Even though the United Steelworkers union has only been in negotiations for a little more than a week, it decided to begin a work stoppage after there was no agreement on a new labor contract. This union represents 200 oil refineries, chemical plants, pipelines and terminals. It says it rejected at least four offers from Royal Dutch Shell (think Exxon, Chevron, etc.). This is the first strike it’s called in more than three decades and if you’re wondering how big this could get in an already battered sector, David Lennox explains it this way, ““If the strike escalates, that would be detrimental to the oil price. It will put high U.S. production out on the market and there is nowhere for it to go.”
Meanwhile, that tiny glimmer of hope on Friday with WTI’s 8-plus percent jump seems quite dim now; today it fell by $1.49 a barrel on New York’s ME. Already, refineries are announcing they’re shutting down their process units and more refineries are saying they’re prepared to join the strike. All are rethinking contingency plans.
The last thing you want is to have your conglomerate in the crosshairs of a group of law firms as you’re going about the business of closing a multi-billion dollar deal. If you’re Regency Energy Partners, you’re likely getting the sense that it’s about to get deep.
With so many buy outs and mergers these days in energy and oil, it came as no surprise when Energy Transfer Partners LP announced it had agreed to buy Regency for $11 billion excluding its debt. Insiders are saying that were the total debt included, the price would have been more than $18 billion (and there are some saying the debt is indeed part of the deal). Of course, there are excruciatingly complicated tax exemptions, including one that allows handsome payouts to shareholders. Both are master limited partnerships (MLPs). The politics of money, right? Or is it the money in politics?
The investigation focuses on any ulterior motives and whether Regency Energy’s Board of Directors is acting in the shareholders’ best interests. Were other alternatives considered? Is the board poised to completely and accurately review the process as a whole? These are just a few of the questions, but the real focus is whether or not Regency’s board is fulfilling its fiduciary duties, including maximizing the company’s value and disclosing all material benefits and costs (which obviously is disconcerting).
Here’s what the deal looks like:
Regency shareholders will receive $0.4066 shares of ETP and $0.32 cash for each share of Regency Energy owned, total consideration of approximately $26.89 per share. There is a growing number of analysts and other interested parties who believe the true inherent value of the stock could be as high as $34.00 per share.
In recent weeks, S&P issued a junk rating for Regency. Regency’s value has dropped 18% over the past few months, but closed a bit higher last week when the merger was announced.
It’s important to note that these types of investigations aren’t too uncommon. What makes this one different has to do with the current events in the oil sector. From bomb threats last week to massive job cuts to the spread between Brent and WTI – there are a lot of wheels in motion. And, of course, this is a massive buyout. It’s only been in the past several months that the FTC wrapped up another investigation it had been conducting against Regency.
And let’s not forget the settlement in the Freeport-McMoRan Inc. derivative lawsuit (when shareholders sue officials on behalf of a company) this past week. It’s going to pay $137.5 million to put an end to claims that the company’s directors and executives had conflicts of interest during the buyout of two different oil and gas companies in 2013. Their lawyers say the individual defendants denied wrongdoing and there was no breach of duties to shareholders. But there are now new worries.
A recent column from Jacob Maslow explains those new worries:
The downward pressure on materials companies should make economic planners and industry observers as well as investors worried. It means the contagion of oil is spreading to other industries. We’re not just talking about declining stock prices here. This is going to be a Main Street issue besides a Wall Street one. How? Jobs…These industries might face waves of layoffs that might send shockwaves to the rest of the economy.
So what does all of this look like on the other side? See, again, in the energy and oil arena, the odds of you hitting Biloxi beach and gambling your life savings in a casino for that one big win are probably greater than figuring out the next play in this sector. The strike, though, is not good on any level and only adds to an already overwhelming crisis.