On May 31, SemGroup® Corporation and Rose Rock Midstream announced an agreement under which SemGroup will acquire all of the outstanding common units of Rose Rock not already owned by SemGroup in an all stock-for-unit transaction at a ratio of 0.8136 SemGroup common shares per Rose Rock common unit. The implied Rose Rock unit price represents a 7.4% and 19.2% premium to its volume-weighted average prices during the 10-trading days and 20-trading days ending May 27, 2016, respectively.
Following completion of the transaction, SemGroup is targeting an 8% compound annual dividend growth rate and dividend coverage of 1.5 times or greater through 2018. Both SemGroup and Rose Rock expect to maintain their current level of dividends and distributions, respectively, through closing of this transaction.
“We are pleased to announce the combination of SemGroup and Rose Rock, which we expect will provide immediate and long-term benefits for SemGroup and Rose Rock investors,” said Carlin Conner, president and chief executive officer of SemGroup. “We expect the transaction will simplify our corporate capital structure and deliver several important benefits to our shareholders. The elimination of Rose Rock’s incentive distribution structure coupled with Rose Rock’s fee-based cash flows from strong investment grade counterparties will help drive SemGroup’s strategic growth plans. We anticipate that Rose Rock’s businesses, already managed by SemGroup, will enhance our combined credit profile, dividend coverage, and future dividend growth rate beyond 2016.”
The transaction will be a taxable event to Rose Rock unitholders with recognition of gain or loss in the same manner as if they had sold their Rose Rock units for cash equivalent to the fair market value of the SemGroup shares received. SemGroup will receive tax benefits over an approximate 15 year period from the asset step-up resulting from the consideration paid to the Rose Rock unitholders. Combined with SemGroup’s current NOLs and projected accelerated tax depreciation for future capital expenditures, the company does not anticipate being a significant U.S. taxpayer through 2020.