Energy distributor UGI has signed an agreement to acquire nearly 75% stake it does not own in retail propane marketer AmeriGas Partners for $2.44bn in cash and stock.
As per the merger agreement, UGI will acquire the 69.2 million publicly held common units it does not already own and fully consolidate its ownership of AmeriGas.
In exchange, AmeriGas unitholders will receive 0.50 shares of UGI common stock plus $7.63 in cash consideration for each share held.
UGI president and CEO John Walsh said: “Our two companies have a long and successful history of working together, spanning 60 years.
“A consolidation of AmeriGas’ ownership maximizes value for both companies and our respective stakeholders, as we will be better positioned to invest and grow.”
The deal will make AmeriGas as wholly owned subsidiary of UGI, making AmeriGas no longer be a Master Limited Partnership (MLP).
UGI expects the deal, which is subject to satisfaction of customary conditions, to increase its cash flow per share by 15% for fiscal 2020.
Additionally, the deal is expected to provide UGI with more than $200m in additional annual cash flow, and support the increase in UGI’s annualized dividend for the shareholders by $0.16/share for the July dividend.
UGI said that the agreement offers compelling financial and strategic benefits for the two firms in the near and long term.
For AmeriGas, the proposal is expected to improve its cost of capital through the elimination of incentive distribution rights payable to the General Partner as well as support the long-term strength and stability of AmeriGas.
Moreover, AmeriGas seeks to paydown its short-term debt as well as eliminate administrative complexities and costs inherent to the MLP structure.
AmeriGas president and CEO Hugh Gallagher said: “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.
“The transaction with UGI supports a strong and stable AmeriGas and empowers a focus on growth opportunities.”