PVR-PVG Decide to Merge - Analyst Blog

Master limited partnership Penn Virginia Resource Partners L.P. (PVR) has agreed to merge with its general partner, Penn Virginia GP Holdings L.P. (PVG), which holds a 37.6% stake in Penn Virginia Resources.

The transaction will involve completion of 100% equity consideration, resulting in the cancellation of PVG's incentive distribution rights and PVR's limited partnership units owned by PVG. Following the merger, Penn Virginia Resources will own Penn Virginia GP, entirely.

Under the deal, every PVG limited partnership unit owned at closing will be exchanged for 0.98 PVR limited partnership units. This will result in the issue of roughly 38.3 million new PVR limited partnership units and the cancellation of about 19.6 million PVR limited partnership units owned by PVG.

The terms of the merger agreement were unanimously approved by the conflicts committee of both PVR and PVG's general partners. The terms of the merger were also approved by all members of the boards of directors of PVR's general partner and PVG's general partner. Following the merger, the three independent directors of PVG's general partner are expected to join the board of PVR's general partner.

Management believes the merger will help lower PVR's cost of capital improving PVR's competitive position as well as providing an opportunity to grow its distributable cash flow. The merger will also simplify PVR's partnership structure, providing a capital and governance structure more easily understood by the investing public.

Though the management expects the additional PVR units issued to PVG unitholders to dilute PVR's distributable cash flow per unit modestly in 2011, it expects the transaction to be accretive thereafter due to the elimination of incentive distributions currently being paid to PVG.

Radnor, Pennsylvania-based Penn Virginia Resource manages coal and natural resource properties as well as natural gas gathering and processing businesses. The partnership's coal properties are located in Central and Northern Appalachia, Illinois Basin and San Juan Basin.

The partnership owns and operates natural gas midstream assets located in Oklahoma and Texas, including six natural gas processing facilities having 400 MMcf/d of total capacity and approximately 4,118 miles of natural gas gathering pipelines.

We currently have a short-term Zacks #4 Rank (Sell) on Penn Virginia Resources. However, we maintain our long-term Neutral recommendation on the stock.
 
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