equity securities. A breach of any of these
restrictions by the Partnership could permit the
Partnerships lenders or noteholders, as applicable, to
declare all amounts outstanding under these debt agreements to
be immediately due and payable and, in the case of EPOs
Multi-Year Revolving Credit Facility, to terminate all
commitments to extend further credit.
The Partnerships ability to access capital on favorable
terms could be affected by the Partnerships debt level,
the timing of its debt maturities, and by prevailing market
conditions. Moreover, if the rating agencies were to downgrade
the Partnerships credit ratings, then the Partnership
could experience an increase in its borrowing costs, difficulty
accessing capital markets or a reduction in the market price of
its common units. Such a development could adversely affect the
Partnerships ability to obtain financing for working
capital, capital expenditures or acquisitions or to refinance
existing indebtedness. If the Partnership is unable to access
the capital markets on favorable terms in the future, it might
be forced to seek extensions for some of its short-term
securities or to refinance some of the Partnerships debt
obligations through bank credit, as opposed to long-term public
debt securities or equity securities. The price and terms upon
which the Partnership might receive such extensions or
additional bank credit, if at all, could be more onerous than
those contained in existing debt agreements. Any such
arrangements could, in turn, increase the risk that the
Partnerships leverage may adversely affect its future
financial and operating flexibility and thereby impact the
Partnerships ability to pay cash distributions at expected
levels.
The
Partnerships and Holdings variable rate debt and
future maturities of fixed-rate, long-term debt make the
Partnership vulnerable to increases in interest rates. Increases
in interest rates could materially adversely affect the
Partnerships business, financial position, results of
operations and cash flows.
On a pro forma basis, the Partnership would have had outstanding
$13.8 billion of consolidated debt (excluding the value of
interest rate swaps and currency swaps) as of June 30,
2010. Of this amount, approximately $1.5 billion, or 11%,
was subject to variable interest rates, either as short-term or
long-term variable rate debt obligations or as long-term
fixed-rate debt converted to variable rates through the use of
interest rate swaps. Should interest rates increase, the
Partnerships refinancing cost would increase and the
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amount of cash required to service the Partnerships debt
would increase. As a result, the Partnerships financial
position, results of operations and cash flows, could be
materially adversely affected.
An increase in interest rates may also cause a corresponding
decline in demand for equity investments, in general, and in
particular, for yield-based equity investments such as the
Partnerships common units. Any such reduction in demand
for the Partnerships common units resulting from other
more attractive investment opportunities may cause the trading
price of the Partnerships common units to decline.
Risks
Related to the Partnerships Common Units and Risks
Resulting from its Partnership Structure
The
general partner of the Partnership and its affiliates have
limited fiduciary responsibilities to, and have conflicts of
interest with respect to, the Partnership, which may permit the
general partner of the Partnership to favor its own interests to
your detriment.
The directors and officers of the general partner of the
Partnership and its affiliates have duties to manage the general
partner of the Partnership in a manner that is beneficial to its
member. At the same time, the general partner of the Partnership
has duties to manage the Partnership in a manner that is
beneficial to the Partnership. Therefore, the duties of the
general partner to the Partnership may conflict with the duties
of its officers and directors to its member. Such conflicts may
include, among others, the following:
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neither the Partnerships partnership agreement nor any
other agreement requires the general partner of the Partnership
or EPCO to pursue a business strategy that favors the
Partnership;
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decisions of the general partner of the Partnership regarding
the amount and timing of asset purchases and sales, cash
expenditures, borrowings, issuances of additional units and
reserves in any quarter may affect the level of cash available
to pay quarterly distributions to unitholders and the general
partner of the Partnership;
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under the Partnerships partnership agreement, the general
partner of the Partnership determines which costs incurred by it
and its affiliates are reimbursable by the Partnership;
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the general partner of the Partnership is allowed to resolve any
conflicts of interest involving the Partnership and the general
partner of the Partnership and its affiliates;
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the general partner of the Partnership is allowed to take into
account the interests of parties other than the Partnership,
such as EPCO, in resolving conflicts of interest, which has the
effect of limiting its fiduciary duty to the Partnerships
unitholders;
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any resolution of a conflict of interest by the general partner
of the Partnership not made in bad faith and that is fair and
reasonable to the Partnership shall be binding on the partners
and shall not be a breach of the Partnerships partnership
agreement;
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affiliates of the general partner of the Partnership may compete
with the Partnership in certain circumstances;
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the general partner of the Partnership has limited its liability
and reduced its fiduciary duties and has also restricted the
remedies available to the Partnerships unitholders for
actions that might, without the limitations, constitute breaches
of fiduciary duty. As a result of acquiring Partnership common
units, you are deemed to consent to some actions and conflicts
of interest that might otherwise constitute a breach of
fiduciary or other duties under applicable law;
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the Partnership does not have any employees and relies solely on
employees of EPCO and its affiliates; in some instances, the
general partner of the Partnership may cause the Partnership to
borrow funds in order to permit the payment of distributions;
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the Partnerships partnership agreement does not restrict
the general partner of the Partnership from causing the
Partnership to pay it or its affiliates for any services
rendered to the Partnership or entering into additional
contractual arrangements with any of these entities on the
Partnerships behalf;
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the general partner of the Partnership intends to limit its
liability regarding the Partnerships contractual and other
obligations and, in some circumstances, may be entitled to be
indemnified by the Partnership;
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the general partner of the Partnership controls the enforcement
of obligations it owes to the Partnership and other affiliates
of EPCO;
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the general partner of the Partnership decides whether to retain
separate counsel, accountants or others to perform services for
the Partnership; and
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the Partnership has significant business relationships with
entities controlled by the DDLLC voting trustees and the EPCO
voting trustees, including EPCO. For detailed information on
these relationships and related transactions with these
entities, please see Item 13 (Certain Relationships
and Related Transactions, and Director Independence) of
the Partnerships Annual Report on
Form 10-K
for the year ended December 31, 2009 and Note 13
(Related Party Transactions) to the Unaudited
Condensed Consolidated Financial Statements included in
Item 1 of the Partnerships Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2010.
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The
general partner of the Partnership has a limited call right that
may require common unitholders to sell their common units at an
undesirable time or price.
If at any time the general partner of the Partnership and its
affiliates own 85% or more of the Partnership common units then
outstanding, the general partner of the Partnership will have
the right, but not the obligation, which it may assign to any of
its affiliates or to the Partnership, to acquire all, but not
less than all, of the remaining Partnership common units held by
unaffiliated persons at a price not less than then current
market price. As a result, common unitholders may be required to
sell their Partnership common units at an undesirable time or
price and may therefore not receive any return on their
investment. They may also incur a tax liability upon a sale of
their units.
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THE
SPECIAL UNITHOLDER MEETING
Time, Place and Date. The special meeting of
Holdings unitholders will be held on November 22, 2010
at 8:00 a.m., local time at 1100 Louisiana Street, 10th
Floor, Houston, Texas 77002. The meeting may be adjourned or
postponed by Holdings GP to another date or place for proper
purposes, including for the purpose of soliciting additional
proxies.
Purposes. The purposes of the special meeting
are:
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to consider and vote on the approval of the merger agreement and
the merger; and
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to transact other business as may properly be presented at the
meeting or any adjournment or postponement of the meeting.
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At the present time, Holdings knows of no other matters that
will be presented for consideration at the meeting.
Quorum. A quorum requires the presence, in
person or by proxy, of holders of a majority of the outstanding
Holdings units. Holdings units will be counted as present at the
special meeting if the holder is present and votes in person at
the meeting or has submitted a properly executed proxy card.
Proxies received but marked as abstentions will be counted as
units that are present and entitled to vote for purposes of
determining the presence of a quorum. If an executed proxy is
returned by a broker or other nominee holding units in
street name indicating that the broker does not have
discretionary authority as to certain units to vote on the
proposals, such units will be considered present at the meeting
for purposes of determining the presence of a quorum but will
not be considered entitled to vote.
Record Date. The Holdings unitholder record
date for the special meeting is the opening of business on
October 13, 2010.
Units Entitled to Vote. Holdings unitholders
may vote at the special meeting if they owned Holdings units at
the opening of business on the record date. Holdings unitholders
may cast one vote for each Holdings unit owned on the record
date.
Votes Required. Under Holdings
partnership agreement, the affirmative vote of the holders of at
least a majority of Holdings outstanding units is required
to approve the merger agreement and merger. Failures to vote,
abstentions and broker non-votes will have the same effect as a
vote against the approval of the merger agreement and the merger
for purposes of the majority vote required under the Holdings
partnership agreement.
Pursuant to a support agreement, the Holdings supporting
unitholders have agreed to vote their Holdings units in favor of
the proposal to approve the merger agreement and the merger. As
a result of their ownership of approximately 76% of the
outstanding Holdings units, the Holdings supporting unitholders
have a sufficient number of Holdings units to constitute a
quorum and to approve the merger agreement and the merger
without the affirmative vote of any other holder of Holdings
units. As a result of the support agreement, the approval of
such proposal at the special meeting is assured unless the
conditions of the support agreement are not met and the support
agreement is terminated. As of the record date, directors and
executive officers of Holdings GP and their affiliates
(including the Holdings supporting unitholders) collectively had
the right to vote 108,421,600 Holdings units, or approximately
77% of Holdings outstanding units.
Units Outstanding. As of the record date,
there were 139,195,064 Holdings units outstanding.
Voting
Procedures
Voting by Holdings Unitholders. Holdings
unitholders may vote using any of the following methods:
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complete, sign and mail your proxy card in the postage-paid
envelope; or
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attend the meeting and vote in person.
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If you have timely and properly submitted your proxy, clearly
indicated your vote and have not revoked your proxy, your units
will be voted as indicated. If you have timely and properly
submitted your proxy but
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have not clearly indicated your vote, your units will be voted
FOR approval of the merger agreement and the merger.
If any other matters are properly presented for consideration at
the meeting or any adjournment or postponement thereof, the
persons named in your proxy will have the discretion to vote on
these matters. Holdings partnership agreement provides
that, in the absence of a quorum, any meeting of Holdings
limited partners may be adjourned from time to time by the
affirmative vote of a majority of the outstanding Holdings units
represented either in person or by proxy.
Revocation. You may revoke your proxy at any
time prior to its exercise by:
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giving written notice of revocation to the Secretary of Holdings
GP at or before the special meeting;
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appearing and voting in person at the special meeting; or
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properly completing and executing a later dated proxy and
delivering it to the Secretary of Holdings GP at or before the
special meeting.
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Your presence without voting at the meeting will not
automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken.
Validity. The inspectors of election will
determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of proxies. Their
determination will be final and binding. The Holdings Board has
the right to waive any irregularities or conditions as to the
manner of voting. Holdings may accept your proxy by any form of
communication permitted by Delaware law so long as Holdings is
reasonably assured that the communication is authorized by you.
Solicitation of Proxies. The accompanying
proxy is being solicited on behalf of the Holdings Board. The
expenses of preparing, printing and mailing the proxy and
materials used in the solicitation will be borne by Holdings.
BNY Mellon Shareowner Services has been retained by Holdings to
aid in the solicitation of proxies for an initial fee of $7,000
and the reimbursement of
out-of-pocket
expenses. In addition to the mailing of this proxy
statement/prospectus,
proxies may also be solicited from Holdings unitholders by
personal interview, telephone, fax or other electronic means by
directors and officers of Holdings GP and employees of EPCO and
its affiliates who provide services to Holdings, who will not
receive additional compensation for performing that service.
Arrangements also will be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of proxy
materials to the beneficial owners of Holdings units held by
those persons, and Holdings will reimburse them for any
reasonable expenses that they incur.
Units Held in Street Name. If you hold
Holdings units in the name of a bank, broker or other nominee,
you should follow the instructions provided by your bank, broker
or nominee when voting your Holdings units or when granting or
revoking a proxy.
Absent specific instructions from you, your broker is not
empowered to vote your units with respect to the approval of the
merger agreement and the merger. The units not voted because
brokers lack power to vote them without instructions are also
known as broker non-votes.
Failures to vote, abstentions and broker non-votes will have the
same effect as a vote against approval of the merger proposal
for purposes of the majority vote required under the partnership
agreement.
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THE
MERGER
Background
of the Merger
Executive officers of the Partnership GP, along with the
Holdings Board and the Partnership Board, have regularly
considered strategic transactions, whether with third parties or
related parties, and evaluated ways to enhance long-term value
to unitholders of both Holdings and the Partnership. For many
years, the partnerships and their affiliates have also focused
particularly on improving the competitive position of the
Partnership and its subsidiaries by reducing the
Partnerships cost of capital and enhancing its long-term
growth prospects. In December 2002, EPCO and its affiliates
reduced the highest level of distributions on the IDRs that the
Partnership GP is entitled to receive (together with its
general partner interest) from 50% to 25%, which has
significantly enhanced the Partnerships competitive
position and historic growth since that time. These
considerations have also included the potential simplification
of the public partnership structures of Holdings and its
subsidiaries (including the Partnership and its subsidiaries).
In 2009, the Partnership acquired TEPPCO, a publicly traded
partnership formerly controlled by Holdings, which furthered the
objective of simplification.
The Partnership GP currently holds IDRs that entitle the
Partnership GP to increasing percentages of cash distributed by
the Partnership above certain distribution levels per
Partnership common unit, as well as distributions on additional
common units issued by the Partnership. Based on Partnership
distributions made on August 5, 2010 with respect to the
second quarter of 2010, the Partnership GP received
approximately 15.3% of all cash distributed, and the Partnership
GP would be entitled to 25% of any incremental increase in
Partnership distributions in the future. In addition, at the
current Partnership common unit quarterly distribution level of
$0.5825 per Partnership common unit, the Partnership GP would
receive an additional $0.10629 per quarter for each
additional common unit issued by the Partnership.
Unitholders of the Partnership and the investment community have
focused on the Partnerships cost of capital after other
midstream publicly traded partnerships, including Sunoco
Logistics Partners L.P., NuStar Energy L.P., Mark West Energy
Partners L.P., Magellan Midstream Partners, L.P. (2009), Buckeye
Partners, L.P. (June 2010, with transaction pending) and Inergy,
L.P. (August 2010, with transaction pending), acted to reduce
their long-term cost of capital by eliminating or reducing their
IDRs through merger or other actions. Senior management of the
Partnership GP believes that, by eliminating the
Partnerships IDRs, the Partnership will be more
competitive in pursuing acquisitions and may finance
acquisitions and organic growth projects at an overall lower
cost of capital, which would enhance the Partnerships
long-term ability to continue distribution growth to its
unitholders.
On June 24, 2010, Andrews Kurth, counsel to the
Partnership, met with Richard H. Bachmann and
Dr. Ralph S. Cunningham, in their capacities as EPCO
voting trustees and representatives of EPCO, and representatives
of the Partnership GP, including Michael A. Creel, the President
and Chief Executive Officer of the Partnership GP, W. Randall
Fowler, the Chief Financial Officer of the Partnership GP, and
Bryan F. Bulawa, the Senior Vice President and Treasurer of the
Partnership GP, to discuss trends in simplification of publicly
traded partnerships, as well as proposed U.S. federal tax
legislation. Andrews Kurth and the Partnership GP officers and
EPCO representatives discussed the then-most recent
simplification transaction by Buckeye Partners, L.P. as
well as other similar transactions. Andrews Kurth also discussed
that the U.S. House of Representatives had passed proposed
legislation relating to the federal taxation of carried
interests that may treat a potential simplification
transaction (that would generally be non-taxable to unitholders
under current law) as a taxable exchange to a unitholder of a
partnership whose interest was acquired, such as a Holdings
unitholder in a potential simplification transaction, on or
after an effective date of January 1, 2011, in the absence
of an election that itself could have an adverse impact on a
such unitholder. Andrews Kurth also explained that the
U.S. Senate was considering legislation that may have a
similar effect. While the primary rationale for a simplification
transaction was not tax-based, the parties discussed that these
potential changes, if enacted, could make it more difficult to
complete a simplification transaction in the future, even if it
was otherwise favorable to the unitholders of Holdings and the
Partnership. Executive officers of the Partnership GP inquired
about the structuring and timing of a potential simplification
transaction. Based on these discussions, management of the
Partnership GP requested that Andrews Kurth continue to
analyze a potential simplification transaction and to discuss
partnership, tax and securities matters.
36
During late June 2010, the Partnership GP contacted Barclays
Capital Inc. (Barclays Capital) to assist it with
modeling and analyzing a transaction. Also, during late June and
into early July 2010, Mr. Creel, Mr. Fowler and other
management of the Partnership GP and representatives of
Barclays Capital discussed Partnership GP management forecasts
for
2010-2012
and projections thereafter based on Barclays Capitals
analysis, and certain effects on the Partnership of a potential
merger with Holdings. Because there were no internal financial
projections of the Partnership or Holdings for any period
following fiscal year 2012, Barclays Capital, at the request of
and in conjunction with management of the Partnership GP,
prepared extensions to the financial projections of the
Partnership and Holdings for 2013 and subsequent years on the
basis of assumptions discussed with, and considered reasonable
for this purpose by, senior management of the Partnership GP.
Management of the Partnership GP reviewed the extensions to the
projections and agreed that the extended projections were a
reasonable estimate of the Partnerships and Holdings
future financial performance as of the date prepared.
Representatives of Barclays Capital, Andrews Kurth and Morris,
Nichols, Arsht & Tunnell LLP, special Delaware counsel
for the Partnership (Morris Nichols), also
considered and discussed with Partnership GP management
potential transaction structures and legal considerations.
