Mar 31, 2004 |
PAA to Acquire Crude Oil Business of Link Energy LLC |
Contacts: Phillip D. Kramer
Executive Vice President and CFO
713/646-4560 – 800/564-3036
A. Patrick Diamond
Manager, Special Projects
713/646/4487 - 800/564-3036
FOR IMMEDIATE RELEASE
Plains All American Pipeline To Acquire
Crude Oil Business of Link Energy LLC
(Houston – March 31, 2004) Plains All American Pipeline, L.P. (NYSE: PAA) announced today that it has signed a definitive agreement to acquire all of the North American crude oil and pipeline operations (“Crude Oil Business”) of Link Energy LLC (“Link”). The Link Crude Oil Business consists of approximately 7,000 miles of active crude oil pipeline and gathering systems, over 10 million barrels of crude oil storage capacity, a fleet of approximately 200 owned or leased trucks and approximately 2 million barrels of crude oil linefill and working inventory.
Under the terms of the agreement, PAA will make a cash payment to Link of approximately $273 million and assume certain liabilities, obligations and commitments related to the assets and business activities. In addition, PAA will assume approximately $49 million of liabilities and net working capital items, and expects to incur approximately $8 million of third-party transaction, closing and integration costs and other items. Accordingly, the aggregate purchase price for the transaction is estimated to be approximately $330 million. The Partnership has received the appropriate regulatory approvals and expects to close the transaction on April 1, 2004.
“The acquisition of the Link Crude Oil Business is a tremendous opportunity for our Partnership,” said Greg L. Armstrong, Chairman & Chief Executive Officer of Plains All American. “The Link assets are complementary to our assets in West Texas and along the Gulf Coast. Additionally, this acquisition meaningfully expands our footprint in the Rocky Mountain and Oklahoma/Kansas regions.”
“Due to the significant overlap of administrative and back office expenses, we believe that we can capture annual cost savings and commercial synergies in the range of $20 million to $30 million within the first eighteen months after the acquisition is completed,” said Armstrong. “These cost savings have been specifically identified and include items such as personnel reductions, insurance, professional fees for accounting and legal services and duplicative public company costs. In addition, we expect to generate commercial synergies due to the complementary nature of the assets. The nature of these cost savings and synergies gives us a high level of confidence in the timing and amount of the savings.”
Armstrong noted that of the $330 million purchase price, approximately $304 million will be funded at, or within nine months after, closing. In addition, the Partnership expects to spend another $24 million on items that will not be included in the initial purchase price as determined in accordance with generally accepted accounting principles. These items include non-capitalized integration expenses, one-time capital expenditures to bring certain of the assets up to PAA’s operating specifications and costs to comply with certain regulatory requirements. All of the $24 million will be incurred in the first year of the acquisition. Accordingly, the Partnership’s near-term funding requirements for the transaction approximate $328 million.
Armstrong stated that, once fully integrated, the transaction is expected to be accretive to the Partnership’s distribution capacity by approximately $0.15 per unit to as much as $0.30 per unit. Armstrong also noted that the initial six-month’s contribution from these assets will be suppressed as a result of integration expenses and regulatory compliance expenses that the Partnership expects to spend before September 30, 2004. “Although such activities will likely have an adverse impact on near-term operating results, these expenditures will help ensure that these assets are in compliance with various regulatory requirements and that our operations will be effectively integrated and positioned to capture our targeted synergies,” said Armstrong.
“To accommodate the acquisition and provide additional financial flexibility for our expanded operations, we have obtained underwritten financing commitments on a new $200 million 364-day credit facility that contains a twelve month term out option at the end of the primary term,” said Phil Kramer, Executive Vice President and CFO of Plains All American. “We have an established financial growth strategy and a very disciplined approach to financing acquisitions, which calls for PAA to fund large acquisitions with at least 50% equity. Given our desire to maintain our strong credit profile and positive credit momentum, we intend to fund this acquisition with approximately 60% equity, or approximately $197 million.”
“In conjunction with this acquisition, we have secured an equity commitment from a group of institutional investors for the private placement of $100 million of Plains All American’s Class C Common Units,” continued Kramer. “The investors participating in the offering are affiliates of Kayne Anderson Capital Advisors, Vulcan Capital and Tortoise Capital Advisors. We are extremely pleased with the involvement of these investors, who represent long-time supporters of the Partnership as well as newcomers to the PAA story. We expect to close the private placement shortly after the closing of the Link acquisition.”
