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Flint Hills Resources to acquire PetroLogistics for $2.1 billion

10:08 AM MDT | May 30, 2014 | —Natasha Alperowicz and Robert Westervelt

Razook: Well aligned with Flint Hills chemical business.

Flint Hills Resources, a subsidiary of Koch Industries, has reached a deal to acquire propylene maker PetroLogistics for $2.1 billion.

PetroLogistics operates the only propane dehydrogenation (PDH) facility currently operating in the United States. The Houston facility began operations in 2010 and has propylene capacity of 1.45 billion lbs/year. The plant was developed and built on the site of a former Mobil ethylene plant acquired from ExxonMobil in March 2008.

Flint Hills Resources will acquire all of PetroLogistics’ outstanding common units for $14.00/unit in cash except for those owned by the company’s four largest shareholders: private equity firm Lindsay Goldberg; York Capital Management; and Petrologistics coprincipal executive officers, David Lumpkins and Nathan Ticatch. Those shares will be acquired for $12.00/common unit in cash. Lindsay Goldberg, York Capital, Lumpkins, and Ticatch, who were the initial sponsors of Petrologistics and control its general partner, own approximately 73% of the outstanding common units. Based on the closing unit price on 27 May, the $14.00/unit purchase price represents a premium in excess of 8% to the publicly traded units.

Petrologistics posted sales of $755 million and net income of $175 million in 2013. Sales were up 1% year-on-year (YOY). The company posted a net loss of $56.7 million in 2012. Full-year adjusted Ebitda of $268.8 million in 2013 was up 29% YOY.

Petrologistics has multiyear propylene supply contracts with BASF, Dow Chemical, Ineos, and Total that expire between 2016 and 2018 and a one-year contract with LyondellBasell Industries that ends in December 2014. Minimum customer-contracted volumes represent approximately 75% of its current facility capacity and the maximum reflecting approximately 96%, PetroLogistics says. The company produced 1.1 billion lbs of propylene in 2013 partially because of the impact of its first triennial plant turnaround.

Sales to Dow accounted for 44% of Petrologistics revenues in 2013, Total 21%, and Ineos 18%, according to regulatory filings. Sales to Dow are likely to drop once that company starts the first of its two planned US PDH units in late 2015. Ascend, Enterprise Products, Formosa Plastics, RexTac, and Williams have also announced plans for world-scale PDH units in North America, with start-ups between 2016 and 2018. BASF is evaluating a methane-to-propylene plant.

The deal is expected to close before year-end. The closing is “subject to a requirement that PetroLogistics’ facility perform at a certain level of production for a period of four days before the closing” and to PetroLogistics’ receipt of a legal opinion regarding certain tax matters.

“PetroLogistics built this facility from the ground up. It is a world-class operation,” says Brad Razook, Flint Hills Resources president and CEO. “Its capabilities are well aligned with our existing chemical and refining business.”

Flint Hills has polypropylene plants at Longview, TX; and Marysville, MI, acquired as part of its 2007 acquisition of Huntsman’s polymers and base chemicals business. That deal included a Port Arthur, TX, cracker with ethylene capacity of 1.4 billion lbs/year and 700 million lbs/year of chemical-grade propylene.

“We believe there are a number of potential synergies and efficiencies for our customers,” says a Flint Hills spokesperson. “There are also pipeline and supply synergies that will help us create additional value for our customers. We will continue to serve the customers of PetroLogistics’ business while looking for synergies with our existing business in the future where it makes sense.”

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