On June 30, 2010, Mr. Creel notified the Partnership
ACG Committee that the Partnership was evaluating a potential
transaction between Holdings and the Partnership and of its
initial strategic rationale for a potential transaction, and
requested a meeting with the committee to discuss the same.
On July 6, 2010, Mr. Creel and other members of
management of the Partnership GP held a conference call with the
Partnership ACG Committee generally outlining a structure for a
potential transaction. Later that day, Mr. Creel notified
the standing Holdings ACG Committee, which is authorized under
the Holdings partnership agreement to review and approve or
disapprove conflict of interest transactions, of
Partnership GP managements conference with the
Partnership ACG Committee and requested a meeting with the
Holdings ACG Committee to discuss a potential transaction
between Holdings and the Partnership.
On July 7, 2010, the Holdings ACG Committee held a
conference call with members of Partnership GP management, at
which time the potential transaction structure outlined to the
Partnership ACG Committee was discussed. As discussed with
each of the committees, the potential transaction would be
structured so that Holdings would become a subsidiary of the
Partnership, the 2% economic general partner interest and IDRs
held by the general partner of the Partnership would be
cancelled, and the surviving general partner would hold a
non-economic general partner interest in the Partnership. No
specific financial terms were proposed or discussed with either
of the committees.
Later on July 7, 2010, the Holdings ACG Committee held a
conference call with Ms. Randa Duncan Williams,
Mr. Bachmann and Dr. Cunningham, in their capacities
as the EPCO voting trustees and EPCO directors and the DDLLC
voting trustees, to discuss their views on a potential
transaction between Holdings and the Partnership and whether
EPCO and DDLLC would consider a transaction with a third party.
The EPCO voting trustees and directors and DDLLC voting
trustees, who in such capacities control Holdings GP and
approximately 76% of the outstanding Holdings units, informed
the Holdings ACG Committee that they would be willing to listen
to an offer from the Partnership that the Holdings ACG Committee
approved and recommended as fair and reasonable to the Holdings
unaffiliated unitholders, even though they were not seeking a
sale of Holdings, and that they would not entertain a proposal
from any third party to acquire Holdings. On July 7, 2010,
the Holdings ACG Committee also engaged Baker & Hostetler
LLP (Baker Hostetler) as its independent legal
counsel.
On July 12, 2010, the Holdings ACG Committee met with Baker
Hostetler and with representatives of Morgan Stanley to discuss
the Holdings ACG Committees possible engagement of Morgan
Stanley as its independent financial advisor. The meeting
participants discussed the rationale for a transaction with the
Partnership, Holdings alternatives to such a transaction,
the transaction components presented by the Partnership
GPs management, and the potential conflicts of interest to
be considered in connection with any such transaction. The
Holdings ACG Committee authorized Baker Hostetler to engage
Richards Layton & Finger, P.A. (Richards
Layton) as special Delaware counsel on behalf of the
committee in connection with the Holdings ACG Committees
consideration of any proposed transaction. The Holdings ACG
Committee engaged Richards Layton on July 14, 2010.
37
On July 14, 2010, the Partnership ACG Committee engaged
Skadden, Arps, Slate, Meagher & Flom LLP
(Skadden) as its independent legal counsel and
discussed the process for selecting an independent financial
advisor.
On July 19, 2010, the Partnership ACG Committee engaged
Credit Suisse Securities (USA) LLC (Credit Suisse)
as its independent financial advisor. Also, on July 19,
2010, after discussions with Holdings GP management on
July 12, 2010, Holdings engaged Vinson & Elkins
as Holdings counsel. On July 20, 2010, the Holdings
ACG Committee engaged Morgan Stanley as its independent
financial advisor.
On July 22, 2010, management of the Partnership GP
distributed to the Partnership ACG Committee and its independent
counsel an initial presentation by Barclays Capital, as well as
structuring memoranda and initial draft agreements for a
potential transaction based on the contemplated transaction
structure.
On July 26, 2010, Mr. Creel, Mr. Fowler and other
representatives of management of the Partnership GP, and
representatives of Barclays Capital and Andrews Kurth as
advisors for the Partnership, met with the Partnership ACG
Committee and representatives of Credit Suisse and Skadden as
its advisors to discuss a potential strategic combination
(structured as an acquisition by merger of Holdings by the
Partnership, but with the general partner of Holdings surviving
as the successor general partner of the Partnership) and
preliminary observations regarding the potential transaction.
These discussions included the strategic rationale for a merger,
certain status quo financial projections, current trading values
for Holdings units, Partnership common units and Energy Transfer
Equity common units, and implied values for the general partner
interest and IDRs in the Partnership held by Holdings. The
participants also discussed selected estimated pro forma
consequences of a potential transaction compared to status quo
estimates, including the expected pro forma accretion and
dilution per Partnership common unit that would result under
different exchange ratios. After these discussions, the
Partnership ACG Committee met separately with its independent
legal and financial advisors and requested that management and
Barclays Capital provide additional information and analysis of
the quantitative and qualitative benefits of a proposed merger
transaction to the Partnership and its common unitholders,
including the effects of growth capital expenditures at assumed
levels and different premiums to the implied value of the
Partnerships general partner interest and IDRs.
During late July 2010, the Holdings ACG Committee continued to
discuss with its advisors the components of a potential
transaction and related considerations that had been raised in
the committees July 12, 2010 meeting.
On July 29, 2010, the Partnership ACG Committee and its
advisors met with Partnership GP management and Barclays
Capital. At this meeting, Mr. Fowler, as a representative
of the Partnership, and Robert Pierce and other representatives
of Barclays Capital reviewed again with the Partnership ACG
Committee the rationale for the proposed transaction and an
analysis that illustrated the expected pro forma effect of the
proposed transaction on the Partnerships common
unitholders assuming various levels of future acquisitions and
capital expenditures intended to represent incremental growth
activities in periods beginning in 2012. Barclays Capital
reviewed and discussed with the Partnership ACG Committee the
pro forma effects of these analyses based on different merger
exchange ratios and the implied premiums for the Partnership
general partner interest and IDRs.
In late July 2010, the Holdings ACG Committee and one of its
members, Edwin E. Smith, determined that Mr. Smith
would recuse himself from all committee deliberations and
actions in connection with any proposal from the Partnership, in
light of the magnitude of Mr. Smiths ownership of
Partnership common units in relation to his ownership of
Holdings units. Charles McMahen, Chairman of the Holdings ACG
Committee, requested that Dr. Cunningham on behalf of
DDLLC, as the sole member of Holdings GP, which is solely
entitled to appoint members to the Holdings Board, propose a
candidate for the Holdings Board who would meet the requirements
of the Holdings partnership agreement for members of the
Holdings ACG Committee, as well as being independent for
purposes of reviewing any proposals from the Partnership. After
prior consultations with Mr. McMahen regarding multiple
candidates suggested by Dr. Cunningham, on August 2,
2010, the sole member of Holdings GP appointed B.W. Waycaster to
the Holdings Board, and the Holdings Board appointed
Mr. Waycaster to the Holdings ACG Committee, following the
Holdings Boards determination that Mr. Waycaster met
the requirements of the Holdings partnership agreement for
members of
38
the Holdings ACG Committee, and after consideration of
Mr. Waycasters independence for purposes of
evaluating any potential transaction between Holdings and the
Partnership. All references to the Holdings ACG Committee
relating to events occurring on or after August 2, 2010
mean only Mr. McMahen, Thurmon M. Andress and
Mr. Waycaster.
In light of potential conflicts of interest in a potential
transaction between the Partnership and Holdings, the Holdings
Board formally delegated to the Holdings ACG Committee the power
to consider, analyze, review, evaluate and accept or reject any
proposed merger and related arrangements, and to negotiate the
terms thereof, and delegated the authority to determine whether
to approve a merger and to make any recommendations to the
Holdings Board as to what action, if any, should be taken by the
Holdings Board with respect to a merger.
On August 3, 2010, representatives of management of the
Partnership GP and advisors for the Partnership met with the
Partnership ACG Committee and its advisors. At this meeting,
Barclays Capital reviewed a draft presentation and proposal that
Partnership GP management proposed to make to the Holdings ACG
Committee later that day. The Partnership ACG Committee endorsed
Partnership GP management making this proposal.
Later on August 3, 2010, Mr. Creel and other
management of the Partnership GP, the Partnership ACG Committee,
and representatives of Barclays Capital, Credit Suisse, Andrews
Kurth and Skadden, met with the Holdings ACG Committee and
representatives of Morgan Stanley, Baker Hostetler, Richards
Layton and Vinson & Elkins, as well as
Mr. Bachmann and Dr. Cunningham in their capacities as
EPCO representatives, to discuss an initial offer. At this
meeting, Messrs. Creel and Pierce discussed the proposed
transaction and the strategic rationale for the Partnership,
including, but not limited to: (i) elimination of the IDRs
to reduce the Partnerships long-term cost of capital,
thereby allowing the Partnership to be more competitive in the
mergers and acquisitions market and enhancing returns on organic
growth projects and acquisitions; and (ii) simplification
of the organizational structure by consolidating two publicly
traded entities into one. Mr. Pierce stated that the
proposal should be attractive to Holdings because it would
(a) provide Holdings unitholders a premium to the current
Holdings unit price and an immediate and substantial increase in
cash distributions; (b) provide enhanced market liquidity
in Partnership common units compared to the liquidity of
Holdings units; (c) address Holdings
$1.1 billion debt balance well ahead of its maturity; and
(d) be expected to be credit neutral to positive to the
credit ratings of the Partnership.
At this meeting, Mr. Pierce also discussed selected
precedent transactions and differences among those transactions
and the proposed transaction. Mr. Pierce noted a number of
reasons why the proposed premium differed from the premiums paid
in certain other recent precedent transactions, including:
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the significantly higher enterprise value of the Partnership as
compared to partnerships involved in the precedent transactions,
as a result of which a single acquisition or growth project for
the Partnership would not create the same accretion percentages
for the Partnership as compared to the partnerships involved in
the precedent transactions due to the Partnerships much
larger enterprise value;
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that the highest incremental sharing percentage under the IDRs
and general partner interest in the Partnership is approximately
25%, compared with the highest incremental sharing percentage of
50% in certain of the precedent transactions;
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that, as a percentage, the total current distributions being
paid in respect of the IDRs in the Partnership are substantially
lower than distributions being paid in respect of the IDRs in
the precedent transactions;
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that Holdings owns sizeable investments other than the 2%
general partner interest and IDRs in the Partnership, which
investments in other publicly traded securities should be
excluded for purposes of considering any premium;
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that Holdings has significantly more debt outstanding, and thus
greater future refinancing requirements, than did the general
partner in any of the precedent transactions; and
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that the proposed transaction would not result in a change of
control due to EPCOs and its affiliates continued
control of the general partner of the Partnership and a
significant percentage of the Partnership common units.
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Based on the foregoing, Mr. Creel, on behalf of the
Partnership, made an initial offer of 1.377 Partnership common
units for each outstanding Holdings unit (the Initial
Proposal), which represented a 2.6% premium over the
July 30, 2010 closing price of the Holdings units and an
estimated 41% increase in quarterly cash distributions to
Holdings unitholders based on distributions declared by the
respective partnerships for payment in August 2010.
Barclays Capital then discussed its analysis of the pro forma
consequences of the proposed transaction. This analysis was
based on the projections described under The
Merger Unaudited Financial Projections of the
Partnership and Holdings. The assumptions for 2013-2015
used in the analysis, which were discussed with, and considered
reasonable by, senior management of the Partnership GP for these
purposes, included the following: (i) the
Partnerships distributions would grow at the greater of 5%
or $0.12 per common unit per year; (ii) the
Partnerships EBITDA would grow based on the median of the
historical and forecast annual EBITDA growth rates from
2009-2012;
and (iii) the Partnerships maintenance capital
expenditures during each year, as a percentage of EBITDA for
such year, would equal the average percentage of historical and
forecast EBITDA over
2009-2012.
Based on these factors, the estimated distribution coverage
would remain above 1.1x for
2011-2015,
and the transaction would become accretive per Partnership
common unit on a distributable cash flow basis in 2015.
After this joint meeting, the Holdings ACG Committee met
separately to discuss the Initial Proposal. The committee
discussed, among other things, the Partnerships valuation
of the Partnership common units and Energy Transfer Equity units
owned by Holdings, the proposed exchange ratio in relation to
the current and historical relationship between the
Partnerships and Holdings unit trading values, and
various financial metrics in relation to those reflected in
recent similar transactions, all from the perspective of the
Holdings unaffiliated unitholders. At the conclusion of the
meeting, the Holdings ACG Committee directed Morgan Stanley to
analyze the Initial Proposal and to assist the committee in its
review and consideration of the Initial Proposal.
On August 9, 2010, Morgan Stanley held a diligence call
with Partnership GP management regarding the financial
projections and assumptions used in the forecasts provided to
Morgan Stanley. Also, on August 9, 2010, Andrews Kurth
distributed a draft merger agreement and support agreement to
counsel for the Holdings ACG Committee and to counsel for
Holdings for review in connection with the Holdings ACG
Committees consideration of the Initial Proposal.
On August 10, 2010, the Holdings ACG Committee met to
further discuss the Initial Proposal with its advisors. Morgan
Stanley reviewed with the Holdings ACG Committee, among other
things, the methodologies used in its analysis, underlying
historical and projected financial data, recent and historical
unit trading performance data, valuation metrics based on yield,
growth and the long-term cost of capital, and similarities and
differences between the proposed transaction and other recent
precedent transactions. The meeting participants discussed the
short-term and long-term implications of these considerations
from the perspective of the Holdings unaffiliated unitholders.
After its review, the Holdings ACG Committee determined that the
Initial Proposal was inadequate. Mr. McMahen then informed
Dr. Cunningham and Mr. Bachmann of the Holdings ACG
Committees determination. Subsequently, Mr. McMahen
advised Mr. Creel that the Holdings ACG Committee
considered the Initial Proposal inadequate. Mr. McMahen
further advised Mr. Creel that Holdings was not seeking a sale
transaction, but would consider an improved proposal from the
Partnership if the Partnership made one.
Later on August 10, 2010, following the response by the
Holdings ACG Committee, Partnership GP management held a call
with the Partnership ACG Committee, Barclays Capital, Credit
Suisse, Skadden and Andrews Kurth, to discuss the response and
further action. The Partnership ACG Committee and Partnership GP
management collectively requested Barclays Capital to conduct
further analysis that would include a revised exchange ratio for
the proposed transaction together with assumed support from EPCO
or its affiliates
40
in the form of a waiver of distributions on designated units in
order to reduce for a number of years the distributable cash
flow dilution per Partnership common unit created by a higher
exchange ratio.
On August 11, 2010, Partnership GP management met with
Barclays Capital and Andrews Kurth to discuss the preliminary
analysis regarding a revised proposal which would include EPCO
support. The analysis assumed the level of EPCO support required
to make the transaction cash flow neutral in terms of estimated
Partnership distributable cash flow per unit from 2011 through
2014.
Subsequently on August 11, 2010, Partnership GP management
met with the Partnership ACG Committee and representatives of
Barclays Capital, Credit Suisse, Andrews Kurth and Skadden and
reviewed a range of potential alternative proposals assuming
EPCO support. Based on these discussions and analysis, the
Partnership ACG Committee endorsed Partnership GP management
making a revised proposal to the Holdings ACG Committee
(i) with an exchange ratio of 1.40 Partnership common units
for each Holdings unit and (ii) assuming a waiver of
distributions by EPCO or its affiliates for a specified number
of units during the
2011-2014
period (the First Revised Proposal).
On August 12, 2010, Mr. Creel and other members of
Partnership GP management, representatives of Barclays Capital
and Andrews Kurth, the Partnership ACG Committee and
representatives of its advisors met with the Holdings ACG
Committee, representatives of its advisors, and
Mr. Bachmann and Dr. Cunningham, as EPCO
representatives, to make its First Revised Proposal, which
reflected a 6.8% premium to the closing price for Holdings units
on August 11, 2010 and a 44% increase in quarterly cash
distributions to the Holdings unaffiliated unitholders based on
the respective distributions paid by the partnerships in August
2010. Mr. Creel on behalf of the Partnership noted that the
First Revised Proposal was conditioned on the parties obtaining
EPCO support as proposed by the Partnership, and that the
Partnership desired that the Holdings ACG Committee discuss this
directly with EPCO. Mr. Pierce then presented Barclays
Capitals more detailed analysis of the First Revised
Proposal to the Holdings ACG Committee.
Later that day, the Holdings ACG Committee convened separately
to discuss the First Revised Proposal. At the committees
invitation, Dr. Cunningham and Mr. Bachmann, as EPCO
representatives, joined the meeting. The EPCO representatives
indicated their willingness to provide financial support for a
transaction so long as (i) EPCO would not be disadvantaged
relative to the position it would have been in under the Initial
Proposal, and (ii) the committee determined that the
transaction was fair and reasonable to Holdings
unaffiliated unitholders. The EPCO representatives then left the
meeting. The Holdings ACG Committee and its advisors then
discussed the First Revised Proposal in light of the
considerations reviewed in the Holdings ACG Committees
August 10, 2010 meeting.
Following these discussions, the Holdings ACG Committee
determined that the First Revised Proposal was inadequate and
that the committee was not prepared to make a counterproposal.
Mr. Bachmann and Dr. Cunningham, as EPCO
representatives, then rejoined the meeting. Mr. McMahen
informed the meeting invitees of the committees
determination, and Mr. Bachmann and Dr. Cunningham
concurred with the committees determination that the First
Revised Proposal was inadequate.