“With a large portion of our equity funding in place, we believe that we have significantly reduced the equity refinancing risk that would normally be associated with a transaction of this size,” said Kramer. “Essentially, we will have raised over 60% of the equity capital that we would normally raise pursuant to our financial growth strategy at, or very near, the closing of this transaction.” Kramer noted that the Partnership will look to complete the equity financing component of the transaction by accessing the public equity market over the next several months, and intends to monitor the long-term debt markets for potential refinancing opportunities.
The Class C Common Units, like the Partnership’s Class B Common Units, are unlisted securities that are pari passu in voting and distribution rights with the Partnership’s publicly traded Common Units. The Class C Units are convertible into Common Units upon approval by the holders of a majority of the Common Units. Beginning six months from the closing of the private placement, the Class C Unitholders may request that the Partnership call a meeting of its Common Unitholders to consider approval of the conversion of the Class C Units into Common Units. If the approval of the conversion is not obtained within 120 days of the request, the Class C Unitholders will be entitled to receive distributions, on a per unit basis, equal to 110% of the amount of distributions paid on a Common Unit. If the approval of the conversion is not secured within 90 days after the end of the 120-day period, the distribution right increases to 115%.
As part of the transaction, Link and Texas-New Mexico Pipe Line Company (“Tex-New Mex”) have agreed to settle outstanding litigation between the two parties. The settlement agreement will become effective simultaneously with the Partnership’s purchase of assets from Link. Tex-New Mex and PAA have entered into a separate agreement that establishes a definitive cost sharing arrangement for existing and future remediation obligations related to certain of Link’s assets, which will be performed by Plains All American as the operator of these assets.
Simmons & Company International served as exclusive financial advisor to Plains All American in connection with the acquisition. Vinson & Elkins L.L.P. served as the Partnership’s legal counsel in connection with the acquisition as well as the private placement of the Class C Common Units.
Conference Call
The Partnership will host a conference call to discuss the acquisition on Wednesday, March 31, 2004. Specific items to be addressed in this call include:
1. the assets being acquired and the structure of the acquisition, including the details of the aggregate purchase price;
2. the industrial logic and strategic rationale behind the acquisition;
3. the historical and expected financial performance of the assets;
4. the acquisition metrics of the transaction;
5. the financing plans with respect to funding the transaction;
6. the near-term and intermediate-term challenges and the accretive aspects of this transaction to the Partnership’s unitholders.
The call will begin at 3:30 PM (Central). To participate in the call, please call 888-802-8576, or, for international callers, 973-935-8515 at approximately 3:25 PM (Central). No password or reservation number is required.
Webcast Instructions
To access the Internet webcast, please go to the Partnership’s website at www.paalp.com, choose “investor relations”, and then choose “conference calls”. Following the live webcast, the call will be archived for a period of sixty (60) days on the Partnership’s website.
Telephonic Replay Instructions
Call 877-519-4471 or international call 973-341-3080 and enter PIN # 4660326
The replay will be available beginning Wednesday, March 31, 2004, at approximately 5:30 PM (Central) and continue until midnight Monday, April 5, 2004.
Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements that involve certain risks and uncertainties. These risks and uncertainties include, among other things, potential for an acquisition transaction to be challenged or not consummated, successful integration and future performance of assets acquired, loss of customers or suppliers during transition of services related to an acquired business, refinery downtime, demand for various grades of crude oil and resulting changes in pricing conditions or transmission throughput requirements, fluctuations in the debt and equity markets, successful third party drilling efforts, availability of third party production volumes for transportation and marketing, political and economic stability of foreign sources of crude oil, continued creditworthiness of, and performance by, our counterparties, the effects of competition, the success of our risk management activities, regulatory changes, weather interference, and other factors and uncertainties inherent in the marketing, transportation, terminalling, gathering and storage of crude oil discussed in the Partnership’s filings with the Securities and Exchange Commission.
Plains All American Pipeline, L.P. is engaged in interstate and intrastate crude oil transportation, and crude oil gathering, marketing, terminalling and storage, as well as the marketing and storage of liquefied petroleum gas and other petroleum products, primarily in Texas, California, Oklahoma, Louisiana and the Canadian Provinces of Alberta and Saskatchewan. The Partnership’s common units are traded on the New York Stock Exchange under the symbol “PAA.” The Partnership is headquartered in Houston, Texas.
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