12:35 PM | May 28, 2014 | Natasha Alperowicz and Robert Westervelt
Flint Hills Resources, a subsidiary of Koch Industries, has reached a deal to acquire propylene maker PetroLogistics for $2.1 billion.
PetroLogistics is a major producer of propylene with operations in the Houston Ship Channel. The company owns the only propane dehydrogenation facility currently operating in the United States. The facility began operations in 2010 and has a production capacity of approximately 1.45 billion lb/year. The facility employs about 100 people. The facility was developed and built on the site of a former ethylene cracker and related infrastructure acquired from ExxonMobil in March 2008.
Under the terms of the deal, Flint Hills Resources will acquire all of PetroLogistics’ outstanding common units for $14.00/unit in cash except for those common units owned by private equity firm Lindsay Goldberg; York Capital Management; as well as units owned by Petrologistics executive chairman and its CEO, which will be acquired for $12.00/common unit in cash. Lindsay Goldberg and York Capital, who were the initial sponsors of Petrologistics and control its general partner, own approximately 73% of the outstanding common units. Both have given a written approval of the transaction and have entered into support agreements with Flint Hills Resources agreeing to support the deal. No immediate reason for the difference in consideration has been given. 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 currently has multiyear contracts for the sale of propylene 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. The customer contracts provide for minimum and maximum offtake volumes, with the minimum customer-contracted volumes representing approximately 75% of its current facility capacity and the maximum reflecting approximately 96%. The company produced 1.1 billion lbs of propylene in 2013 partially because of the impact of its first triennial plant turnaround.
The deal is expected to close before year-end and is subject to customary closing conditions and regulatory approvals. The closing is also “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,” according to the company.
PetroLogistics may also provide certain information to and negotiate with any third party that submits an unsolicited higher bid through 6 July. If PetroLogistics accepts a higher bid, the company would pay Flint Hills Resources a $57-million termination fee. In addition, in that event, Flint Hills Resources may be entitled to receive from Lindsay Goldberg and York Capital 50% of any incremental value received by them when the transaction is consummated, up to a total cap of $50 million, PetroLogistics says.
“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, which were acquired as part of its 2007 acquisition of Huntsman’s polymers and base chemicals business. That deal also included a cracker at Port Arthur, TX that has capacity to produce nearly 1.4 billion lbs/year of ethylene and 700 million lbs/year of chemical-grade propylene.
Goldman Sachs is acting as financial adviser and Jones Day as legal adviser to Flint Hills Resources. Morgan Stanley and Evercore Partners are acting as financial advisers to PetroLogistics; and Weil, Gotshal & Manges and Vinson & Elkins are acting as the company's legal advisers.