Thereafter, the Holdings ACG Committee reconvened the meeting
with Partnership GP management and the Partnership ACG
Committee, along with their respective advisors, and
Mr. Bachmann and Dr. Cunningham. Mr. McMahen
informed the meeting participants that the Holdings ACG
Committee had determined that the First Revised Proposal was
inadequate. The Holdings ACG Committee cited the premiums paid
in other simplification transactions. At this meeting,
Mr. Bachmann also noted, in his capacity as a
representative of EPCO, that he believed that the distribution
support requested from EPCO in the First Revised Proposal would
result in lower distributions to EPCO than in the Initial
Proposal, and thus that the distribution support requested from
EPCO in the First Revised Proposal was not acceptable to EPCO.
After this meeting, Partnership GP management and the
Partnership ACG Committee, along with their advisors, met to
discuss the Holdings ACG Committees response to the First
Revised Proposal. Following this separately convened meeting,
Partnership GP management and the Partnership ACG Committee,
along with their advisors, met again during the afternoon of
August 12, 2010 with the Holdings ACG Committee. At this
41
meeting, Mr. Creel stated that in the absence of a
counterproposal and in view of the current position of EPCO as
indicated by Mr. Bachmann as its representative, the
Partnership had no further proposals to make.
By letter dated August 12, 2010, Mr. McMahen as the
Holdings ACG Committee Chairman confirmed to the Partnership ACG
Committee the termination of discussions.
During the week of August 16, 2010, based on discussions
with Partnership GP management and the Partnership ACG Committee
on August 11, 2010, Barclays Capital continued to revise
analyses of alternative proposals and to meet with Partnership
GP management regarding the same. On August 17, 2010,
Partnership GP management and advisors for the Partnership met
with the Partnership ACG Committee and its legal advisors to
discuss a range of potential proposals regarding EPCO financial
support at various assumed exchange ratios.
On August 18, 2010, Messrs. Creel and Bulawa met with
the three EPCO voting trustees to review certain financial
analyses prepared by Barclays Capital and Partnership GP
management and potential levels of EPCO distribution waiver
support under various exchange ratios. The EPCO voting trustees
requested additional information regarding the assumptions
included in the analyses, including with respect to assumed
distribution growth on the Energy Transfer Equity common units
held by Holdings.
On August 19, 2010, Mr. Bachmann notified
Mr. McMahen that the Partnership was considering a new
proposal to the Holdings ACG Committee for its consideration,
and Mr. McMahen notified the Holdings ACG Committee and its
advisors of this potential further activity.
On August 22, 2010, Partnership GP management and advisors
for the Partnership met with the Partnership ACG Committee and
its advisors to discuss alternative proposals. Based on this
discussion, the Partnership ACG Committee endorsed Partnership
GP management making a revised proposal with (i) an
exchange ratio of 1.475 Partnership common units for each
Holdings unit and (ii) a waiver of distributions by EPCO or
its affiliates for a specified number of units during
2011-2015
(the Second Revised Proposal).
On August 23, 2010, the Holdings ACG Committee and its
advisors met with Mr. Bachmann and Dr. Cunningham, as
EPCO representatives, in anticipation of a meeting later that
day with representatives of the Partnership. The EPCO
representatives advised the Holdings ACG Committee of the limits
on the financial support for a transaction that EPCO was willing
to provide, and stated that they had similarly informed the
Partnership of those limits, and the EPCO representatives then
left the meeting. The Holdings ACG Committee then discussed
briefly the matters, in addition to financial analyses, that it
would consider in assessing any new proposal that might be made
by the Partnership.
Mr. Creel and other management of the Partnership GP, the
Partnership ACG Committee and the respective legal and financial
advisors for the Partnership and the Partnership ACG Committee
then met with the Holdings ACG Committee and the legal and
financial advisors for the Holdings ACG Committee and Holdings.
At this meeting, Mr. Creel along with Mr. Pierce
presented the Second Revised Proposal and related analyses. The
Second Revised Proposal represented a 13.2% premium to the
closing price for Holdings units on August 20, 2010 and a
51% increase in cash distributions to the Holdings unaffiliated
unitholders based on the respective distributions paid by the
partnerships in August 2010. The Second Revised Proposal was
conditioned on obtaining EPCO support as proposed by the
Partnership.
Following this joint meeting, the Holdings ACG Committee met
separately with its advisors to review numerous financial
considerations relating to the Second Revised Proposal. The
Holdings ACG Committee also discussed with its advisors the
implications of the proposed carried interest
federal tax legislation, and directed Baker Hostetler to prepare
further analysis of that subject to be presented to the
committee. After discussion, the Holdings ACG Committee informed
the Partnership and the Partnership ACG Committee that it would
consider the Second Revised Proposal after further analysis by
its legal and financial advisors.
Subsequent to that meeting, from August 23, 2010 through
August 29, 2010, management of the Partnership GP and the
respective legal and financial advisors for the Partnership and
the Partnership ACG Committee, and the Holdings ACG Committee
and the legal and financial advisors for Holdings and the
Holdings ACG Committee conducted further financial analysis and
due diligence. Based on these discussions,
42
the Partnership GP management and Barclays Capital changed
certain assumptions used for the financial analysis regarding
distribution growth with respect to Energy Transfer Equity
common units owned by Holdings. On August 26, 2010,
Mr. Bulawa advised Morgan Stanley of these revised
assumptions, and Mr. Creel advised the Holdings ACG
Committee, the Partnership ACG Committee and the EPCO voting
trustees of the same.
On August 25, 2010, the Holdings ACG Committee held a
lengthy meeting with its advisors to review in detail Morgan
Stanleys analysis of the Second Revised Proposal, and to
review pending and threatened derivative litigation on behalf of
Holdings with Morris Nichols as derivative litigation counsel to
Holdings. Derivative litigation counsel discussed the relevant
proceedings and threatened action and the status of each, and
then left the meeting. Baker Hostetler and Richards Layton then
advised the committee regarding its duties in assessing those
matters in the context of considering proposals from the
Partnership.
The Holdings ACG Committee and its advisors then considered in
detail Morgan Stanleys analysis of the Second Revised
Proposal, discussing, among other considerations, (i) the
EPCO financial support, (ii) relevant premiums to
Holdings current unit price and the effect of the premiums
on public unitholders cash flow, (iii) comparisons of
other financial metrics to those in recent precedent
transactions, (iv) the proposals financial
characteristics in relation to those implicit in other exchange
ratios, (v) the current and historical trading
relationships between Partnership common units and Holdings
units, (vi) anticipated yields and growth rates per
Holdings unit assuming acceptance of the proposal and also on a
stand-alone basis, (vii) the effect on Holdings of interest
rate fluctuations, (viii) near-term and longer-term
accretion and dilution considerations for Holdings unitholders
and Partnership common unitholders, (ix) the impact of
consummating the proposal on the Partnerships distribution
coverage ratio, (x) the impact of the proposal on the
Partnerships long-term cost of capital,
(xi) Holdings leverage to growth ratio and IDRs in
relation to those of entities in precedent transactions,
(xii) the relative trading liquidity of Holdings units and
Partnership common units, (xiii) the current state of the
capital markets and Holdings and the Partnerships
relative positions in the capital markets, and (xiv) the
effect on Holdings public unitholders of Holdings
alternatives to accepting a Partnership proposal, including
possible opportunities to diversify, the marketplace for public
general partners and maintaining Holdings as it currently exists.
Following additional consideration by the Holdings ACG Committee
of the matters referred to above, the committee determined to
make a counterproposal to the Partnership at an exchange ratio
of 1.535 Partnership common units for each Holdings unit (the
Holdings Counterproposal). The Holdings ACG
Committee directed Morgan Stanley to prepare analyses relating
to the Holdings Counterproposal for purposes of a presentation
to be made by the Holdings ACG Committee to the Partnership. The
Holdings ACG Committee and its advisors met on August 26,
2010 and on August 27, 2010 to review and make revisions to
the presentation supporting the Holdings Counterproposal and to
discuss further the considerations previously discussed relating
to Holdings derivative litigation and proposed carried
interest federal tax legislation.
On August 29, 2010, Partnership GP management and the
financial and legal advisors for the Partnership met with the
Partnership ACG Committee and its financial and legal advisors
to discuss a revised analysis by Barclays Capital, which took
into account: a revision to the number of EPCO distribution
waiver units based on the anticipated timing of the proposed
transaction; the recent dissolution of certain employee
partnerships that held Holdings units and Partnership common
units; changes in assumptions used for the financial analysis
with respect to distribution growth on the Energy Transfer
Equity common units owned by Holdings; and in connection with
analysis of the cash impact of the distribution waiver, the
impact of the Partnership distributions reflected on a cash
basis rather than on an accrual basis.
On August 30, 2010, Mr. McMahen and a representative
of the legal and financial advisors for the Holdings ACG
Committee met initially with the three EPCO voting trustees, in
anticipation of the meeting later that morning with
representatives of the Partnership, to inform them of the
Holdings Counterproposal to be made. Immediately thereafter, the
Holdings ACG Committee and its advisors met with Partnership GP
management and the advisors for the Partnership, the Partnership
ACG Committee and its advisors, and each of the three EPCO
voting trustees. At this meeting, Mr. McMahen and
representatives of Morgan Stanley presented the Holdings
Counterproposal. The Holdings ACG Committee and the Partnership
ACG Committee
43
and their respective advisors exchanged views regarding the
various financial and strategic considerations relevant to
arriving at a mutually acceptable exchange ratio for a
transaction.
Management of the Partnership GP and its advisors, and the
Partnership ACG and its advisors, then convened separately.
After deliberation, the Partnership ACG Committee endorsed a
counterproposal by Partnership GP management of an exchange
ratio of 1.50 Partnership common units per Holdings unit (the
Final Exchange Ratio Offer). The Final Exchange
Ratio Offer represented a premium of approximately 16% based on
the closing prices for Holdings units and Partnership common
units on August 27, 2010 and a 54% increase in cash
distributions to the Holdings unaffiliated unitholders based on
the 1.50 exchange ratio and respective distributions paid by the
partnerships in August 2010.
The Partnership and Holdings meeting participants then
reconvened, and Mr. Creel proposed the Final Exchange Ratio
Offer, presented as a final offer, to the Holdings ACG
Committee. Over the remainder of that day, each committee
convened separately and with the other committee or various
committee representatives in a series of meetings with respect
to (i) the exchange ratio, (ii) a December 31,
2010 deadline for completing the transaction if an exchange
ratio could be agreed upon, in light of the possibility of
retroactive federal tax legislation in 2011 that could affect
Holdings unitholders, and (iii) the consequences of not
completing the transaction by the deadline. At the conclusion of
these meetings, Mr. McMahen advised the Partnership that
the Holdings ACG Committee would agree to the Final Exchange
Ratio Offer, with a transaction completion deadline of
December 31, 2010 and an expense reimbursement to Holdings
of up to $5 million if the agreement for the transaction
were terminated for failure to meet the deadline, subject to the
parties negotiation of and mutual agreement on all other
terms of the requisite definitive agreements.
From August 30, 2010 until September 3, 2010, counsel
for each of the parties prepared drafts of agreements, exchanged
comments and negotiated transaction terms, including termination
rights, the absence of a Holdings termination fee if Holdings
determined not to proceed with the merger under certain
circumstances, the impact of potential adverse federal tax
legislation on the parties obligations to consummate the
transaction, Holdings ability to entertain third party
proposals, and the effect of various other material adverse
developments affecting either party.
On September 3, 2010, the Holdings Board and the Holdings
ACG Committee met with Baker Hostetler, Vinson &
Elkins and Richards Layton and representatives of Morgan
Stanley. Prior to the meeting, the Holdings Board was provided
drafts of the merger agreements and the support agreement as
well as summaries and other documents to assist the Holdings
Board in evaluating the proposed transaction. Representatives of
Morgan Stanley presented in detail its financial analysis of the
proposed transaction at an exchange ratio of 1.50 Partnership
common units for each Holdings unit, and indicated that Morgan
Stanley was prepared to render to the Holdings ACG Committee its
opinion that the exchange ratio pursuant to the merger agreement
was fair, from a financial point of view, to Holdings
unitholders (other than the Holdings supporting unitholders),
subject to customary assumptions, considerations, qualifications
and limitations. Baker Hostetler then reviewed with the Holdings
Board a summary of the material terms of the definitive merger
agreement and related documents for the transaction, and
reviewed resolutions that the Holdings Board would be asked to
adopt, including a resolution that the transaction be presented
to Holdings unitholders for their approval, if the Holdings ACG
Committee approved the transaction at its forthcoming meeting
and expressed its intent that its approval of the transaction
constitute Special Approval within the meaning of
Holdings partnership agreement. Morgan Stanley, Baker
Hostetler, Vinson & Elkins and Richards Layton
responded to various questions from the Holdings Board.
Immediately following the meeting of the Holdings Board, the
Holdings ACG Committee met with Baker Hostetler and Richards
Layton and representatives of Morgan Stanley to consider
approval of the transaction and a recommendation that it be
approved by the Holdings Board. The Morgan Stanley
representatives highlighted certain elements of the financial
analyses that it had reviewed with the Holdings Board, and
rendered its oral opinion to the effect that, as of
September 3, 2010 and based upon and subject to the various
assumptions, considerations, qualifications and limitations set
forth in its written opinion, the exchange ratio pursuant to the
merger agreement was fair, from a financial point of view, to
the Holdings unitholders (other than the Holdings supporting
unitholders). At the committees request, Morgan Stanley
delivered its written
44
opinion to the Holdings ACG Committee and left the meeting.
Baker Hostetler then reviewed in detail proposed resolutions to
be adopted by the committee, including a resolution signifying
the committees intent that its approval of the transaction
constitute Special Approval of the transaction
within the meaning of Holdings partnership agreement. The
Holdings ACG Committee voted unanimously to adopt the
resolutions and reviewed specific elements of the transaction
that supported its actions, which elements are set forth under
the heading Recommendation of the Holdings ACG Committee
and the Holdings Board and Reasons for the Merger.
Following the meeting of the Holdings ACG Committee, after being
advised of the Holdings ACG Committees proceedings and
actions, the Holdings Board executed a unanimous written consent
approving the transaction and recommending that it be presented
to the Holdings unitholders for their approval.
On September 3, 2010, the Partnership Board met with
Barclays Capital, Andrews Kurth and Skadden. Credit Suisse was
also in attendance. Prior to the meeting, the Partnership Board
was provided drafts of the merger agreements and the support
agreement as well as materials to assist the Partnership Board
in evaluating the proposed transactions. At the meeting, the
Partnership Board reviewed and discussed the terms of the
proposed transaction with the assistance of Partnership GP
management and the Partnerships legal and financial
advisors. The meeting of the Partnership Board was then
temporarily recessed.
Immediately following the recess of the meeting of the
Partnership Board, the Partnership ACG Committee met separately
and, with the assistance of its legal and financial advisors,
reviewed and discussed the terms of the proposed transaction
and, among other things, considered whether to provide
special approval as permitted under the
Partnerships partnership agreement, for the proposed
merger and related transactions. After discussion and
deliberation, the Partnership ACG Committee voted unanimously to
adopt resolutions approving the merger agreement and the merger
and related transactions, including a resolution signifying the
committees intent that its approval of the transaction
constitute special approval for purposes of the
Partnerships partnership agreement.
Following the meeting of the Partnership ACG Committee, the
Partnership Board reconvened and received the notice of
special approval (as defined in the
Partnerships partnership agreement) by the Partnership ACG
Committee. After final discussion and deliberation, the
Partnership Board approved the merger agreements and the related
documents and the issuance of Partnership common units in
connection with the proposed merger.
Following the September 3, 2010 meetings of the Holdings
ACG Committee and the Holdings Board and the Partnership ACG
Committee and the Partnership Board, the parties executed and
delivered definitive merger agreements. The Partnership and the
Holdings supporting unitholders also executed and delivered the
support agreement.
On September 7, 2010, the Partnership and Holdings issued a
joint press release announcing the merger agreement and the
proposed merger.
Recommendation
of the Holdings ACG Committee and the Holdings Board and Reasons
for the Merger
On September 3, 2010, the Holdings ACG Committee
unanimously determined that the merger agreement and the merger
were fair and reasonable, advisable to and in the best interests
of Holdings and the Holdings unaffiliated unitholders.
Accordingly, the Holdings ACG Committee recommended that the
Holdings Board approve the merger agreement and the merger.
Based on the Holdings ACG Committees determination and
recommendation, on September 3, 2010, the Holdings Board
unanimously approved and declared the advisability of the merger
agreement and the merger. Both the Holdings ACG Committee and
the Holdings Board also recommended that the Holdings
unaffiliated unitholders vote in favor of the merger proposal.
The Holdings ACG Committee considered many factors in
determining the merger agreement and the transactions
contemplated thereby to be fair and reasonable, advisable to and
in the best interests of Holdings and the Holdings unaffiliated
unitholders and recommending the approval of the merger
agreement and the consummation of the transactions contemplated
thereby to the Holdings Board. In reaching its conclusions, the
45
Holdings ACG Committee consulted with its legal and financial
advisors and viewed the following factors as being generally
positive or favorable in coming to its determination and related
recommendations:
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The pro forma increase of approximately 54% in quarterly cash
distributions expected to be received by Holdings unitholders,
based upon the 1.50 exchange ratio and quarterly cash
distribution rates paid by Holdings and the Partnership in
August 2010, together with the expectation that the merger will
be accretive to cash distributions received by Holdings
unitholders in each year through 2015 (the period for which
projections were provided).
