From Bloomberg
IFM Global Infrastructure Fund agreed to acquire Buckeye Partners LP, a U.S. owner and operator of oil pipelines and terminals on the East Coast and Gulf Coast, for $6.5 billion.
The Australian fund said Friday it will pay $41.50 for each unit of Houston-based Buckeye, a master limited partnership that has 6,000 miles of pipeline and associated tanks and terminals. The offer represents a 27.5% premium to the closing unit price on Thursday.
The deal is the first full takeout of a pipeline MLP amid a rush of private-equity money into the industry, according to Hinds Howard, a portfolio manager at CBRE Clarion Securities LLC.
MLPs, the structure used by many oil and gas companies to hold their pipeline businesses, have taken a beating in the public equity markets in the past year, partly due to a change in U.S. tax policy. That’s attracted private capital to the so-called midstream industry instead.
While the buyout of Buckeye is a positive for the sector as a whole, it deals “another blow to the MLP structure, which loses its fifth-largest remaining MLP,” Howard said. That “will make it even more challenging for asset managers focused specifically on MLPs to put money to work.”
IFM had A$126.8 billion ($88.8 billion) under management as of March 31, according to its website. It’s a well-known infrastructure player with a “huge backlog of capital they need to deploy,” Howard added. “This deal allows them to do that.”
Buckeye said last year it was considering strategic options. That led to the company divesting storage and pipeline assets, included the sale of the company’s stake in VTTI BV back to a Vitol investment vehicle and IFM for $975 million after buying it in 2017 for $1.15 billion.
The acquisition would be the third-largest of a U.S. pipeline company announced in the past 12 months, according to data compiled by Bloomberg. It comes two days after Marathon Petroleum Corp. agreed to merge two pipeline partnerships is controls in a deal valued at about $9 billion.
The so-called U.S. midstream industry — encompassing pipelines and other oil and gas infrastructure — has struggled to attract investors despite a need for new assets in places including the prolific Permian Basin of West Texas and New Mexico.
There were 80 deals targeting U.S. pipeline companies announced last year, the highest according to data compiled by Bloomberg going back 12 years.
Separately on Friday, Prostar Capital, another private equity firm, agreed to acquire an oil terminal from NuStar Energy LP for about $250 million.
Buckeye traces its roots to 1886 as a subsidiary of the Standard Oil Co., according to its website. The name stems from its original purpose, supplying refineries in northwestern Ohio — the Buckeye state. Buckeye’s units have climbed 12% this year through yesterday, better than the 9% average increase of MLPs on the Alerian index.
Friday’s deal is expected to be completed in the fourth quarter, subject to closing conditions. Units of Buckeye surged 28 percent to $41.81 at 11:42 a.m. in New York.
