8-K: ONEOK to Acquire Medallion and Controlling Stake in EnLink for $5.9 Billion

ONEOK is set to acquire Medallion Midstream and a controlling interest in EnLink Midstream from Global Infrastructure Partners for a combined value of $5.9 billion, significantly expanding its Permian Basin presence.

Summary

• ONEOK has agreed to acquire Global Infrastructure Partners' (GIP) entire stake in EnLink Midstream, consisting of 43% of outstanding common units at $14.90 per unit and 100% of the managing member interests for $300 million, totaling approximately $3.3 billion.
• Additionally, ONEOK will acquire all equity interests in Medallion Midstream for $2.6 billion, representing about 6.3 times its estimated 2025 EBITDA, including expected synergies.
• The Medallion acquisition includes a potential purchase of the remaining interests in a Medallion joint venture.
• The transactions are expected to close in the fourth quarter of 2024, pending customary closing conditions and regulatory approvals.
• ONEOK has secured a $6.0 billion unsecured term loan facility from JPMorgan Chase Bank, N.A. and Goldman Sachs Bank USA to finance these acquisitions.
• ONEOK intends to pursue a tax-free acquisition of the remaining publicly held interests in EnLink after the initial transaction closes.
• The combined transactions are expected to generate annual synergies of approximately $250 million to $450 million within three years.
• ONEOK anticipates a pro forma 2025 year-end net debt-to-EBITDA ratio of approximately 3.9 times, with a target of 3.5 times by 2026.

Sentiment

Score: 8

Explanation: The document conveys a highly positive outlook, emphasizing strategic benefits, financial accretion, and synergy potential. The management's comments are optimistic, and the company has secured financing for the transactions. The risks are acknowledged but are not presented as major concerns.

Positives

• The acquisitions are expected to be immediately accretive to earnings per share and free cash flow per share.
• The transactions will establish a fully integrated Permian Basin platform at scale.
• ONEOK will expand its footprint in the Mid-Continent, North Texas, and Louisiana.
• The transactions are expected to enhance ONEOK's capital allocation strategy and ability to execute share repurchases.
• ONEOK expects to maintain its strong investment-grade credit ratings after the transactions.

Risks

• The transactions may not close due to unsatisfied closing conditions or regulatory hurdles.
• The acquired businesses may not perform as expected by ONEOK.
• The expected synergies may not be fully realized or may take longer to achieve.
• There is a risk of potential adverse reactions or changes to business or employee relationships.
• Changes in ONEOK's capital structure could have adverse effects on the market value of its securities.
• There is a risk of changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters.

Future Outlook

ONEOK expects to capitalize on its expanded and integrated platforms in the Permian Basin to drive new service offerings for producers in the region. ONEOK intends to pursue a tax-free acquisition of the publicly held common units of EnLink after the initial transaction closes. ONEOK believes the transactions will improve its overall credit attributes and expects leverage to trend toward its previously announced target of 3.5 times during 2026 as growth projects are placed into service, assuming the completion of ONEOKs previously announced $2 billion share repurchase program by year end 2027.

Management Comments

• We are particularly excited to meaningfully increase our company's presence in the Permian Basin, which is expected to continue driving the majority of U.S. oil and gas growth.
• ONEOK has demonstrated its ability to bring assets together and capture synergies, and we are confident that these accretive transactions will enhance value for our stakeholders and will allow us to provide enhanced offerings across multiple ONEOK platforms.
• We are also looking forward to welcoming the employees of EnLink and Medallion to ONEOK.

Industry Context

These acquisitions reflect a trend of consolidation in the midstream energy sector, particularly in the Permian Basin, as companies seek to expand their infrastructure and service offerings. The transactions position ONEOK as a major player in the region, with a fully integrated platform for NGLs, crude oil, and natural gas.

Comparison to Industry Standards

• The acquisition multiple of 6.3 times estimated 2025 EBITDA for Medallion is within the range of recent midstream transactions, though specific comparisons are difficult without detailed financial information.
• The premium of 12.8% to EnLink's closing market price as of August 27, 2024, is a typical premium for acquisitions of publicly traded companies.
• The expected synergies of $250 million to $450 million within three years are significant and will be a key factor in the success of the integration.
• The pro forma 2025 year-end net debt-to-EBITDA of approximately 3.9 times is within the range of other investment-grade midstream companies, and the target of 3.5 times by 2026 is consistent with industry best practices.

Management Changes

Stakeholder Impact

• Shareholders are expected to benefit from increased earnings per share and free cash flow per share.
• Employees of EnLink and Medallion are expected to join ONEOK.
• Customers are expected to benefit from enhanced service offerings across multiple ONEOK platforms.
• Creditors are expected to benefit from ONEOK's strong investment-grade credit ratings.

Next Steps

• ONEOK will work to close the transactions in the fourth quarter of 2024.
• ONEOK intends to pursue a tax-free acquisition of the publicly held common units of EnLink after the initial transaction closes.
• ONEOK will integrate the acquired businesses and work to achieve the expected synergies.
• ONEOK will work to achieve its target leverage ratio of 3.5 times by 2026.

Key Dates

Keywords

ONEOK, EnLink Midstream, Medallion Midstream, Global Infrastructure Partners, acquisition, Permian Basin, midstream, NGL, crude oil, natural gas, synergies, EBITDA, debt, credit rating