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In the merger, Holdings unitholders will receive common units
representing limited partner interests in the Partnership, which
Partnership common units have substantially more liquidity than
Holdings units because of the Partnership common units
larger average daily trading volume, as well as the Partnership
being a significantly larger entity with a broader investor base
and a larger public float, along with less volatility in the
trading market for the Partnership common units.
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The exchange ratio in the merger, which based upon the closing
prices of Holdings units and Partnership common units on
September 3, 2010, the last trading date before the
Holdings ACG Committee and Holdings Board approved the merger,
represented a premium of:
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approximately 16% above the closing price of Holdings units of
$49.90 on September 3, 2010; and
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approximately 40% above the average closing price of Holdings
units of $41.32 during the one-year period ended on
September 3, 2010.
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The opinion of Morgan Stanley rendered to the Holdings ACG
Committee on September 3, 2010 to the effect that, as of
such date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Holdings unitholders (other than the Holdings supporting
unitholders).
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That the merger provides Holdings unitholders with an
opportunity to benefit from price appreciation and increased
distributions through ownership of Partnership common units,
which should benefit from the lower long-term cost of capital
associated with the permanent cancellation of the IDRs and the
Partnerships enhanced ability to compete for future
acquisitions and finance organic growth projects.
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The stronger credit profile of the Partnership relative to that
of Holdings.
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That Holdings unitholders, generally, should not recognize any
income or gain, for U.S. federal income tax purposes,
solely as a result of the receipt of the Partnership common
units pursuant to the merger.
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The current and prospective environment for Holdings in the
future if it continues as a stand-alone entity, including
potential unitholder value that might result from opportunities
available to Holdings in the future or from growth in its unit
price, as compared to the strengths of the combined entity.
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The terms of the merger agreement permit the Holdings ACG
Committee to change its recommendation of the merger if the
Holdings ACG Committee has concluded in good faith, after
consultation with its outside legal and financial advisors, that
the failure to make such a change in recommendation would be
inconsistent with its duties under the Holdings partnership
agreement and applicable law, and no termination fee is payable
by Holdings upon any such change of recommendation.
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The ability of Holdings to enter into discussions with another
party in response to an unsolicited written offer, if the
Holdings ACG Committee, after consultation with its outside
legal and financial advisors, determines in good faith
(a) that such unsolicited written offer constitutes or is
likely to result in a superior proposal and (b) that the
failure to take such action would be inconsistent with its
duties under the Holdings partnership agreement and applicable
law; notwithstanding that affiliates of EPCO informed the
Holdings ACG Committee that they would not entertain an
acquisition proposal from a third party, the Holdings ACG
Committee considered it possible that a subsequent offer could
affect the viewpoint of the affiliates of EPCO regarding the
merger or a third party transaction.
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46
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The Holdings ACG Committees familiarity with, and
understanding of, the businesses, assets, liabilities, results
of operations, financial conditions and competitive positions
and prospects of Holdings and the Partnership.
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The Holdings ACG Committees understanding of and
managements review of overall market conditions, and the
Holdings ACG Committees determination that, in light of
these factors, the timing of the potential transaction is
favorable to Holdings.
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The review by the Holdings ACG Committee with its legal and
financial advisors of the financial and other terms of the
merger agreement and related documents, including the conditions
to their respective obligations and the termination provisions.
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That the merger will eliminate potential conflicts of interest
between the unitholders of Holdings and the unitholders of the
Partnership.
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The Holdings ACG Committee considered the following factors to
be generally negative or unfavorable in making its determination
and recommendations:
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The risk that the merger might not be completed in a timely
manner, or that the merger might not be consummated as a result
of a failure to satisfy the conditions contained in the merger
agreement, including any failure to close by December 31,
2010, which would result in the termination of the obligations
of (i) the Holdings supporting unitholders under the
support agreement and (ii) DFIDH to execute the
distribution waiver agreement, and that a failure to complete
the merger could negatively impact the trading price of the
Holdings units.
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That the exchange ratio is fixed and the possibility that the
Partnership common unit price could decline relative to the
Holdings unit price prior to closing, reducing the premium
available to Holdings unitholders.
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The possibility that Holdings unitholders could be foregoing
appreciation principally associated with the IDRs which might be
realized either in the form of increased distributions or
appreciation in unit value if the business of the Partnership
performs materially better than anticipated and the Partnership
increases its distribution to levels substantially higher than
anticipated.
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The possibility that the proposed carried interest
federal tax legislation could be enacted with an effective date,
or a retroactive effective date, before consummation of the
merger, and the potential material tax liabilities that could be
incurred by Holdings unitholders as a consequence thereof.
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The limitations on Holdings considering unsolicited offers from
third parties not affiliated with Holdings GP.
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The risk that potential benefits sought in the merger might not
be fully realized.
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The elimination of certain control rights that Holdings
possesses with respect to the Partnership.
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That certain members of management of Holdings GP and the
Holdings Board may have interests that are different from those
of the holders of units in Holdings.
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The foregoing discussion of the information and factors
considered by the Holdings ACG Committee is not intended to be
exhaustive, but includes the material factors considered by the
Holdings ACG Committee. In view of the variety of factors
considered in connection with its evaluation of the merger, the
Holdings ACG Committee did not find it practicable to, and did
not, quantify or otherwise assign specific weights to the
factors considered in reaching its determination and
recommendation. In addition, each of the members of the Holdings
ACG Committee may have given differing weights to different
factors. Overall, the Holdings ACG Committee believed that the
advantages of the merger outweighed the negative factors it
considered.
47
The Holdings ACG Committee also reviewed a number of procedural
factors relating to the merger, including, without limitation,
the following:
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The terms and conditions of the proposed merger were determined
through arms-length negotiations between the Partnership
ACG Committee and the Holdings ACG Committee and their
respective representatives and advisors;
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The Holdings ACG Committee retained independent legal and
financial advisors with knowledge and experience with respect to
public company merger and acquisition transactions, the
Partnerships industry generally, and the Partnership and
Holdings particularly, as well as substantial experience
advising publicly traded limited partnerships and other
companies with respect to transactions similar to the proposed
transaction; and
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The Holdings ACG Committee received the written opinion of
Morgan Stanley on September 3, 2010 to the effect that, as
of such date and based upon and subject to the various
assumptions, considerations, qualifications and limitations set
forth in the written opinion, the exchange ratio pursuant to the
merger agreement was fair, from a financial point of view, to
the Holdings unitholders (other than the Holdings supporting
unitholders).
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The
Partnerships Reasons for the Merger
The Partnership Board and the Partnership ACG Committee
consulted with management and their legal and financial advisors
and considered many factors in approving the merger, including
the following:
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a lower long-term cost of capital achieved through the permanent
elimination of the IDRs, which is expected to allow the
Partnership to maintain its competitive position for
acquisitions and to engage in additional organic growth projects
accretive to common unitholders;
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a simplified organizational structure expected to make the
Partnership more attractive to equity and debt investors, to
reduce certain general and administrative costs by approximately
$6 million per year primarily from eliminating public
company expenses and to eliminate potential conflicts of
interest between the Partnership and Holdings;
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increased liquidity with an increased public ownership of
Partnership common units;
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the relatively low execution risk in integrating businesses due
to existing shared services; and
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an expected neutral or favorable view by rating agencies due to
a more simplified organizational structure that eliminates
inherent conflicts of interest.
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Unaudited
Financial Projections of the Partnership and Holdings
Neither the Partnership nor Holdings routinely publishes
projections as to long-term future performance or earnings.
However, in connection with the proposed merger, management of
the Partnership GP prepared projections that included future
financial performance of the Partnership with respect to 2011
and 2012, and management of Holdings GP prepared projections
that included future financial performance of Holdings (relying
on Partnership GP projections with respect to the Partnership)
with respect to 2011 and 2012. These projections were based on
projections used for regular internal planning purposes. Because
there were no internal financial projections of the Partnership
or Holdings for any period following fiscal year 2012, Barclays
Capital, at the request of and in conjunction with the
management of the Partnership GP, prepared extensions to the
financial projections of the Partnership and Holdings for 2013
and subsequent years on the basis of assumptions discussed with,
and considered reasonable for this purpose by, senior management
of the Partnership GP. Management of the Partnership GP reviewed
the extensions to the projections and agreed that the extended
projections were a reasonable estimate of the Partnerships
and Holdings future financial performance as of the date
prepared. Projections were prepared for each of the Partnership
and Holdings. These non-public projections were provided to
Morgan Stanley for use and consideration in its financial
analysis and in preparation of its opinion to the Holdings ACG
Committee. The projections were also presented to members of the
Holdings ACG Committee and provided to other members of the
Holdings
48
Board. A summary of these projections is included below to give
Holdings unitholders access to certain non-public unaudited
projections that were made available to Morgan Stanley, the
Holdings ACG Committee and the Holdings Board in connection with
the proposed merger.
The
Partnership and Holdings caution you that uncertainties are
inherent in projections of any kind. None of the Partnership,
Holdings or any of their affiliates, advisors, officers,
directors or representatives has made or makes any
representation or can give any assurance to any Holdings
unitholder or any other person regarding the ultimate
performance of the Partnership or Holdings compared to the
summarized information set forth below or that any projected
results will be achieved.
The summary projections set forth below summarize the most
recent projections provided to Morgan Stanley, the Holdings ACG
Committee and members of the Holdings Board prior to the
execution of the merger agreement. The inclusion of the
following summary projections in this proxy statement/prospectus
should not be regarded as an indication that the Partnership,
Holdings or their representatives considered or consider the
projections to be a reliable or accurate prediction of future
performance or events, and the summary projections set forth
below should not be relied upon as such.
The accompanying projections were not prepared with a view
toward public disclosure or toward compliance with GAAP, the
published guidelines of the SEC, or the guidelines established
by the American Institute of Certified Public Accountants, but,
in the view of the management of the Partnership GP, were
prepared on a reasonable basis, reflect the best currently
available estimates and judgments, and present, to the best of
Partnership GP managements knowledge and belief, the
expected course of action and the expected future financial
performance of the Partnership.
Neither Deloitte & Touche LLP nor any other
independent registered public accounting firm has compiled,
examined or performed any procedures with respect to the
projections, nor has it expressed any opinion or any other form
of assurance on such information or its achievability, and
assumes no responsibility for, and disclaims any association
with, the projections. The Deloitte & Touche LLP
reports incorporated by reference into this proxy
statement/prospectus relate to historical financial information
of the Partnership and Holdings. Such reports do not extend to
the projections included below and should not be read to do so.
The respective boards of directors and the Audit, Conflicts and
Governance Committees of the Partnership GP and Holdings GP did
not prepare, and do not give any assurance regarding, the
summarized information.
In developing the projections, the management of Partnership GP
made numerous material assumptions with respect to the
Partnership and Holdings for the period 2011 to 2015, including:
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growth capital investments and the amounts and timing of related
costs and potential economic returns;
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outstanding debt during applicable periods, and the availability
and cost of capital;
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the cash flow from existing assets and business activities,
including distribution growth by Energy Transfer Equity, an
entity not controlled by either Holdings or the Partnership;
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the prices of, production level of, and demand for crude oil,
natural gas, NGLs and other hydrocarbon products; and
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other general business, market and financial assumptions.
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The assumptions used in the projections for 20132015 also
included the following:
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that the Partnerships distributions would grow at the
greater of 5% or $0.12 per Partnership common unit per year;
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that the Partnerships EBITDA would grow based on the
median of the historical and forecast annual EBITDA growth rates
from 20092012; and
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that the Partnerships maintenance capital expenditures
during each year, as a percentage of EBITDA for such year, would
equal the average percentage of historical and forecast EBITDA
over 20092012.
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49
Additional assumptions were made with respect to the size,
availability, timing and anticipated results of, and cash flows
from, growth capital investments. All of these assumptions
involve variables making them difficult to predict, and most are
beyond the control of the Partnership and Holdings. Although
management of the Partnership GP and Holdings believe that there
was a reasonable basis for their projections and underlying
assumptions, any assumptions for near-term projected cases
remain uncertain, and the risk of inaccuracy increases with the
length of the forecasted period.
The
Partnership
The following table sets forth projected financial information
for the Partnership for 2011, 2012, 2013, 2014 and 2015.
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2011E
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2012E
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2013E
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2014E
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2015E
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(Dollars in millions)
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Adjusted EBITDA(1)
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$
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3,252
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$
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3,622
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$
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3,929
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$
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4,263
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$
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4,625
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Distributable cash flow(2)
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$
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2,271
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$
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2,443
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$
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2,672
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$
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2,877
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$
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3,087
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Holdings
The following table sets forth projected financial information
for Holdings for 2011, 2012, 2013, 2014 and 2015.
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2011E
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2012E
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2013E
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2014E
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2015E
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(Dollars in millions)
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Adjusted EBITDA(3)
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$
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442
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$
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490
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$
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532
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$
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575
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$
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620
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Distributable cash flow(4)
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$
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410
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$
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447
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$
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483
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$
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523
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$
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565
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(1) |
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Adjusted EBITDA of the Partnership represents net income or loss
attributable to the Partnership less equity earnings from
unconsolidated affiliates, plus distributions received from
unconsolidated affiliates, interest expense, provision for
income taxes and depreciation, amortization and accretion
expense. |
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(2) |
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Distributable cash flow to the Partnership is defined as net
income or loss attributable to the Partnership adjusted for:
(i) the addition of depreciation, amortization and
accretion expense; (ii) the addition of operating lease
expenses for which the Partnership does not have the payment
obligation; (iii) the addition of cash distributions
received from unconsolidated affiliates less equity earnings
from unconsolidated affiliates; (iv) the subtraction of
sustaining capital expenditures and cash payments to settle
asset retirement obligations; (v) the addition of losses or
subtraction of gains from asset sales and related transactions;
(vi) the addition of cash proceeds from asset sales or
related transactions; (vii) the return of an investment in
an unconsolidated affiliate (if any); (viii) the addition
of losses or subtraction of gains on the monetization of
financial instruments recorded in accumulated other
comprehensive income (loss), if any, less related amortization
of such amounts to earnings; (ix) the addition of net income
attributable to the noncontrolling interest associated with the
public unitholders of Duncan Energy Partners L.P. (Duncan
Energy Partners), less related cash distributions to be
paid to such unitholders with respect to the period of
calculation; and (x) the addition or subtraction of other
miscellaneous non-cash amounts (as applicable) that affect net
income or loss for the period. |
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(3) |
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Adjusted EBITDA of Holdings represents cash distributions
received by Holdings less general and administrative expense. |
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(4) |
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Distributable cash flow to Holdings is defined as Adjusted
EBITDA of Holdings less interest expense. |
Adjusted EBITDA is not a financial measure prepared in
accordance with GAAP and should not be considered a substitute
for net income (loss) or cash flow data prepared in accordance
with GAAP.
Distributable cash flow is not a financial measure prepared in
accordance with GAAP and should not be considered a substitute
for net income (loss) or cash flow data prepared in accordance
with GAAP.
50
NEITHER THE PARTNERSHIP NOR HOLDINGS INTENDS TO UPDATE OR
OTHERWISE REVISE THE ABOVE PROJECTIONS TO REFLECT CIRCUMSTANCES
EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE
OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE
ASSUMPTIONS UNDERLYING SUCH PROJECTIONS ARE NO LONGER
APPROPRIATE.
Opinion
of the Holdings ACG Committees Financial Advisor
The Holdings ACG Committee retained Morgan Stanley to act as its
financial advisor in connection with the transaction on
July 20, 2010. The Holdings ACG Committee selected Morgan
Stanley to act as its financial advisor based on Morgan
Stanleys qualifications, expertise and reputation and its
knowledge of the business and affairs of Holdings as a result of
a prior engagement by the Holdings ACG Committee. At the meeting
of the Holdings ACG Committee on September 3, 2010, Morgan
Stanley rendered to the Holdings ACG Committee its oral opinion,
subsequently confirmed in writing, that, as of such date and
based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the holders
of the Holdings units (other than the Holdings supporting
unitholders).
The full text of the written opinion of Morgan Stanley, dated
September 3, 2010, is attached as Annex E to this
proxy statement/prospectus and is incorporated by reference in
its entirety into this proxy statement/prospectus. The opinion
sets forth, among other things, the assumptions made, specified
work performed, procedures followed, matters considered and
qualifications and limitations on the scope of the review
undertaken by Morgan Stanley in rendering its opinion. You
should read the opinion carefully and in its entirety. Morgan
Stanleys opinion is directed to the Holdings ACG Committee
and addresses only the fairness from a financial point of view
of the exchange ratio pursuant to the merger agreement to the
holders of the Holdings units (other than the Holdings
supporting unitholders) as of the date of the opinion. It does
not address any other aspect of the merger or related
transactions and does not constitute a recommendation to any
unitholder of Holdings as to how to vote or act on any matter
with respect to the merger or related transactions. In addition,
the opinion does not in any manner address the prices at which
the Holdings units or the Partnership common units will trade at
any time. The summary of the opinion of Morgan Stanley set forth
in this proxy statement/prospectus is qualified in its entirety
by reference to the full text of the opinion.
