What happened

Shares of Teekay Offshore Partners (NYSE:TOO) jumped more than 30% on Tuesday morning after the shipping company agreed to be acquired by Brookfield Business Partners (NYSE:BBU) for more than $600 million in cash. Brookfield got the deal done by sweetening an initial offer that had come under criticism from some Teekay shareholders.

So what

Brookfield will pay $1.55 per unit in cash for Teekay, a substantial premium to the $1.05 per unit it initially offered in May, and 33% above Teekay's $1.16 closing price on Monday.

The earlier bid was criticized by stakeholders including JDP Capital Management managing partner Jeremy Deal, who in a June press release said that, "even a conservative valuation of Teekay Offshore would put the value well above $4 per share based on contracted cash flows with oil majors, a strong balance sheet, and a sector in the early stages of a major rebound."

An oil shipping vessel from above.

Image source: Getty Images.

Terms of the revised deal give unitholders the choice of accepting cash or receiving one newly designated, unlisted, class A common unit per current unit held. The new unit will have limited voting rights and transferability, but allows current holders an opportunity to benefit from future cash flows.

Teekay Offshore is one of the world's largest operators of leased floating production, storage, and offloading (FPSO) vessels, and has a large fleet of shuttle tankers, which move oil from FPSOs to terminals on the coast. It is one of three master limited partnerships under the Teekay holding structure, joining Teekay LNG Partners and Teekay Tankers. The deal does not impact the other Teekay partnerships.

Now what

The revised offer was clearly designed to appease concerns about the prior proposal, and the new deal has won the approval of a committee of non-executive, independent directors after consultation with independent legal and financial advisors. It remains to be seen what JDP and other large stakeholders think of the deal.

Teekay earlier in the year suspended shareholder distributions to clean up its balance sheet, but it has good contracts in place and should be a long-term cash generator. It appears unitholders could soon have the opportunity to take either the guarantee of a cash payout, or the possibility of longer-term growth.

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