SemGroup makes its move...not what I was hoping for, but beter than nothing
Well last night a stock that I have been talking about here in my blog for a while, SemGroup, finally made its much anticipated announcement (by me at least) about what it plans to do with its corporate structure. Let's just say that the company's move isn't exactly what I was hoping for, but it isn't terrible either. SemGroup stated that it plans to spin off its best assets (SemCrude) into an MLP instead of converting the entire company like I had hoped it would. A spin-off of these assets isn't the worst thing in the world because it will be only a partial spin, which theoretically will demonstrate that the market is currently undervaluing the division and the ownership stake that SEMG will retain. Plus it will be more tax efficient for SEMG, but it's annoying that we won't be getting that juicy 9% yield that would have likely resulted from SEMG converting its entire company into an MLP.
I guess that this is what the company meant when it talked about investigating a conversion to "drop-down MLP" structure in a recent presentation. I would much prefer that it spin-off the MLP assets directly to shareholders than through an IPO. The cynical part that's left in me (remember that I'm trying to be more positive :) ) just knows that the underwriters for the new IPO will somehow screw up the issuance of shares and gank SEMG out of proceeds that it deserves (see LNKD for an example of this). Plus, what is SEMG going to do with the money that it gets from the spin, other than pay down debt? Do we trust the company's new management to invest the money wisely. I'm not sure that I do. I'd much rather have the MLP shares myself than trust SEMG management with the potentially underpriced proceeds from the IPO.
I'll have to see if the shares look attractive and if I have the ability to actually get in on the IPO offering. Schwab isn't great with that.
At least the company was able to refinance its debt a couple of weeks ago at much more attractive terms like we thought it would be able to. It said that it will be able to reduce its interest expense by 50%. That should help its earnings going forward. Plus, a partial spin of some assers via an IPO is better than no action at all. SEMG is making some solid moves and I don't think that I am going to sell my position at this point, but I would have much rather seen them convert the entire company to an MLP or spin SenCrude to shareholders.
I'd love to hear others' thoughts on the latest developments.
SemGroup Announces Plan to Contribute SemCrude Assets to MLP