In arriving at its opinion, Morgan Stanley, among other things:
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reviewed certain publicly available financial statements and
other business and financial information of Holdings and the
Partnership, respectively;
|
|
|
|
reviewed certain internal financial statements and other
financial and operating data concerning Holdings and the
Partnership, respectively;
|
|
|
|
reviewed certain financial projections prepared by the
management of the Partnership GP with respect to the future
performance of the Partnership and with respect to the future
performance of Holdings;
|
|
|
|
reviewed certain financial projections, provided by or on behalf
of the management of Holdings GP, with respect to the future
performance of Holdings;
|
|
|
|
reviewed information relating to certain strategic, financial
and operational benefits anticipated from the merger, prepared
by the management of the Partnership GP;
|
|
|
|
discussed the past and current operations and financial
condition and the prospects of the Partnership and Holdings,
including information relating to certain strategic, financial
and operational benefits anticipated from the merger, with
senior executives of the Partnership GP;
|
|
|
|
discussed the past and current operations and financial
condition and the prospects of Holdings (including the
projections of such operations, financial condition and
prospects by the Partnership), with senior executives of
Holdings GP;
|
51
|
|
|
|
|
reviewed the pro forma impact of the merger on the
Partnerships cash flow, consolidated capitalization and
financial ratios;
|
|
|
|
reviewed the reported prices and trading activity for the units
of Holdings and the common units of the Partnership;
|
|
|
|
compared the financial performance of Holdings and the
Partnership and the prices and trading activity of the Holdings
units and the Partnership common units with that of certain
other publicly-traded master limited partnerships comparable to
Holdings and the Partnership, respectively, and their securities;
|
|
|
|
reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
|
|
|
|
participated in certain discussions and negotiations among
representatives of Holdings and the Partnership and certain
parties and their financial and legal advisors;
|
|
|
|
reviewed the merger agreement, GP merger agreement, distribution
waiver agreement and certain related documents; and
|
|
|
|
performed such other analyses, reviewed such other information
and considered such other factors as Morgan Stanley deemed
appropriate.
|
In arriving at its opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and
completeness of the information that was publicly available or
supplied or otherwise made available to it by Holdings and the
Partnership, and formed a substantial basis for its opinion.
With respect to the financial projections, including information
relating to certain strategic, financial and operational
benefits anticipated from the merger, Morgan Stanley assumed
that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of
the Partnership GP and of Holdings GP of the future financial
performance of the Partnership and Holdings, respectively.
Morgan Stanley understood from the management of Holdings GP
that the future financial performance of Holdings is
significantly contingent on the financial performance of the
Partnership, with a minority proportion of such future
performance related to the performance of other unrelated
investments held by Holdings, including an investment in Energy
Transfer Equity and its general partner. In addition, Morgan
Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the merger agreement and
the GP merger agreement without any material waiver, amendment
or delay of any terms or conditions thereof and that the waiver
of distributions contemplated by the distribution waiver
agreement will occur in accordance with the distribution waiver
agreement without any material waiver, amendment or delay of any
terms or conditions thereof. Morgan Stanley assumed that in
connection with the receipt of all the necessary governmental,
regulatory or other approvals and consents required for the
proposed merger, no delays, limitations, conditions or
restrictions will be imposed that would have a material adverse
effect on the contemplated benefits expected to be derived in
the proposed merger.
In its opinion, Morgan Stanley noted that it is not a legal, tax
or regulatory advisor, that it is a financial advisor only and
relied upon, without independent verification, the assessments
of the Partnership and Holdings and their legal, tax or
regulatory advisors with respect to legal, tax or regulatory
matters. Morgan Stanley expressed no opinion with respect to the
fairness of the amount or nature of the compensation to any of
Holdings officers, directors or employees, or any class of
such persons, relative to the consideration to be received by
the holders of the Holdings units in the transaction. Morgan
Stanley did not make any independent valuation or appraisal of
the assets or liabilities of Holdings or the Partnership, nor
was it furnished with any such appraisals. Morgan Stanleys
opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made
available to it as of, the date of the opinion. Events occurring
after the date of the opinion may affect Morgan Stanleys
opinion and the assumptions used in preparing it, and Morgan
Stanley did not assume any obligation to update, revise or
reaffirm its opinion.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with
respect to the acquisition, business combination or other
extraordinary transaction, involving
52
Holdings, nor did it negotiate with any party other than the
Partnership regarding the possible acquisition of Holdings or
certain of its constituent businesses. Morgan Stanleys
opinion did not address the relative merits of the merger as
compared to any other alternative business transaction, or other
alternatives, whether or not such alternatives could be achieved
or are available, nor did it address the underlying business
decision by Holdings and the Holdings ACG Committee to enter
into the merger. Morgan Stanley understood that certain of the
Holdings supporting unitholders specifically notified the
Holdings ACG Committee that they would not support any
alternative transaction at this time.
The following is a brief summary of the material analyses
performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion dated
September 3, 2010. In connection with arriving at its
opinion, Morgan Stanley considered all of its analyses as a
whole and did not attribute any particular weight to any
analysis described below. Considering any portion of such
analyses and factors considered, without considering all
analyses and factors, could create a misleading or incomplete
view of the process underlying Morgan Stanleys opinion.
This summary of financial analyses includes information
presented in tabular format. In order to fully understand the
financial analyses used by Morgan Stanley, the tables must be
read together with the accompanying text. The tables alone do
not constitute a complete description of the financial analyses.
Equity
Research Analyst Price Targets Analysis
Morgan Stanley reviewed and analyzed the public market trading
price targets for Holdings units prepared and published by
equity research analysts during the period from July 26,
2010 through August 24, 2010. These targets reflect each
analysts estimate of the future public trading price of
the Holdings units as of their respective dates. Morgan Stanley
noted that such analyst price targets for Holdings units ranged
from $47.00 to $56.00 per Holdings unit.
Morgan Stanley also reviewed and analyzed the public market
trading price targets for Partnership common units prepared and
published by equity research analysts during the period from
March 19, 2010 through August 24, 2010. These targets
reflect each analysts estimate of the future public
trading price of the Partnership common units as of their
respective dates. Morgan Stanley noted that such analyst price
targets for Partnership common units ranged from $39.00 to
$43.00 per Partnership common unit.
Morgan Stanley calculated the implied exchange ratios by
dividing the minimum and maximum of the public market trading
price targets of Holdings units by those of Partnership common
units. The following table lists the implied exchange ratios,
compared to an exchange ratio of 1.500x for the merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings Unit
|
|
Partnership
|
|
Implied
|
|
|
Price
|
|
Common Unit
|
|
Exchange
|
Analyst Price Targets
|
|
Target
|
|
Price Target
|
|
Ratio
|
|
Minimum
|
|
$
|
47.00
|
|
|
$
|
39.00
|
|
|
|
1.205
|
x
|
Maximum
|
|
|
56.00
|
|
|
|
43.00
|
|
|
|
1.302
|
x
|
The public market trading price targets published by equity
research analysts do not necessarily reflect current market
trading prices for Holdings units or Partnership common units
and these estimates are subject to uncertainties, including the
future financial performance of Holdings and the Partnership and
future financial market conditions.
Historical
Unit Price and Exchange Ratio Analyses
Morgan Stanley reviewed the unit price performance of each of
Holdings and the Partnership during various periods ending on
September 2, 2010.
Morgan Stanley noted that the range of low and high closing
prices of the Holdings units during the twelve-month period
ending on September 2, 2010 was $27.29 to $52.28 per
Holdings unit. Morgan Stanley then noted that the range of low
and high closing prices of the Holdings units during the
six-month period ending on September 2, 2010 was $40.42 to
$52.28 per Holdings unit.
53
Morgan Stanley noted that the range of low and high closing
prices of Partnership common units during the twelve-month
period ending on September 2, 2010 was $26.30 to $38.73 per
Partnership common unit. Morgan Stanley then noted that the
range of low and high closing prices of the Partnership common
units during the six-month period ending on September 2,
2010 was $31.68 to $38.73 per Partnership common unit.
Morgan Stanley calculated the historical exchange ratios implied
by dividing the low and high closing prices of Holdings units by
those of Partnership common units for the last twelve months and
six months, respectively. The following table lists the implied
exchange ratios for these periods, compared to an exchange ratio
of 1.500x for the merger:
|
|
|
|
|
|
|
Implied
|
|
|
Exchange
|
Time Period
|
|
Ratio Range
|
|
Last Twelve Months
|
|
|
1.038x - 1.350
|
x
|
Last Six Months
|
|
|
1.276x - 1.350
|
x
|
Comparable
Company Analysis
Morgan Stanley performed a comparable company analysis, which is
designed to provide an implied value of a company by comparing
it to similar companies. In performing this analysis, Morgan
Stanley reviewed and compared certain financial information of
Holdings and the Partnership, respectively, with publicly
available information for selected master limited partnerships
(MLPs) with publicly traded equity securities.
The selected companies were chosen because they are MLPs with
publicly traded equity securities and were deemed to be similar
to Holdings and the Partnership, respectively, in one or more
respects including the nature of their business, size,
diversification, financial performance and geographic
concentration. No specific numeric or other similar criteria
were used to choose the selected companies and all criteria were
evaluated in their entirety without application of definitive
qualifications or limitations to individual criteria. As a
result, a significantly larger or smaller company with
substantially similar lines of businesses and business focus may
have been included while a similarly sized company with less
similar lines of business and greater diversification may have
been excluded. Morgan Stanley identified a sufficient number of
companies for the purposes of its analysis but may not have
included all companies that might be deemed comparable to
Holdings and the Partnership, respectively.
The selected MLPs with publicly traded equity securities for the
comparable company analysis for Holdings were:
|
|
|
|
|
Alliance Holdings GP, L.P.
|
|
|
|
Atlas Pipeline Holdings, L.P.
|
|
|
|
Buckeye GP Holdings L.P.
|
|
|
|
Crosstex Energy, Inc.
|
|
|
|
Energy Transfer Equity, L.P.
|
|
|
|
Inergy Holdings, L.P.
|
|
|
|
NuStar GP Holdings, LLC
|
The financial data for comparable companies were obtained from
FactSet.
The financial data reviewed for Holdings included:
|
|
|
|
|
the ratio of aggregate value, defined as market capitalization
plus total debt, preferred equity and noncontrolling interests
less cash and cash equivalents, to estimated earnings before
interest, taxes, depreciation and amortization
(EBITDA) for calendar years 2011 and 2012 (in each
case, based on Partnership GP management projections and
projections provided by or on behalf of the management of
Holdings GP); and
|
|
|
|
the current distributed cash flow yield.
|
54
The comparable company analysis for Holdings indicated the
following high, low, mean and median multiples for the selected
MLPs and for Holdings as of September 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield and
|
|
|
|
|
|
|
|
|
|
|
Multiples for
|
|
|
|
|
|
|
|
|
|
|
Holdings Based
|
|
|
|
|
|
|
|
|
|
|
on Closing Price
|
Multiple Description
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
on 9/2/2010
|
|
Current Distributed Cash Flow Yield
|
|
|
6.1
|
%
|
|
|
4.3
|
%
|
|
|
5.2
|
%
|
|
|
5.0
|
%
|
|
|
4.6
|
%
|
Aggregate Value to EBITDA for CY 2011E
|
|
|
20.8
|
x
|
|
|
15.0
|
x
|
|
|
17.0
|
x
|
|
|
16.3
|
x
|
|
|
17.9
|
x
|
Aggregate Value to EBITDA for CY 2012E
|
|
|
25.7
|
x
|
|
|
13.8
|
x
|
|
|
16.5
|
x
|
|
|
14.9
|
x
|
|
|
16.2
|
x
|
The selected MLPs with publicly traded equity securities for the
comparable company analysis for the Partnership were:
|
|
|
|
|
Duncan Energy Partners L.P.
|
|
|
|
Enbridge Energy Partners, L.P.
|
|
|
|
Energy Transfer Partners, L.P.
|
|
|
|
Kinder Morgan Energy Partners, L.P.
|
|
|
|
ONEOK Partners, L.P.
|
|
|
|
Regency Energy Partners LP
|
|
|
|
Williams Partners L.P.
|
The financial data for comparable companies were obtained from
FactSet.
The financial data reviewed for the Partnership included:
|
|
|
|
|
the ratio of aggregate value, adjusted for the percentage of
cash flow paid to the general partner, to EBITDA for calendar
years 2011 and 2012 (in each case, based on Partnership GP
management projections); and
|
|
|
|
the current distributed cash flow yield.
|
The comparable company analysis for the Partnership indicated
the following high, low, mean and median multiples for the
selected MLPs and for the Partnership as of September 2,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiples for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on Closing
|
|
Multiple Description
|
|
High
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
Price on 9/2/2010
|
|
|
Current Distributed Cash Flow Yield
|
|
|
7.6
|
%
|
|
|
6.0
|
%
|
|
|
6.7
|
%
|
|
|
6.4
|
%
|
|
|
6.0
|
%
|
Adj. Aggregate Value to EBITDA for CY 2011E(1)
|
|
|
16.8
|
x
|
|
|
10.6
|
x
|
|
|
12.8
|
x
|
|
|
12.2
|
x
|
|
|
12.8
|
x
|
Adj. Aggregate Value to EBITDA for CY 2012E(1)
|
|
|
13.6
|
x
|
|
|
10.5
|
x
|
|
|
11.6
|
x
|
|
|
11.2
|
x
|
|
|
11.5
|
x
|
|
|
|
(1) |
|
Aggregate value adjusted for percentage of cash flow paid to the
general partner. |
Morgan Stanley applied multiple ranges based on the comparable
company analysis to corresponding financial data for Holdings
and the Partnership, based on Partnership GP management
forecasts and forecasts provided by or on behalf of the
management of Holdings GP, respectively, to calculate an
implied exchange ratio reference range. The comparable company
analysis indicated an implied exchange ratio range of 1.054x to
1.369x for 2011 estimated EBITDA, 0.981x to 1.166x for 2012
estimated EBITDA and 1.217x to 1.299x for current distributed
cash flow yield, as compared to an exchange ratio of 1.500x for
the merger.
55
No company utilized in the comparable company analysis is
identical to either Holdings or the Partnership. In evaluating
the comparable companies, Morgan Stanley made judgments and
assumptions with regard to general business, economic, market
and financial conditions and other matters, which are beyond the
control of Holdings and the Partnership, such as the impact of
competition on the business of Holdings, the Partnership or the
industry generally, industry growth and the absence of any
adverse material change in the financial condition of Holdings,
the Partnership or the industry or in the financial markets in
general, which could affect the public trading value of the
companies. Mathematical analysis (such as determining the mean,
median, high or low) is not in itself a meaningful method of
using comparable company data.
Discounted
Equity Value Analysis
Morgan Stanley calculated a range of equity values per unit for
each of Holdings and the Partnership based on a discounted
equity value analysis, which is designed to provide insight into
the future price of a companys common equity as a function
of its current distributed cash flow yield and the
companys future distributions per unit based on
Partnership GP management estimates, and management estimates
provided by or on behalf of Holdings, for calendar years 2011
through 2015. Morgan Stanley also calculated a range of equity
values per unit for each of Holdings and the Partnership based
on the mean of equity research analyst estimates for calendar
years 2011 through 2014 (the final year for which detailed
equity research analyst estimates were available at the date of
the relevant analyses).
In arriving at the estimated equity values per Holdings unit,
Morgan Stanley applied a 4.5% to 6.0% yield range to 2011
through 2015 distributions per unit (such yield range was
applied to calendar years 2011 through 2015 for
Partnership GP management estimates, and management
estimates provided by or on behalf of Holdings, and to calendar
years 2011 through 2014 for equity research analyst estimates)
and discounted those values and the future distributions paid
each year using a range of cost of equity from 9.6% to 13.3%.
Based on Partnership GP management estimates, and
management estimates provided by or on behalf of
Holdings GP management, this analysis implied a range for
Holdings units of $42.86 to $57.30 per Holdings unit for 2011
and $44.97 to $64.56 per Holdings unit for 2015. Based on the
mean of equity research analyst estimates, this analysis implied
a range for Holdings units of $42.24 to $56.46 per Holdings unit
for 2011 and $44.69 to $63.11 per Holdings unit for 2014.
In arriving at the estimated equity values per Partnership
common unit, Morgan Stanley applied a 6.0% to 7.5% yield range
to 2011 through 2015 distributions per common unit (such yield
range was applied to calendar years 2011 through 2015 for
Partnership GP management estimates and to calendar years
2011 through 2014 for equity research analyst estimates), and
discounted those values and the future distributions paid each
year using a range of cost of equity from 9.1% to 11.5%. Based
on Partnership GP management estimates, this analysis
implied a range for Partnership common units of $32.98 to $41.09
per Partnership common unit for 2011 and $34.44 to $44.08 per
Partnership common unit for 2015. Based on the mean of equity
research analyst estimates, this analysis implied a range for
Partnership common units of $33.35 to $41.55 per Partnership
common unit for 2011 and $34.63 to $44.04 per Partnership common
unit for 2014.
Morgan Stanley noted that the discounted equity value analysis
of each of Holdings and the Partnership indicated the following
ranges of implied exchange ratios, compared to an exchange ratio
of 1.500x for the merger:
|
|
|
|
|
|
|
Implied
|
|
|
Exchange
|
Discounted Equity Value Method
|
|
Ratio Range
|
|
2011 Holdings GP and the Partnership GP Management
Estimates
|
|
|
1.300x - 1.394
|
x
|
2011 Mean of Equity Research Analyst Estimates
|
|
|
1.266x - 1.359
|
x
|
2015 Holdings GP and the Partnership GP Management Estimates
|
|
|
1.306x - 1.465
|
x
|
2014 Mean of Equity Research Analyst Estimates
|
|
|
1.291x - 1.433
|
x
|
56
Discounted
Cash Flow Analysis
Morgan Stanley performed a discounted cash flow analysis, which
is designed to provide an implied value of a company by
calculating the present value of the estimated future cash flows
and terminal value of the company. Morgan Stanley calculated
ranges of implied equity values per unit for each of Holdings
and the Partnership, based on Partnership GP management
estimates, and management estimates provided by or on behalf of
Holdings, of future distributions per unit for calendar years
2011 through 2015, and based on the mean of equity research
analyst estimates of future distributions per unit for calendar
years 2011 through 2014, respectively.
