DEFA14A: Summit Midstream Corporation Issues Supplemental Proxy Materials Amid Shareholder Scrutiny

Summit Midstream Corporation released supplemental information to its proxy statement regarding a proposed transaction with Tall Oak Midstream Holdings, addressing concerns raised by shareholders and clarifying details of the deal.

Summary

• Summit Midstream Corporation issued a supplement to its proxy statement dated October 31, 2024, concerning a special meeting to vote on the issuance of shares to Tall Oak Midstream Holdings.
• The supplement addresses concerns raised in demand letters and a lawsuit challenging the completeness of the original proxy statement.
• The company maintains that the original disclosures were sufficient but is providing additional information to avoid delays and costs associated with litigation.
• The supplemental disclosures include details about an investor agreement, board composition changes, and financial projections.
• The transaction involves the issuance of up to 7,471,008 shares of Class B common stock and common units to Tall Oak.
• The company has provided three financial projections: an upside case, a base case, and a downside case, for the years 2025-2028.
• The base case projects adjusted EBITDA of $259 million in 2025, $300 million in 2026, $321 million in 2027, and $340 million in 2028.
• The company projects unlevered free cash flow for the combined entity to be $161 million in 2025, $185 million in 2026, $226 million in 2027, and $238 million in 2028 under the base case.
• The board will expand from seven to eleven directors, with Tailwater having the right to designate up to four new directors based on ownership thresholds.
• Guggenheim Securities is acting as a financial advisor and will receive a $5.5 million fee upon successful completion of the transaction, with $1.5 million already paid.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company is facing legal challenges, it is proactively addressing them and the transaction is expected to have positive financial outcomes. The company is also providing detailed financial projections which is a positive sign.

Positives

• The transaction is expected to strengthen the company's balance sheet.
• The company anticipates an acceleration of its ability to return capital to stockholders via distributions or share buybacks.
• The company believes the transaction meets strategic objectives established by the board and management.
• The company is proactively addressing shareholder concerns by providing supplemental disclosures.
• The company has provided detailed financial projections for the combined entity.

Negatives

• The company is facing demand letters and a lawsuit challenging the completeness of the original proxy statement.
• The company is incurring additional expenses to address the shareholder concerns and litigation.
• The transaction will result in a change in the board composition, with Tailwater gaining significant influence.
• The company is incurring a $5.5 million fee to Guggenheim Securities for financial advisory services.

Risks

• The company faces the risk of potential delays or adverse effects on the transaction due to the shareholder concerns and litigation.
• There is a risk that the financial projections may not be achieved.
• The company is subject to the risk of integration challenges with the Tall Oak assets.
• The company is subject to the risk of potential changes in the market conditions that could impact the transaction.

Future Outlook

The company expects the transaction to strengthen its balance sheet and accelerate its ability to return capital to stockholders. The company has provided financial projections for the combined entity through 2028 under upside, base, and downside scenarios.

Management Comments

• The company believes that the Demand Letters and the Complaint are without merit.
• The company denies the allegations in the Demand Letters and the Complaint and denies that any violation of law has occurred.
• The company believes that the Proxy Statement disclosed all material information required to be disclosed.
• The company specifically denies all allegations that any of the Supplemental Disclosures, or any other additional disclosures, are material or were or are otherwise required to be disclosed.

Industry Context

This transaction reflects a trend of consolidation in the midstream energy sector, where companies are seeking to improve their financial positions and operational efficiencies through strategic partnerships and acquisitions. The deal is similar to other transactions where companies are combining assets to create larger, more resilient entities.

Comparison to Industry Standards

• The projected EBITDA growth rates are comparable to other midstream companies seeking to expand their operations through acquisitions.
• The capital expenditure plans are in line with industry averages for companies focused on maintaining and expanding their infrastructure.
• The transaction structure, involving the issuance of equity and the formation of a strategic partnership, is a common approach in the midstream sector.
• Companies such as Energy Transfer and Kinder Morgan have also pursued similar strategies to consolidate assets and improve their financial performance.

Management Changes

Legal Proceedings

• The company is aware of eight demand letters sent by counsel to purported stockholders.
• A complaint has been filed in New York State Court, County of New York, Index No. 655977/2024, styled as: William Johnson v. Summit Midstream Corporation, et al.
• The demand letters and the complaint challenge the completeness and accuracy of the disclosures in the proxy statement.

Stakeholder Impact

• Shareholders will vote on the proposed transaction and will be impacted by the changes in the company's ownership structure and financial performance.
• Employees will not be directly impacted by the transaction as no member of Tall Oak management will become an employee of the Company.
• Customers and suppliers will likely experience no immediate changes in their relationships with the company.
• Creditors will be impacted by the changes in the company's financial structure and debt profile.

Next Steps

• The company will hold a special meeting of common stockholders on November 29, 2024, to vote on the proposed transaction.
• The company will continue to engage with shareholders and address any further concerns.
• The company will work towards the successful completion of the transaction with Tall Oak Midstream Holdings.

Key Dates

Keywords

Summit Midstream Corporation, Tall Oak Midstream Holdings, Proxy Statement, Shareholder Vote, Class B Common Stock, Common Units, Transaction, Merger, Financial Projections, Board of Directors, Tailwater, Investor Agreement, Guggenheim Securities