6/29/09 – Breaking News

This morning Conservative Portfolio member Enterprise Products Partners (NYSE: EPD) announced that it struck a deal to acquire fellow MLP TEPPCO (NYSE: TPP) in a $3.3 billion all-stock deal. TEPPCO shareholders will receive 1.24 Enterprise units for every unit of TEPPCO held, a premium of about 9 percent based on Friday’s closing price.

Enterprise and TEPPCO share the same general partner, Enterprise GP Holdings (NYSE: EPE). Enterprise GP is 73-percent owned by Texas billionaire Dan Duncan, Enterprise’s highly regarded Chairman, who also owns a 30 percent stake in Enterprise Products Partners and 11.6 percent of TEPPCO. This is not the first time that Enterprise has attempted to acquire TEPPCO; the partnership’s board rejected an offer worth $2.75 billion back in April, stating that the price was too low.

Enterprise has traditionally been a natural gas-focused MLP that owned gas and natural gas liquids (NGL) pipelines, gas storage and gas processing plants. The deal represents a meaningful asset diversification: TEPPCO owns oil and refined products pipelines as well as a fleet of inland tank barges designed to carry oil, refined products and petrochemicals. But both companies are involved primarily in fee-based midstream energy businesses that offer low exposure to commodity prices, low business risk and high, steady cash flows. Enterprise has never cut its distribution and has a long track record of boosting its payout over time; the combined Enterprise/TEPPCO should offer even more stability.

In addition, investors should not ignore the influence of Dan Duncan, a seasoned hand in the MLP business who has created immense wealth for holders over the long-term and whose handwriting is clearly visible in this deal. As is typical in all-stock deals, Enterprise Products (the acquiring firm) is down slightly this morning, while TEPPCO shares are trading higher. We continue to rate Enterprise Products Partners a buy and would use any short-term weakness as a result of this deal as a buying opportunity.

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