Oil transport and storage operator Pacific Energy Partners LP said Monday it has agreed to be acquired by Houston-based Plains All American Pipeline LP for about $1.9 billion in cash and stock.
Under the terms of the deal, Plains will acquire Long Beach-based Pacific Energy’s general partner interest and incentive distribution rights from LB Pacific, as well as 2.6 million common units and 7.8 million subordinated units, for $700 million in cash.
Pacific Energy unitholders also will receive 0.77 of newly issued Plains All American units, representing a 10.6 percent premium to Friday’s closing stock price.
Plains will assume about $425 million in Pacific Energy debt, bringing the total value of the transaction to about $2.4 billion.
In a statement posted on Pacific Energy’s Web site, Plains said about half of the deal is being funded by equity, with $770 million of debt capital from credit facilities also helping complete the transaction, which is expected to close near the end of 2006.
The deal is expected to yield $30 million in near-term cost savings and revenue growth, increasing to $55 million over the next few years, Plains said.
“Combining our respective businesses will provide meaningful cost reduction and revenue enhancement opportunities as well as complementary vertical integration opportunities that will enable us to better serve our producer and refiner customers,” Greg L. Armstrong, Plains chairman and chief executive, said in a statement.
The transaction is subject to approval by Plains and Pacific Energy unitholders and regulatory clearance.
Plains’ executives and directors will continue their current roles and manage the combined company. In addition, Plains intends to recommend a 13 percent increase in its annual dividend to $3.20 per unit from $2.83 per unit.
In an 8-K filing, Plains also updated its 2006 outlook. The company now sees earnings between $2.79 and $3 per unit. On average, analysts polled by Thomson Financial expect Plains to earn $2.80 per unit.
Pacific Energy transports crude oil from terminals in California and the East Coast of the United States and Canada to refineries in mostly Western states.
Last year, the company acquired certain refined products storage and pipeline assets from Valero LP.
Plains operates terminal facilities and other assets for gathering and transporting crude oil in Texas, California, Oklahoma, Louisiana and Canada.
Shares of Pacific Energy rose 90 cents, or 2.8 percent, to close at $32.99 on the New York Stock Exchange. Plains shares fell $1.45, or 3.2 percent, to finish at $44.65 on the NYSE.