In arriving at the estimated equity values per Holdings unit,
Morgan Stanley noted the estimated distributions for each
projected calendar year and then calculated the terminal value
by applying a range of terminal yields in the terminal year
ranging from 4.5% to 6.0%. The distributions and the terminal
value were then discounted to present values using a range of
cost of equity from 9.6% to 13.3%. Based on the calculations set
forth above, this analysis implied a range for Holdings units of
$45.66 to $65.09 per Holdings unit based on Partnership GP
management estimates and estimates provided by or on behalf of
Holdings, and $45.25 to $63.53 per Holdings unit based on the
mean of equity research analyst estimates.
In arriving at the estimated equity values per Partnership
common unit, Morgan Stanley noted the estimated distributions
for each projected calendar year and then calculated the
terminal value by applying a range of terminal yields in the
terminal year ranging from 6.0% to 7.5%. The distributions and
the terminal value were then discounted to present values using
a range of cost of equity, from 9.1% to 11.5%. Based on the
calculations set forth above, this analysis implied a range for
Partnership common units of $34.99 to $44.54 per Partnership
common unit based on the Partnerships management estimates
and $35.09 to $44.42 per Partnership common unit based on the
mean of equity research analyst estimates.
Morgan Stanley noted that the discounted cash flow analysis of
each of Holdings and the Partnership indicated a range of
implied exchange ratios of 1.305x to 1.461x based on Holdings GP
and Partnership GP management estimates, and 1.289x to 1.430x
based on the mean of equity research analyst estimates, compared
to an exchange ratio of 1.500x for the merger.
Precedent
General Partner Buyouts Analysis
Morgan Stanley calculated various multiples of transaction value
to certain financial data based on the purchase prices paid in
selected publicly announced general partner buyout transactions
that it deemed relevant.
The selected transactions were chosen because the target
companies were the general partners of MLPs deemed to be similar
to Holdings in one or more respects including the nature of
their business, size, diversification, financial performance and
geographic concentration. No specific numeric or other similar
criteria were used to choose the selected transactions and all
criteria were evaluated in their entirety without application of
definitive qualifications or limitations to individual criteria.
As a result, a transaction involving the acquisition of a
significantly larger or smaller company with substantially
similar lines of businesses and business focus may have been
included while a transaction involving the acquisition of a
similarly sized company with less similar lines of business and
greater diversification may have been excluded. Morgan Stanley
identified a sufficient number of transactions for purposes of
its analysis, but may not have included all transactions that
might be deemed comparable to the proposed transaction. The
selected transactions were:
|
|
|
|
|
MarkWest Energy Partners, L.P./MarkWest Hydrocarbon, Inc.
|
|
|
|
Magellan Midstream Partners, L.P./Magellan Midstream Holdings,
L.P.
|
|
|
|
Buckeye Partners, L.P./Buckeye GP Holdings L.P.
|
|
|
|
Inergy, L.P./Inergy Holdings, L.P.
|
57
The calculated multiples included:
|
|
|
|
|
the ratio of aggregate value less the market value of the
limited partner units held by the general partner, to EBITDA
less the EBITDA derived from the limited partner units for FY +1
and FY +2; and
|
|
|
|
the ratio of the equity value less the market value of the
limited partner units held by the general partner to the total
distributable cash flow less the distributable cash flow derived
from the limited partner units for FY +1 and FY +2.
|
The selected transactions analysis indicated the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiples for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
Multiple Description
|
|
High
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
Consideration
|
|
|
Disaggregated Aggregate Value to EBITDA for FY +1
|
|
|
25.8
|
x
|
|
|
11.6
|
x
|
|
|
20.4
|
x
|
|
|
22.1
|
x
|
|
|
22.9
|
x
|
Disaggregated Aggregate Value to EBITDA for FY +2
|
|
|
20.9
|
x
|
|
|
9.8
|
x
|
|
|
17.4
|
x
|
|
|
19.5
|
x
|
|
|
20.2
|
x
|
Price to Disaggregated Distributable Cash Flow for FY +1
|
|
|
25.8
|
x
|
|
|
11.6
|
x
|
|
|
20.5
|
x
|
|
|
22.3
|
x
|
|
|
21.6
|
x
|
Price to Disaggregated Distributable Cash Flow for FY +2
|
|
|
20.9
|
x
|
|
|
9.8
|
x
|
|
|
17.4
|
x
|
|
|
19.4
|
x
|
|
|
19.4
|
x
|
Morgan Stanley applied multiple ranges based on the selected
transactions analysis to corresponding financial data for
Holdings based on Partnership GP management forecasts, and
forecasts provided by or on behalf of Holdings, to calculate an
implied exchange ratio reference range. The selected
transactions analyses indicated an implied exchange ratio range
of 0.830x to 1.703x, compared to an exchange ratio of 1.500x for
the merger.
Morgan Stanley also calculated the aggregated and disaggregated
price premiums paid in the selected transactions and for the
merger based on the price implied by the offered exchange ratio
for each respective transaction as compared to the average
market price per unit for the
one-day,
one-month, three-month,
six-month
and one-year periods prior to the announcement of the selected
transactions and prior to September 2, 2010 for the merger.
In addition, Morgan Stanley calculated the aggregated premium to
historical trading relationship in the selected transactions and
for the merger based on the offered exchange ratio for each
respective transaction and the historical average exchange ratio
for the general partner and limited partner units for the
one-day,
one-month, three-month, six-month and one-year periods prior to
the announcement of the selected transactions and prior to
September 2, 2010 with respect to the merger. The premiums
paid analysis indicated the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
Premium for
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
Merger
|
Aggregated Price Premiums
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
Consideration
|
|
One Day Prior
|
|
|
32
|
%
|
|
|
5
|
%
|
|
|
21
|
%
|
|
|
24
|
%
|
|
|
17
|
%
|
One Month Average
|
|
|
32
|
%
|
|
|
14
|
%
|
|
|
21
|
%
|
|
|
18
|
%
|
|
|
16
|
%
|
Three Month Average
|
|
|
26
|
%
|
|
|
12
|
%
|
|
|
21
|
%
|
|
|
23
|
%
|
|
|
18
|
%
|
Six Month Average
|
|
|
32
|
%
|
|
|
5
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
One Year Average
|
|
|
57
|
%
|
|
|
(6
|
)%
|
|
|
31
|
%
|
|
|
36
|
%
|
|
|
39
|
%
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
Premium for
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
Merger
|
Disaggregated Price Premiums
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
Consideration
|
|
One Day Prior
|
|
|
32
|
%
|
|
|
5
|
%
|
|
|
23
|
%
|
|
|
28
|
%
|
|
|
24
|
%
|
One Month Average
|
|
|
32
|
%
|
|
|
15
|
%
|
|
|
23
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
Three Month Average
|
|
|
28
|
%
|
|
|
18
|
%
|
|
|
23
|
%
|
|
|
23
|
%
|
|
|
24
|
%
|
Six Month Average
|
|
|
35
|
%
|
|
|
9
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
|
|
30
|
%
|
One Year Average
|
|
|
61
|
%
|
|
|
(6
|
)%
|
|
|
34
|
%
|
|
|
40
|
%
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
Premium for
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
Merger
|
Premium to Historical Average Trading Price Ratio
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
Consideration
|
|
One Day Prior
|
|
|
32
|
%
|
|
|
5
|
%
|
|
|
21
|
%
|
|
|
24
|
%
|
|
|
17
|
%
|
One Month Average
|
|
|
32
|
%
|
|
|
9
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
13
|
%
|
Three Month Average
|
|
|
33
|
%
|
|
|
12
|
%
|
|
|
23
|
%
|
|
|
23
|
%
|
|
|
13
|
%
|
Six Month Average
|
|
|
29
|
%
|
|
|
14
|
%
|
|
|
21
|
%
|
|
|
20
|
%
|
|
|
14
|
%
|
One Year Average
|
|
|
35
|
%
|
|
|
15
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
20
|
%
|
No company or transaction utilized in the precedent general
partner buyouts analysis is identical to Holdings, the
Partnership, or the merger. In evaluating the precedent
transactions, Morgan Stanley made judgments and assumptions with
regard to general business, market and financial conditions and
other matters, which are beyond the control of Holdings and the
Partnership, such as the impact of competition on the business
of Holdings, the Partnership or the industry generally, industry
growth and the absence of any adverse material change in the
financial condition of Holdings, the Partnership or the industry
or in the financial markets in general, which could affect the
public trading value of the companies and the aggregate value of
the transactions to which they are being compared.
Pro
Forma Accretion/Dilution Analysis
Using financial projections provided by the management of the
Partnership GP, and projections provided by or on behalf of
management of Holdings GP, Morgan Stanley calculated the
accretion/dilution of the estimated distributable cash flow and
distributions to the existing unitholders of Holdings on a per
unit basis. For each of the years ended December 31, 2011
through December 31, 2015, Morgan Stanley compared the
distributable cash flow and distributions per unit of the pro
forma entity to the distributable cash flow and distributions
per unit of Holdings as a stand-alone entity. The analysis
indicated that the merger would be accretive to Holdings
distributable cash flow and distributions per unit for calendar
years 2011 through 2015 based on projections provided by the
management of the Partnership GP with respect to 2011 and 2012
and its financial advisor with respect to
2013-2015,
and projections provided by or on behalf of management of
Holdings GP. In addition, the merger would also be accretive to
Holdings distributable cash flow and distributions per
unit in each year based on Partnership distributions increasing
at 3%, 5% and 7% per year from 2011 through 2014, respectively.
General
In connection with the review of the merger by the Holdings ACG
Committee, Morgan Stanley performed a variety of financial and
comparative analyses and reviewed such underlying data as Morgan
Stanley deemed relevant for purposes of rendering its opinion.
The preparation of a financial opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor it
considered. Furthermore, Morgan Stanley believes that the
summary provided and the analyses described above must be
considered as a
59
whole and that selecting any portion of the analyses, without
considering all of the analyses as a whole, would create an
incomplete view of the process underlying Morgan Stanleys
analyses and opinion. In addition, Morgan Stanley may have given
various analyses and factors more or less weight than other
analyses and factors, and may have deemed various assumptions
more or less probable than other assumptions. As a result, the
ranges of valuations resulting from any particular analysis or
combination of analyses described above should not be taken to
be the view of Morgan Stanley with respect to the actual value
of Holdings or the Partnership. In performing its analyses,
Morgan Stanley made numerous assumptions with respect to
industry performance, general business, regulatory, economic,
market and financial conditions and other matters. Many of these
assumptions are beyond the control of Holdings and the
Partnership. Any estimates contained in Morgan Stanleys
analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable
than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as
part of its analysis of the fairness of the exchange ratio
pursuant to the merger agreement from a financial point of view
to the holders of the Holdings units (other than the Holdings
supporting unitholders) and in connection with the delivery of
its opinion to the Holdings ACG Committee. These analyses do not
purport to be appraisals or to reflect the prices at which the
Holdings units or the Partnership common units might actually
trade.
Morgan Stanleys opinion and its presentation to the
Holdings ACG Committee was one of many factors taken into
consideration by the Holdings ACG Committee in deciding to
approve and recommend that the Holdings Board authorize the
execution of the merger agreement, the GP merger agreement and
the related documents and the transactions contemplated thereby.
Consequently, the analyses as described above should not be
viewed as determinative of the opinion of the Holdings ACG
Committee with respect to the exchange ratio or of whether the
Holdings ACG Committee would have been willing to agree to a
different exchange ratio. The exchange ratio was determined
through arms-length negotiations between the Holdings ACG
Committee, and the Partnership and the Partnership ACG
Committee. Morgan Stanley provided advice to the Holdings ACG
Committee during these negotiations. Morgan Stanley did not,
however, recommend any specific exchange ratio to the Holdings
ACG Committee or that any specific exchange ratio constituted
the only appropriate exchange ratio for the merger.
Morgan Stanleys opinion was approved by a committee of
Morgan Stanley investment banking and other professionals in
accordance with its customary practice.
Morgan Stanley is a global financial services firm engaged in
the securities, investment management and individual wealth
management businesses. Its securities business is engaged in
securities underwriting, trading and brokerage activities,
foreign exchange, commodities and derivatives trading, prime
brokerage, as well as providing investment banking, financing
and financial advisory services. Morgan Stanley, its affiliates,
directors and officers may at any time invest on a principal
basis or manage funds that invest, hold long or short positions,
finance positions, and may trade or otherwise structure and
effect transactions, for their own account or the accounts of
its customers, in debt or equity securities or loans of
Holdings, the Partnership, or any other company, or any currency
or commodity, that may be involved in this transaction, or any
related derivative instrument. During the two-year period prior
to the date of Morgan Stanleys opinion, Morgan Stanley
provided financial advisory and financing services unrelated to
the merger to each of Holdings and the Partnership, including
acting as a financial advisor to the Holdings ACG Committee in
connection with the merger of the Partnership and TEPPCO in
2009. For its financial advisory services rendered to the
Holdings ACG Committee in that engagement, Holdings paid Morgan
Stanley $3 million and reimbursed Morgan Stanley for its
expenses incurred in performing its services. Morgan Stanley may
also seek to provide such services to Holdings and the
Partnership in the future and expects to receive fees for the
rendering of these services.
Under the terms of its engagement letter with the Holdings ACG
Committee, Morgan Stanley provided the Holdings ACG Committee
with financial advisory services in connection with the merger
for which the Holdings ACG Committee has agreed to pay Morgan
Stanley a transaction fee of $8 million, which is
contingent upon, and will become payable upon, closing of the
merger. The Holdings ACG Committee may also determine, in its
sole discretion, whether to pay Morgan Stanley an additional
discretionary fee of up to
60
$2 million if their engagement extends for a protracted
period, also payable upon the closing of the merger. The
Holdings ACG Committee has also agreed to reimburse Morgan
Stanley for its expenses incurred in performing its services. In
addition, the Holdings ACG Committee has agreed to indemnify
Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities
under the federal securities laws, related to or arising out of
Morgan Stanleys engagement.
No
Appraisal Rights
Holdings unitholders do not have appraisal rights under
Holdings partnership agreement, the merger agreement or
applicable Delaware law.
Antitrust
and Regulatory Matters
Due to rules applicable to partnerships and the common control
of Holdings and the Partnership, no filing is required under the
HSR Act and the rules promulgated thereunder by the FTC.
However, at any time before or after completion of the merger,
the DOJ, the FTC, or any state could take such action under the
antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the completion of the
merger, to rescind the merger or to seek divestiture of
particular assets of the Partnership or Holdings. Private
parties also may seek to take legal action under the antitrust
laws under certain circumstances. In addition,
non-U.S.
governmental and regulatory authorities may seek to take action
under applicable antitrust laws. A challenge to the merger on
antitrust grounds may be made and, if such a challenge is made,
it is possible that the Partnership and Holdings will not
prevail.
Listing
of Common Units to be Issued in the Merger
The Partnership expects to obtain approval to list on the NYSE
the Partnership common units to be issued pursuant to the merger
agreement, which approval is a condition to closing the merger.
Accounting
Treatment
The merger will be accounted for in accordance with Financial
Accounting Standards Board Accounting Standards Codification
810, Consolidations Overall Changes
in Parents Ownership Interest in a Subsidiary, which
is referred to as FASB ASC 810. Holdings is considered as
the surviving consolidated entity for accounting purposes rather
than the Partnership, which is the surviving consolidated entity
for legal and reporting purposes. Therefore, the changes in
Holdings ownership interest will be accounted for as an
equity transaction and no gain or loss will be recognized as a
result of the merger.
Pending
Litigation
Litigation
Related to the Merger
On September 9, 2010 Sanjay Israni, a purported Holdings
unitholder, filed a complaint in the Court of Chancery of the
State of Delaware as a putative class action on behalf of
Holdings unitholders, captioned Sanjay Israni v. EPE
Holdings LLC, Enterprise GP Holdings L.P., Enterprise Products
Company, Enterprise Products Partners L.P., Oscar S. Andras,
Ralph S. Cunningham, Richard H. Bachmann, Randa Duncan Williams,
Thurmon M. Andress, Charles E. McMahen, Edwin E. Smith and B.W.
Waycaster. The Israni Complaint alleges, among other things,
that the named directors, EPCO and the Partnership have breached
fiduciary duties in connection with the proposed merger and that
Holdings aided and abetted in these alleged breaches of
fiduciary duties.
On September 24, 2010 Richard Fouke, another purported
Holdings unitholder, filed a complaint in the Court, as a
putative class action on behalf of Holdings unitholders,
captioned Richard Fouke v. EPE Holdings LLC, Enterprise
GP Holdings L.P., Enterprise Products Company, Enterprise
Products Partners L.P., Enterprise Products GP, LLC, Oscar S.
Andras, Ralph S. Cunningham, Richard H. Bachmann,
Randa Duncan Williams, Thurmon M. Andress, Charles E. McMahen,
Edwin E. Smith and B.W. Waycaster. The Fouke Complaint
alleges, among other things, that the named directors, Holdings
GP, the Partnership, the Partnership GP and EPCO breached the
implied contractual covenant of good faith and fair dealing in
connection with the proposed merger and that Holdings and the
other defendants aided and abetted in the alleged breach.
Additionally, on September 28, 2010, Eugene
Lonergan, Sr., a third purported Holdings unitholder, filed
a complaint in the Court, as a putative class action on behalf
of Holdings unitholders, captioned
61
Eugene Lonergan, Sr. v. EPE Holdings LLC,
Enterprise GP Holdings L.P., Oscar S. Andras, Ralph S.
