Tuesday, October 25, 2011

Plains bids $1 bln for pipeline rival SemGroup

* Bids $24 per SemGroup share, a 1.9 percent premium

* SemGroup shares jump as much as 20 pct to $28.35

* SemGroup assets seen as good fit for Plains (Adds shareholder comments, possible bidders; updates share price)

By Michael Erman and Krishna Das

(Reuters) - Plains All American Pipeline LP (PAA.N) made an unsolicited $1 billion bid for rival SemGroup Corp (SEMG.N), as it seeks to expand its presence in North America's most important crude oil storage hub at Cushing, Oklahoma.

SemGroup rejected the Plains bid on Monday, saying it "substantially undervalued the company." But it said it was "willing to consider any transaction that reflects the full and fair value of SemGroup's current business and future prospects."

Houston-based Plains said on Monday it offered $24 a share for SemGroup, a 1.9 percent premium over the stock's closing price on Friday. But SemGroup shares surged well past the offer price, indicating that investors are looking for a higher bid.

Shares of Tulsa, Oklahoma-based SemGroup were trading at $27.55 in afternoon dealings on the New York Stock Exchange, after jumping as much 20 percent to $28.35,

"It's possible that some other bidders emerge," said Avi Feinberg, an analyst with Morningstar Inc, adding that master limited partnerships focused on crude oil or refined products could consider a bid.

Jerry Swank, founder of Swank Capital, named companies such as Magellan Midstream Partners (MMP.N), Sunoco Logistics Partners (SXL.N), Enbridge Energy Partners (EEP.N) and Kinder Morgan Energy Partners (KMP.N) as potential bidders.

Swank owns shares of all the above-named companies except for SemGroup.

Plains, which had offered to buy SemGroup for $17 per share in March last year, said it would be willing to consider increasing its latest bid if it could get access to SemGroup's financial information.

SemGroup's board "has refused to engage in constructive discussions with us regarding a possible transaction," Plains said in a statement.


SemGroup's assets include a 620-mile (998-kilometer) pipeline network in Kansas and Oklahoma as well as a 51 percent stake in a 527-mile pipeline that transports crude oil from Colorado to Oklahoma.

A Plains unit owns 34 percent of the White Cliffs Pipeline.

Plains owns and operates a network of about 16,000 miles (25,750 kilometers) of pipelines and gathering systems. It also has about 90 million barrels of liquids storage capacity.

"SemGroup has very good oil infrastructure in midcontinent, which is a great complement to Plains' existing assets," Swank said.

Both companies are major players in crude oil storage at Cushing, which has experienced a storage boom in recent years as growing volumes of crude flow into the landlocked midcontinent region from prolific oil fields in Canada and shale oil deposits in the northern U.S. plains.

Cushing tanks have proved highly profitable for oil traders during bouts of contango -- when crude prices for prompt delivery trade at a discount to oil for future delivery -- since they allow oil storage plays for profit. The oil market was in contango for three years until Monday, when prompt futures jumped above second-month prices.

SemGroup, once the 14th-largest privately held U.S. company, was forced to file for bankruptcy protection in 2008 under the weight of heavy trading losses on energy futures and derivatives. Last week, SemGroup co-founder Thomas Kivisto agreed to give up more than $1.3 million to settle U.S. Securities and Exchange Commission charges that he misled investors about liquidity risks from his energy trading.

Plains said SemGroup has underperformed expectations since its 2009 emergence from bankruptcy.

"We continue to believe ... that on a stand-alone basis SemGroup will continue to fall materially short of expectations," Plains Chief Executive Greg Armstrong said in a letter to SemGroup's board.

In August, SemGroup agreed to sell its SemStream LP unit for about $282 million in cash and stock to NGL Energy Partners LP (NGL.N). That deal also calls for SemGroup to take a 7.5 percent interest in the general partner of NGL Energy.

Plains' bid for SemGroup follows a number of other large U.S. pipeline deals this year, including Kinder Morgan's (KMI.N) $21 billion takeover of El Paso Corp (EP.N) and Energy Transfer Equity's (ETE.N) more than $5 billion deal for Southern Union (SUG.N).

Plains has hired Evercore Partners (EVR.N) to advise on its bid.

Barclays Capital and LCT Capital are serving as SemGroup's financial advisers.

(Reporting by Michael Erman and Krishna Das in New York; additional reporting by Joshua Schneyer and Matt Daily in New York; editing by Gerald E. McCormick, Dave Zimmerman, John Wallace, Phil Berlowitz)

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