UGI to acquire rest of AmeriGas

June 2019 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2019 Issue

Energy distributor UGI Corp is to acquire the remaining stock it does not own in retail propane distributor AmeriGas Partners LP in a cash-and-stock deal valued at $2.44bn.

The deal will see AmeriGas shareholders receive 0.50 shares of UGI common stock plus $7.63 in cash consideration for each common unit of AmeriGas held, representing a premium of 21.9 percent to AmeriGas’ 30-day volume weighted average price and a 13.5 percent premium to the closing price of $31.13, on the last day of trading before the deal was announced. AmeriGas shareholders will continue to receive a $0.95 per share distribution for each quarter completed prior to the closing of the merger. In total, UGI will acquire 69.2 million publicly held common units in AmeriGas.

The deal is expected to complete in the fourth quarter of 2019, subject to customary closing conditions.

According to a statement announcing the deal, AmeriGas will no longer be a master limited partnership (MLP) and will instead become a wholly owned subsidiary of UGI.

Prior to the deal announcement, UGI held an approximate 26 percent ownership interest in AmeriGas. AmeriGas Propane, Inc, a wholly owned UGI subsidiary, has served as AmeriGas’ sole general partner since 1995.

The general partner’s audit committee, comprised entirely of independent directors, unanimously approved the merger agreement and determined that it was in the best interests of AmeriGas and the shareholders unaffiliated with UGI. Subsequently, the transaction has been approved by the boards of both UGI and the general partner.

“Our two companies have a long and successful history of working together, spanning 60 years,” said John L. Walsh, president and chief executive of UGI. “A consolidation of AmeriGas’ ownership maximises value for both companies and our respective stakeholders, as we will be better positioned to invest and grow. In particular, we welcome AmeriGas’ current unitholders and look forward to being exceptional stewards of their capital. We are pleased to increase our ownership of AmeriGas. This merger offers a compelling premium for AmeriGas unitholders and creates a platform for future cash flow and earnings growth for UGI. Our dividend increases represent our confidence in that future outlook.”

“After conducting a comprehensive review of strategic alternatives, both the AmeriGas and UGI Boards determined that a merger of AmeriGas was the most compelling next step in our development,” said Hugh J. Gallagher, president and chief executive of AmeriGas. “The transaction with UGI supports a strong and stable AmeriGas and empowers a focus on growth opportunities.”

“This transaction provides an opportunity to further align AmeriGas and UGI International’s LPG distribution operations to drive efficiencies, support strategic initiatives, and accelerate growth,” said Roger Perreault, executive vice president of Global LPG. “Additionally, AmeriGas unitholders will share in the value of a company with an outstanding track record of enhancing shareholder value.”

UGI expects the deal to increase cash flow per share by over 15 percent for fiscal 2020 on a fully consolidated basis. The transaction is also expected to provide over $200m in additional annual cash flow, increasing the company’s ability to make diversified investments across all business segments to further its growth strategy. The deal will be accretive to adjusted earnings per share (EPS) beginning in fiscal 2020. The company expects to finance the cash portion of the deal by entering into a bank term loan of approximately $500m.

AmeriGas will use the transaction to support the paydown of its short-term debt as a means of reducing leverage resulting in an enhanced credit profile.

J.P. Morgan Securities LLC is serving as UGI’s financial adviser during the transaction and Latham & Watkins LLP is serving as legal counsel. Tudor, Pickering, Holt & Co. is serving as financial adviser to AmeriGas. Potter Anderson & Corroon LLP is serving as legal counsel to the AmeriGas audit committee and Baker Botts LLP is serving as legal counsel to AmeriGas.

Richard Summerfield