Cunningham, Richard H. Bachmann, Randa Duncan Williams, Thurmon
M. Andress, Charles E. McMahen, Edwin E. Smith and B.W.
Waycaster. The Lonergan Complaint alleges that the named
directors and Holdings GP breached the implied contractual
covenant of good faith and fair dealing, including failing to
make adequate disclosures, in connection with the proposed
merger. On October 8, 2010, the Court held a hearing on a
motion by the plaintiff to expedite the proceedings. On
October 11, 2010, the Court denied the motion.
Finally, on October 11, 2010, John Psomas, a purported
Partnership unitholder, filed a complaint in the Court, as a
putative class action on behalf of Partnership unitholders,
captioned John Psomas v. Enterprise Products Partners
L.P., Enterprise Products GP, LLC, Michael A. Creel, W. Randall
Fowler, A. James Teague, Michael J. Knesek, E. William
Barnett, Charles M. Rampacek and Rex C. Ross. The Psomas
Complaint alleges that the Partnership and the Partnership GP
breached the Partnerships partnership agreement by failing
to submit the merger agreement to a Partnership unitholder vote
and that the named directors breached their fiduciary duties of
candor and full disclosure.
Each of these complaints seeks to enjoin the proposed merger
transaction and, in the event the merger is consummated, the
Psomas Complaint seeks a Partnership unitholder vote to ratify
approval of the merger and damages resulting from the
directors alleged breaches of fiduciary duties. The
Partnership and Holdings cannot predict the outcome of these or
any other lawsuits that might be filed subsequent to the date of
the filing of this proxy statement/prospectus, nor can the
Partnership and Holdings predict the amount of time and expense
that will be required to resolve these lawsuits. The Partnership
and Holdings intend to vigorously defend against these and any
other actions.
Other
Litigation
In February 2008, Joel A. Gerber, a purported unitholder of
Holdings, filed a derivative complaint on behalf of Holdings in
the Court of Chancery of the State of Delaware. The amended
complaint names as defendants Holdings GP, the Holdings Board,
EPCO, and Dan L. Duncan and certain of his affiliates. Holdings
is also named as a nominal defendant. The complaint alleges that
the defendants, in breach of their fiduciary duties to Holdings
and its unitholders, caused Holdings to purchase in May 2007 the
membership interests in the general partner of TEPPCO and TEPPCO
units from Mr. Duncans affiliates at an unfair price.
The complaint also alleges that Charles E. McMahen, Edwin E.
Smith and Thurmon M. Andress, constituting the three members of
the Audit, Conflicts and Governance Committee of the Holdings
Board at the time of the challenged transaction, cannot be
considered independent because of their relationships with
Mr. Duncan. The complaint seeks relief (i) awarding
damages for profits allegedly obtained by the defendants as a
result of the alleged wrongdoings in the complaint and
(ii) awarding plaintiff costs of the action, including fees
and expenses of his attorneys and experts. Management believes
this lawsuit is without merit and intends to vigorously defend
against it.
Transactions
Related to the Merger
Support
Agreement
In connection with the merger agreement, the Partnership entered
into the support agreement with the Holdings supporting
unitholders pursuant to which the Holdings supporting
unitholders, who directly own 105,739,220 Holdings units
(representing approximately 76% of the outstanding Holdings
units and a sufficient vote for approval of the merger agreement
if voted in favor therefor), agreed to vote their Holdings units
(i) in favor of the adoption of the merger agreement, any
transactions contemplated by the merger agreement and any other
action reasonably requested by the Partnership in furtherance
thereof, submitted for the vote or written consent of Holdings
unitholders, (ii) against any action or agreement that
would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Holdings or
Holdings GP or any of their subsidiaries contained in the merger
agreement, and (iii) against any action, agreement or
transaction that would impede, interfere with, delay, postpone,
discourage, frustrate the purposes of or adversely affect the
merger or the transactions contemplated by the merger agreement.
The support agreement will terminate automatically on
December 31, 2010 or upon any earlier termination of the
merger agreement. In addition, the Holdings supporting
unitholders may terminate their obligations under the support
agreement, including their obligations to execute and deliver
the distribution waiver agreement, (1) after any change in
recommendation by the Holdings ACG Committee permitted under the
merger agreement, (2) after
62
any change in, or a failure to maintain, the Holdings ACG
Committees Special Approval in accordance with
the Holdings partnership agreement and (3) after the
occurrence of certain specified changes in U.S. federal
income tax law if such changes occur prior to the closing of the
merger.
The foregoing description of the support agreement is qualified
in its entirety by reference to the full text of the support
agreement, a copy of which is attached as Annex D to this
proxy statement/prospectus and is incorporated into this proxy
statement/prospectus by reference.
Fourth
Amendment to the Holdings Partnership Agreement
Pursuant to the merger agreement and immediately prior to the
effective time of the merger, Holdings existing
partnership agreement will be amended to provide for the
transformation of the approximate 0.01% economic interest of the
general partner in Holdings owned by Holdings GP into 13,921
Holdings units representing an approximate 0.01% limited partner
interest in Holdings and a non-economic general partner interest
in Holdings, in accordance with a Fourth Amendment to the First
Amended and Restated Agreement of Limited Partnership of
Holdings, the form of which is attached as Annex A to the
merger agreement.
GP
Merger
Immediately following the transformation of the general partner
interest in Holdings and pursuant to the GP merger agreement,
the Partnership GP (currently a wholly owned subsidiary of
Holdings) will merge with and into Holdings, with Holdings
surviving the GP merger. In accordance with an amendment to the
Partnerships existing partnership agreement to be executed
in connection with the merger, Holdings will succeed the
Partnership GP as an interim general partner of the Partnership
immediately prior to the effective time of the merger.
Sixth
Amended and Restated Agreement of Limited Partnership of the
Partnership
Immediately following the effective time of the GP merger, at
the effective time of the merger, Holdings will merge into
MergerCo, with MergerCo surviving as a wholly owned subsidiary
of the Partnership. As a result of the merger and in accordance
with the Sixth Partnership Agreement of the Partnership, the
form of which is attached as Annex B to this proxy
statement/prospectus and which will be executed in connection
with the merger, the IDRs in the Partnership will be cancelled,
the current 2% economic general partner interest in the
Partnership will be converted to a non-economic general partner
interest in the Partnership and Holdings GP will succeed
Holdings as the new general partner of the Partnership.
Distribution
Waiver Agreement
In connection with the merger, DFIDH, an affiliate of EPCO, will
agree to designate and waive its rights to quarterly
distributions with respect to the specified number of
Partnership common units listed below over a five-year period
after the merger closing date as set forth in the distribution
waiver agreement. The number of Partnership common units on
which distributions are waived is initially 30,610,000
Partnership common units, which number of units decreases
annually for a five-year period after the merger closing date as
follows:
|
|
|
|
|
|
|
Number of Partnership
|
|
|
Common Units on Which
|
Period
|
|
Distributions are Waived
|
|
First four-quarter period following closing
|
|
|
30,610,000
|
|
Second four-quarter period following closing
|
|
|
26,130,000
|
|
Third four-quarter period following closing
|
|
|
23,700,000
|
|
Fourth four-quarter period following closing
|
|
|
22,560,000
|
|
Fifth four-quarter period following closing
|
|
|
17,690,000
|
|
Based on the quarterly distribution rate for Partnership common
units of $0.5825 declared with respect to the third quarter of
2010, the distributions waived would aggregate approximately
$281 million during these distribution periods.
DFIDH will have no obligation to execute and deliver the
distribution waiver agreement in the event of a termination of
the support agreement, as described above under
Support Agreement.
The foregoing description of the distribution waiver agreement
is qualified in its entirety by reference to the full text of
the distribution waiver agreement, which is attached as
Annex C to this proxy statement/prospectus and is
incorporated into this proxy statement/prospectus by reference.
63
THE
MERGER AGREEMENT
The following is a summary of the material terms of the merger
agreement and the related transactions. The provisions of the
merger agreement are extensive and not easily summarized. This
summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached to this proxy
statement/prospectus as Annex A and is incorporated into
this proxy statement/prospectus by reference. You should read
the merger agreement because it, and not this proxy
statement/prospectus, is the legal document that governs the
terms of the merger.
The merger agreement contains representations and warranties by
each of the parties to the merger agreement. The assertions
embodied in those representations and warranties are qualified
by information in confidential disclosure schedules that the
parties have exchanged in connection with signing the merger
agreement. The disclosure schedules contain information that
modifies, qualifies and creates exceptions to the
representations and warranties set forth in the attached merger
agreement. Accordingly, you should keep in mind that the
representations and warranties are modified in important part by
the underlying disclosure schedules. The disclosure schedules
contain information that has been included in Holdings and
the Partnerships general prior public disclosures, as well
as additional information, some of which is non-public.
Moreover, information concerning the subject matter of the
representations and warranties may have changed since the date
of the merger agreement, and this information may or may not be
fully reflected in the companies public disclosures.
For the purposes of this summary of the merger agreement, any
reference to subsidiaries of Holdings and Holdings GP does not
include the Partnership GP or the Partnership and its
subsidiaries.
Structure
of the Merger and Related Transactions
Pursuant to the merger agreement and immediately prior to the
effective time of the merger, Holdings existing
partnership agreement will be amended to provide for the
transformation of the approximate 0.01% economic interest of the
general partner in Holdings owned by Holdings GP into 13,921
Holdings units representing an approximate 0.01% limited partner
interest in Holdings and a non-economic general partner interest
in Holdings, in accordance with a Fourth Amendment to the First
Amended and Restated Agreement of Limited Partnership of
Holdings, the form of which is attached as Annex A to the
merger agreement.
Immediately following the transformation of the general partner
interest in Holdings and pursuant to the GP merger agreement,
the Partnership GP (currently a wholly owned subsidiary of
Holdings) will merge with and into Holdings, with Holdings
surviving the GP merger. In accordance with an amendment to the
Partnerships existing partnership agreement to be executed
in connection with the merger, Holdings will succeed the
Partnership GP as an interim general partner of the Partnership
immediately prior to the effective time of the merger.
Immediately following the effective time of the GP merger, at
the effective time of the merger, Holdings will merge into
MergerCo, with MergerCo surviving as a wholly owned subsidiary
of the Partnership. As a result of the merger and in accordance
with the execution of the Sixth Partnership Agreement of the
Partnership, the form of which is attached as Annex B to
this proxy statement/prospectus, (i) each outstanding unit
of Holdings (other than Holdings units held by Holdings, the
Partnership or their respective subsidiaries) will be converted
into the right to receive 1.50 Partnership common units,
(ii) the IDRs in the Partnership will be cancelled,
(iii) the current 2% economic general partner interest in
the Partnership will be converted to a non-economic general
partner interest in the Partnership and (iv) Holdings GP
will succeed Holdings as the new general partner of the
Partnership. The 21,563,177 Partnership common units owned by
Holdings will be cancelled by the Partnership immediately
following the merger.
When the
Merger Becomes Effective
The closing of the merger will take place on either (i) the
business day after the date on which the last of the conditions
set forth in the merger agreement (other than those conditions
that by their nature cannot be satisfied until the closing date)
have been satisfied or waived in accordance with the terms of
the merger
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agreement, or (ii) such other date to which the parties may
agree in writing. Please read Conditions to
the Merger beginning on page 71 for a more complete
description of the conditions that must be satisfied or waived
prior to closing. The date on which the closing occurs is
referred to as the closing date.
The merger will become effective at the effective time, which
will occur upon Holdings filing a certificate of merger with the
Secretary of State of the State of Delaware or at such later
date and time as may be set forth in the certificate of merger.
The MergerCo certificate of formation and the MergerCo limited
liability company agreement will remain unchanged and will be
the certificate of formation and limited liability company
agreement, respectively, of the surviving entity, until duly
amended in accordance with their terms and applicable law.
Effect of
Merger on Outstanding Holdings Units and Other
Interests
At the effective time, by virtue of the merger and without any
further action on the part of any holder of Holdings units, the
following will occur:
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All of the limited liability company interests in MergerCo
outstanding immediately prior to the effective time will remain
outstanding as limited liability company interests in the
surviving entity, and the Partnership, as the holder of such
limited liability company interests, will continue as the sole
member of the surviving entity.
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The general partner interest in Holdings issued and outstanding
immediately prior to the effective time (in the non-economic
form effected by the amendment to the Holdings partnership
agreement) will be converted into the right to receive the
non-economic general partner interest in the Partnership as set
forth in the Sixth Partnership Agreement, and Holdings GP will
be admitted (immediately prior to the effective time in
accordance with the Partnerships partnership agreement) as
the sole general partner of the Partnership in accordance with
the Partnerships partnership agreement and the Sixth
Partnership Agreement.
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Each Holdings unit issued and outstanding immediately prior to
the effective time (other than Holdings units held by the
Partnership or its subsidiaries or Holdings or its subsidiaries)
will be converted into the right to receive 1.50 Partnership
common units.
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All Holdings units, when converted in connection with receiving
the merger consideration, will cease to be outstanding and will
automatically be cancelled and cease to exist. At the effective
time, each holder of a certificate representing Holdings units
and each holder of non-certificated Holdings units represented
by book-entry will cease to be a unitholder of Holdings and
cease to have any rights as a unitholder of Holdings, except the
right to receive (a) 1.50 Partnership common units for each
outstanding Holdings unit, and the right to be admitted as an
additional limited partner of the Partnership, (b) any cash
to be paid in lieu of any fractional new Partnership common unit
in accordance with the merger agreement and (c) any
distributions in accordance with the merger agreement, in each
case, to be issued or paid, without interest, in accordance with
the merger agreement. In addition, to the extent applicable,
holders of Holdings units as of the effective time will have
continued rights to any distribution, without interest, with
respect to such Holdings units with a record date occurring
prior to the effective time that may have been declared or made
by Holdings with respect to such Holdings units in accordance
with the terms of the merger agreement and which remains unpaid
as of the effective time. After the effective time, the unit
transfer books of Holdings will be closed immediately and there
will be no further registration of transfers on the unit
transfer books of Holdings with respect to Holdings units.
For a description of the Partnership common units, please read
Description of Partnership Common Units, and for a
description of the comparative rights of the holders of
Partnership common units and Holdings units, please read
Comparison of the Rights of Partnership and Holdings
Unitholders.
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Exchange
of Certificates; Fractional Units
Exchange
Agent
In connection with the merger, the Partnership has appointed BNY
Mellon Shareowner Services LLC to act as exchange
agent for the issuance of Partnership common units and for
cash payments for fractional units. Promptly after the effective
time, the Partnership will deposit or will cause to be deposited
with the exchange agent for the benefit of the holders of
Holdings units, for exchange through the exchange agent, new
Partnership common units and cash as required by the merger
agreement. The Partnership has agreed to make available to the
exchange agent, from time to time as needed, cash sufficient to
pay any distributions pursuant to the merger agreement and to
make payments in lieu of any fractional new Partnership common
units pursuant to the merger agreement, in each case without
interest. Any cash and new Partnership common units deposited
with the exchange agent (including as payment for any fractional
new Partnership common units and any distributions with respect
to such fractional new Partnership common units) are referred to
as the exchange fund. The exchange agent will
deliver the merger consideration contemplated to be paid for
Holdings units pursuant to the merger agreement out of the
exchange fund. Except as contemplated by the merger agreement,
the exchange fund will not be used for any other purpose.
Exchange
of Units
Promptly after the effective time of the merger, the exchange
agent will mail to each applicable holder of a Holdings unit a
letter of transmittal and instructions explaining how to
surrender Holdings units to the exchange agent. This letter will
contain instructions on how to surrender certificates or
book-entry units formerly representing Holdings units in
exchange for the merger consideration the holder is entitled to
receive under the merger agreement.
Holdings unit certificates should NOT be returned with the
enclosed proxy card. Holdings unitholders who
deliver a properly completed and signed letter of transmittal
and any other documents required by the instructions to the
transmittal letter, together with their Holdings unit
certificates, if any, will be entitled to receive:
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new Partnership common units representing, in the aggregate, the
whole number of new Partnership common units that the holder has
the right to receive pursuant to the terms of the merger
agreement and as described above under Effect
of Merger on Outstanding Holdings Units and Other
Interests, and
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a check in an amount equal to the aggregate amount of cash that
the holder has the right to receive pursuant to the merger
agreement, including cash payable in lieu of any fractional new
Partnership common units and distributions pursuant to the terms
of the merger agreement. No interest will be paid or accrued on
any merger consideration, any cash payment in lieu of fractional
new Partnership common units, or on any unpaid distributions
payable to holders of certificated or book-entry Holdings units.
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In the event of a transfer of ownership of Holdings units that
is not registered in the transfer records of Holdings, the
merger consideration payable in respect of those Holdings units
may be paid to a transferee, if the certificate representing
those Holdings units or evidence of ownership of the book-entry
Holdings units is presented to the exchange agent, and in the
case of both certificated and book-entry Holdings units,
accompanied by all documents required to evidence and effect the
transfer and the person requesting the exchange will pay to the
exchange agent in advance any transfer or other taxes required
by reason of the delivery of the merger consideration in any
name other than that of the record holder of those Holdings
units, or will establish to the satisfaction of the exchange
agent that any transfer or other taxes have been paid or are not
payable. Until the required documentation has been delivered and
certificates, if any, have been surrendered, as contemplated by
the merger agreement, each certificate or book-entry Holdings
unit will be deemed at any time after the effective time to
represent only the right to receive, upon the delivery and
surrender of the Holdings units, the merger consideration
payable in respect of Holdings units and any cash or
distributions to which the holder is entitled pursuant to the
terms of the merger agreement.
