Thoughts on Magellan Midstream Partners (MMP) buying its own general partner (MGG) out
On several previous occasions, I've stated that many master limited partnerships are good investments. Their general partners are possibly more so, as their distributions grow at a faster rate due to the incentive distribution structure. I picked Magellan Midstream Holdings (MGG), since I like the underlying asset base and growth potential.
Now, Magellan Midstream Partners (MMP, the limited partner) has offered to buy the GP out in an all-stock transaction. THe GP structure is a bit of a disadvantage for the limited partners, since above a certain level of volume, the GP gets a large percentage of the distributions. If the buyout goes through, it should be an advantage for MMP. In addition to enabling MMP to grow their own distribution at a higher rate, this transaction will effectively decrease their cost of capital, now that more cash will be available for acquisitions, maintenance, etc. I don't know that it's a huge positive, but every bit of cash helps in this environment.
In CAPS, I basically ended MGG and opened a pick on MMP. In real life, I own neither of these yet. I do own Enterprise GP holdings, but this entity holds the general partners of three separate firms. I don't see a transaction like this happening with EPE. However, given that publicly traded general partners seem to have been overly punished, I wouldn't be surprised to see other limited partners try the same strategy.