Penn Virginia Resources, Penn Virginia GP Holdings to Merge Partnerships
Penn Virginia Resource and Penn Virginia GP Holdings announced a definitive agreement that would result in the merger of the two partnerships. The merger transaction would be completed with 100 percent equity consideration and would result in PVR owning its general partner, the cancellation of PVG's incentive distribution rights and the cancellation of the PVR limited partnership units owned by PVG. Under the terms of the merger agreement, PVG unitholders would receive 0.98 PVR limited partnership units in exchange for each PVG limited partnership unit owned at closing.
The merger transaction would result in approximately 38.3 million additional limited partnership units being issued by PVR and the cancellation of approximately 19.6 million PVR limited partnership units owned by PVG. The terms of the merger agreement were unanimously approved by the conflicts committee of PVR's general partner, comprised solely of independent directors acting pursuant to a delegation of authority from the full board of directors, and unanimously approved by the conflicts committee of the board of directors of PVG's general partner, comprised solely of independent directors acting pursuant to a delegation of authority from the full board of directors. The terms of the merger also were approved by all members of the boards of directors of PVR's general partner and PVG's general partner other than William Shea, the chief executive officer of each of PVR and PVG, who recused himself from the
votes of the full boards in light of his roles at the two partnerships.
"We are pleased with the agreement of the boards of directors of PVR and PVG to merge the partnerships," Mr. Shea said. "We think that the lower cost of capital that is expected to result from the merger, and the simplified partnership structure, will position PVR to take advantage of accretive market opportunities and grow our quarterly distribution. The current management team, which will remain in place, is excited about the prospects for PVR following the merger, and we believe this transaction will be beneficial to the unitholders of both PVG and PVR," added Mr. Shea.
The merger is expected to provide benefits to the current owners of both PVR and PVG by, among other things:
- Decreasing PVR's cost of capital, which would improve its competitive position when pursuing growth opportunities and its ability to accelerate growth in distributable cash flow;
- Increasing the public float and trading liquidity of the market for PVR's limited partnership units;
- Providing PVR a capital structure and governance structure more easily understood by the investing public; and
- Providing the unitholders the right to elect all of the directors of the general partner's board of directors.
Following the merger, the three independent directors of PVG's general partner are expected to join the board of PVR's general partner. Management expects, based on its projections, that the additional PVR units issued to PVG unitholders would result in modest dilution of PVR's distributable cash flow per unit in 2011, but expects the transaction to be accretive thereafter due to the benefits of the merger,
including the elimination of incentive distributions currently being paid to PVG. Management projections were based on certain assumptions which are subject to uncertainties and risks.
During the negotiations, the conflicts committee of the board of directors of PVR's general partner was advised by Tudor, Pickering, Holt & Co. and the conflicts committee of the board of directors of PVG's general partner was advised by Credit Suisse Securities (USA) LLC. The merger is subject to approval by a majority vote of the outstanding limited partnership units of PVR and limited partnership units of PVG. PVG has agreed, subject to the terms and conditions of the merger agreement, to vote the 37.6% of the outstanding limited partnership interests of PVR which PVG owns in favor of the approval of the merger and the merger agreement.
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