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All new Partnership common units to be issued in the merger will
be issued in book-entry form, without physical certificates.
Upon the issuance of new Partnership common units to the holders
of Holdings units in accordance with the merger agreement and
the compliance by such holders with the requirements of
Section 10.4 of the Sixth Partnership Agreement, which
requirements may be satisfied by each holder of Holdings units
by the execution and delivery by such holder of a completed and
executed letter of transmittal, the general partner will be
deemed to have automatically consented to the admission of such
holders as limited partners of the Partnership and will reflect
such admission on the books and records of the Partnership.
The exchange agent will deliver to the Partnership any
Partnership common units to be issued in the merger, cash in
lieu of fractional units to be paid in connection with the
merger and any distributions paid on Partnership common units,
in each case without interest, to be issued in the merger that
are not claimed by former Holdings unitholders within
180 days after the effective time of the merger.
Thereafter, the Partnership will act as the exchange agent and
former Holdings unitholders may look only to the Partnership for
their new Partnership common units, cash in lieu of fractional
units and unpaid distributions, in each case without interest.
The merger consideration issued upon conversion of a Holdings
unit in accordance with the terms of the merger agreement is
deemed issued in full satisfaction of all rights pertaining to
such unit.
Distributions
No distributions declared or made with respect to Partnership
common units with a record date after the effective time will be
paid to the holder of any Holdings units with respect to new
Partnership common units that such holder would be entitled to
receive in accordance with the merger agreement and no cash
payment in lieu of fractional new Partnership common units will
be paid to any Holdings unitholder until the holder has
delivered the required documentation and surrendered any
certificate as contemplated by the merger agreement. Subject to
applicable law, following compliance with the requirements of
the merger agreement, the following will be paid to a holder of
new Partnership common units, without interest,
(i) promptly after the time of the compliance with the
merger agreements procedures, the amount of any cash
payable in lieu of fractional new Partnership common units to
which the holder is entitled pursuant to the merger agreement
and the amount of distributions with a record date after the
effective time that had already been paid with respect to new
Partnership common units and payable with respect to such new
Partnership common units, and (ii) at the appropriate
payment date, the amount of distributions with a record date
after the effective time but prior to such delivery and
surrender and a payment date subsequent to such compliance
payable with respect to such new Partnership common units.
Fractional
Units
No fractional Partnership common units will be issued upon the
surrender of Holdings units. In lieu of any fractional
Partnership common unit, each Holdings unitholder who would
otherwise be entitled to a fraction of a new Partnership common
unit will be paid in cash (without interest rounded up to the
nearest whole cent) an amount equal to the product of
(i) the average closing price of Partnership common units
for the ten consecutive NYSE full trading days ending on the
NYSE full trading day immediately preceding the closing date and
(ii) the fraction of a new Partnership common unit that the
holder would otherwise be entitled to receive pursuant to the
merger agreement. Any fractional Partnership common unit
interest will not entitle its owner to vote or to have any
rights as a Partnership unitholder with regard to such interest.
To the extent applicable, each holder of Holdings units is
deemed to have consented pursuant to the merger agreement for
U.S. federal income tax purposes to report the cash
received for fractional Partnership common units in the merger
as a sale of a portion of that holders Holdings units to
the Partnership.
No
Liability
To the fullest extent permitted by law, none of Holdings GP, the
Partnership, Holdings or the surviving entity will be liable to
any holder of Holdings units for any Partnership common units
(or distributions with respect thereto) or cash from the
exchange fund delivered to a public official pursuant to any
abandoned property, escheat or similar law.
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Lost,
Stolen or Destroyed Certificates
If any certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed and, if required by
the Partnership, the posting by such person of a bond, in a
reasonable amount that the Partnership may require, as indemnity
against any claim that may be made against it with respect to
such certificate, the exchange agent will pay in exchange for
the lost, stolen or destroyed certificate the merger
consideration payable in respect of Holdings units represented
by the certificate and any distributions to which the holders
thereof are entitled pursuant to the terms of the merger
agreement.
Withholding
Rights
Each of the Partnership, the surviving entity and the exchange
agent will be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the merger agreement
to any holder of Holdings units any amounts as the Partnership,
the surviving entity or the exchange agent is required to deduct
and withhold under any provision of federal, state, local, or
foreign tax law with respect to the making of such payment. The
Partnership, the surviving entity or the exchange agent, as the
case may be, will provide reasonable notice to the applicable
holders of Holdings units prior to withholding any amounts
pursuant to the merger agreement. To the extent that amounts are
deducted and withheld by the Partnership, the surviving entity
or the exchange agent as described in this paragraph, the
deducted and withheld amounts will be treated for all purposes
of the merger agreement as having been paid to the holder of
Holdings units in respect of whom such deduction and withholding
was made by the Partnership, the surviving entity or the
exchange agent, as the case may be.
Investment
of the Exchange Fund
The Partnership will cause the exchange agent to invest any cash
included in the exchange fund as directed by the Partnership on
a daily basis. The investment of the exchange fund will be
limited to direct short-term obligations of, or short-term
obligations fully guaranteed as to principal and interest by,
the U.S. government and no investment or loss thereon will
affect the amounts payable or the timing of the amounts payable
to Holdings unitholders pursuant to the merger agreement. Any
interest and other income resulting from the investments
described in this paragraph will be paid to the Partnership.
Anti-dilution
Provisions
In the event of any subdivisions, reclassifications,
recapitalizations, splits, unit distributions, combinations or
exchange of units with respect to, or rights in respect of,
Holdings units or Partnership common units (in each case, as
permitted pursuant to the merger agreement), the number of new
Partnership common units to be issued in the merger and the
average closing price of Partnership common units will be
correspondingly adjusted to provide to the holders of Holdings
units the same economic effect as contemplated by the merger
agreement prior to such event.
Treatment
of Holdings Equity-Based Awards; Unit Appreciation
Rights
At the effective time, each outstanding unit appreciation right
relating to the Holdings units (Holdings UAR),
including both those granted pursuant to the Enterprise Products
Company 2005 EPE Holdings Long-Term Incentive Plan, as amended
and restated from time to time (the Holdings Unit
Plan), and outside the Holdings Unit Plan, will be assumed
by the Partnership and converted into a number of common unit
appreciation rights (CUARs) of the Partnership equal
to the product of the number of Holdings UARs to which such
grant was subject at the effective time multiplied by 1.50 (with
any resulting fraction of a CUAR being rounded down to the
nearest whole CUAR), with an exercise price per CUAR equal to
the per Holdings UAR exercise price divided by 1.50 (with any
resulting exercise price that contains a fraction of a cent
being increased to the next whole cent). This assumption and
conversion will occur automatically and without any action on
the part of the holder of any UAR (except for directors of DEP
Holdings, LLC, the general partner of Duncan Energy Partners
L.P. (DEP GP), whose consent will have been
obtained to the extent necessary).
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In the case of directors of the general partner of Duncan Energy
Partners whose consent has been obtained if necessary, such
persons outstanding Holdings UARs, whether or not
exercisable or vested, will at the effective time cease to
represent, as of the effective time, a Holdings UAR and will be
converted, in settlement and cancellation of such Holdings UARs,
into the right to receive, at the effective time, a lump sum
cash payment, without interest, equal to the Fair Market Value
of such Holdings unit on such date over the Grant Price per
Holdings unit (with the terms Fair Market Value and Grant Price
as defined under the Holdings Unit Plan). Each CUAR will be
subject to, and vest upon, the terms and conditions that are
equivalent to those applicable to the Holdings UARs. Promptly
after the effective time, the Partnership will provide each
holder of a Holdings UAR with a notice describing the assumption
and conversion of such awards. The assumption and conversion of
the Holdings UARs (and the cash-out of Holdings UARs held by
directors of DEP GP) pursuant to the merger agreement will be in
full satisfaction of the obligations in respect thereof.
Actions
Pending the Merger
Each of (i) the Partnership and the Partnership GP have
agreed that, without the prior written consent of the Holdings
ACG Committee, and (ii) Holdings and the Holdings GP have
agreed that, without the prior written consent of the
Partnership ACG Committee, which consents, in either case, will
not be unreasonably withheld, delayed or conditioned, it will
not, and will cause its subsidiaries not to, during the period
from the date of the merger agreement until the effective time
of the merger or the date, if any, on which the merger agreement
is terminated, except as expressly contemplated or permitted by
the merger agreement or the GP merger agreement:
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conduct its business and the business of its subsidiaries other
than in the ordinary and usual course;
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fail to use commercially reasonable best efforts to preserve
intact its business organizations, goodwill and assets and
maintain its rights, franchises and existing relations with
customers, suppliers, employees or business associates;
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take any action that would have a material adverse effect;
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in the case of Holdings and its subsidiaries, other than the
conversion of the Holdings general partner interest and the
issuance of Holdings units in connection therewith required in
accordance with the merger agreement and related amendment to
the Holdings partnership agreement, (i) issue, sell or
otherwise permit to become outstanding, or authorize the
creation of, any additional equity or any additional rights or
enter into any agreement to do such things or (ii) permit
any additional equity interests to become subject to new grants
of employee unit options, unit appreciation rights or similar
equity-based employee rights; and in the case of the Partnership
and its subsidiaries take any action described in (i) and
(ii) above, which would materially adversely affect the
Partnerships or Holdings ability to consummate the
transactions contemplated by the merger agreement;
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other than the conversion of the Holdings general partner
interest and the issuance of Holdings units in connection with
the conversion required in accordance with the merger agreement
and the amendment to the Holdings partnership agreement:
(a) split, combine or reclassify any of its equity
interests or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution
for its equity interests; or (b) repurchase, redeem or
otherwise acquire, or permit any of its subsidiaries to
purchase, redeem or otherwise acquire any partnership or other
equity interests or rights, except as required by the terms of
its securities outstanding on the date of the merger agreement
or as contemplated by any existing compensation and benefit plan
on the date of the merger agreement;
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in the case of Holdings and its subsidiaries, (i) sell,
lease, dispose of or discontinue all or any portion of its
assets, business or properties other than uses of cash in the
ordinary course of business, including distributions permitted
under the merger agreement, (ii) acquire, by merger or
otherwise, or lease any assets or all or any portion of the
business or property of any other entity other than in the
ordinary course of business consistent with past practice,
(iii) merge, consolidate or enter into any other business
combination transaction with any person, or (iv) convert
from a limited partnership or limited liability company, as the
case may be, to any other business entity; and in the case of
the Partnership, (i) merge,
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consolidate or enter into any other business combination
transaction with any person or make any acquisition or
disposition that would be likely to have a material adverse
effect, or (ii) enter into a definitive agreement with
respect to a partners acquisition proposal (as defined in the
merger agreement and described under
Covenants Acquisition Proposals; Change in
Recommendation below);
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in the case of Holdings GP and Holdings, make or declare
dividends or distributions to the holders of Holdings units
other than regular quarterly distributions in an amount not to
exceed $0.015 plus the distribution amount per Holdings unit
paid with respect to the second quarter of 2010, and in the case
of the Partnership, make or declare dividends or distributions
to the holders of Partnership common units other than regular
quarterly distributions in an amount not to exceed $0.0075 plus
the distribution amount per Partnership common unit paid with
respect to the second quarter of 2010;
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in the case of Holdings GP and Holdings, amend the Partnership
GPs limited liability company agreement, the
Partnerships partnership agreement, Holdings
partnership agreement or Holdings GPs limited liability
company agreement other than in accordance with the merger
agreement; and in the case of the Partnership, amend the
Partnerships partnership agreement other than in
accordance with the merger agreement;
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in the case of Holdings and the Partnership, and each of their
respective subsidiaries, enter into any material contract or
modify, amend, terminate or assign, or waive or assign any
rights under any material contract in any material respect in a
manner which is adverse to the Partnership and its subsidiaries,
taken as a whole, or which could prevent or materially delay the
consummation of the merger or the other transactions
contemplated by the merger agreement past the December 31,
2010 or any extension of the termination date;
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in the case of Holdings and its subsidiaries, waive, release,
assign, settle or compromise any claim, action or proceeding;
and in the case of the Partnership and its subsidiaries, waive,
release, assign, settle or compromise any claim, action or
proceeding that would reasonably be expected to result in a
material adverse effect on the Partnership or on Holdings;
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implement or adopt any material change in its accounting
principles, practices or methods, other than as may be required
by law or U.S. GAAP;
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fail to use commercially reasonable best efforts to maintain
with financially responsible insurance companies, insurance in
such amounts and against such risks and losses as has been
customarily maintained by it in the past;
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change in any material respect any of its express or deemed
elections relating to taxes, including elections for any and all
joint ventures, partnerships, limited liability companies or
other investments where it has the capacity to make such binding
election;
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settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes;
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change in any material respect any of its methods of reporting
income or deductions for U.S. federal income tax purposes from
those employed in the preparation of its U.S. federal income tax
return for the most recent taxable year for which a return has
been filed, except as may be required by applicable law;
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in the case of Holdings and its subsidiaries, (i) adopt,
enter into, amend or otherwise increase, or accelerate the
payment or vesting of the amounts, benefits or rights payable or
accrued or to become payable or accrued under, any compensation
and benefit plan, (ii) grant any severance or termination
pay to any officer or director of Holdings or any of its
subsidiaries or (iii) establish, adopt, enter into or amend
any plan, policy, program or arrangement for the benefit of any
current or former directors or officers of Holdings or any of
its subsidiaries or any of their beneficiaries;
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in the case of Holdings and its subsidiaries, (i) incur,
assume, guarantee or otherwise become liable for any
indebtedness (directly, contingently or otherwise), other than
borrowings under existing revolving
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credit facilities in the ordinary course of business consistent
with past practice, (ii) enter into any material lease
(whether operating or capital), (iii) create any lien on
its property or the property of its subsidiaries in connection
with any pre-existing indebtedness, new indebtedness or lease,
or (iv) make or commit to make any capital expenditures;
and in the case of the Partnership, take any action described in
clauses (i), (ii), (iii) or (iv) above which would
materially adversely affect the Partnerships or
Holdings ability to consummate the transactions
contemplated by the merger agreement;
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authorize, recommend, propose or announce an intention to adopt
a plan of complete or partial dissolution or liquidation;
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except as permitted by the merger agreement, knowingly take any
action that is intended or is reasonably likely to result in
(i) any of its representations and warranties in the merger
agreement being or becoming untrue in any material respect at
the closing date, (ii) any of the conditions to closing not
being satisfied, (iii) any material delay or prevention of
the consummation of the merger or (iv) a material violation
of any provision of the merger agreement except, in each case,
as may be required by applicable law; or
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agree or commit to do any of the prohibited actions described
above.
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Conditions
to the Merger
Conditions
of Each Party
The respective obligations of the parties to effect the merger
are subject to the satisfaction or waiver, on or prior to the
closing date of the merger, of each of the following conditions:
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the merger agreement and the merger will have been approved and
adopted by the affirmative vote of holders (as of the record
date for the Holdings meeting) of a majority of the outstanding
Holdings units;
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all filings required to be made prior to the effective time
with, and all other consents, approvals, permits and
authorizations required to be obtained prior to the effective
time from, any governmental authority in connection with the
execution and delivery of the merger agreement and the
consummation of the transactions contemplated thereby by the
parties to the merger agreement or their affiliates will have
been made or obtained, except where the failure to obtain such
consents, approvals, permits and authorizations would not be
reasonably likely to result in a material adverse effect on the
Partnership or Holdings;
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no order, decree or injunction of any court or agency of
competent jurisdiction will be in effect, and no law will have
been enacted or adopted, that enjoins, prohibits or makes
illegal the consummation of any of the transactions contemplated
by the merger agreement, and no action, proceeding or
investigation by any governmental authority with respect to the
merger or the other transactions contemplated by the merger
agreement will be pending that seeks to restrain, enjoin,
prohibit or delay the consummation of the merger or such other
transaction or to impose any material restrictions or
requirements thereon or on the Partnership or Holdings with
respect thereto; provided, however, that prior to invoking this
condition, each party must have used its commercially reasonable
best efforts in good faith to consummate the merger as required
under the merger agreement;
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the registration statement of which this proxy
statement/prospectus is a part will have become effective under
the Securities Act and no stop order suspending the
effectiveness of the registration statement will have been
issued and no proceedings for that purpose will have been
initiated or threatened by the SEC;
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the new Partnership common units to be issued in the merger will
have been approved for listing on the NYSE, subject to official
notice of issuance;
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the GP merger will have become effective and Holdings will have
been duly admitted as the new sole general partner of the
Partnership;
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Holdings GP as the new sole general partner of the Partnership
will have executed the Sixth Partnership Agreement and Holdings
GP will have been duly admitted as the general partner of the
Partnership in accordance with the Sixth Partnership
Agreement; and
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certain affiliates of EPCO will have executed and delivered the
distribution waiver agreement.
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Additional
Conditions to the Obligations of Holdings
The obligations of Holdings to effect the merger are further
subject to the satisfaction or waiver by Holdings, on or prior
to the closing date of the merger, of each of the following
conditions:
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each of the representations and warranties contained in the
merger agreement of the Partnership and the Partnership GP are
true and correct in all material respects as of the date of the
merger agreement and on the closing date, except for any
representations and warranties made as of a specified date,
which are true and correct as of that date in all material
respects;
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each and all of the agreements and covenants of the Partnership,
the Partnership GP and MergerCo to be performed and complied
with pursuant to the merger agreement on or prior to the closing
date must have been duly performed and complied with in all
material respects;
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