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What: Crestwood Equity Partners LP's (NYSE:CEQP) units are getting hammered today, as investors don't like its consolidation plans. This was after it announced today that it has agreed to merge with Crestwood Midstream Partners LP (UNKNOWN:CMLP.DL) to simplify Crestwood's corporate structure and create a single publicly traded partnership with an enterprise value of $7.5 billion.
So what: Investors really don't like the fact that Crestwood Equity is offering a 17% premium to consolidate its interest in Crestwood Midstream. What's interesting is that Crestwood's CEO noted in the press release announcing the deal that it had evaluated a number of strategic initiatives to unlock the value of its assets and it decided the best way to do that was to merge its two entities.
Investors clearly didn't agree:
Now what: The companies expect the deal to close in the third quarter of 2015. Once closed, the merger is expected to improve Crestwood's cost of capital and provide for more stability in distributions by eliminating the incentive distribution rights. However, it is offering a very large premium for an affiliate that has struggled with commodity price volatility in the past. In investors' minds, the merger doesn't address their concerns, as the newly combined entity will still need to bring in additional fee-based assets to provide a bit more stability to its revenue stream.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.