Archrock, Inc. (NYSE:AROC) (“Archrock” or “AROC”) and Archrock
Partners, L.P. (NASDAQ:APLP) (“Archrock Partners” or “APLP”) today
announced that they have entered into a definitive merger agreement
under which Archrock will acquire all of the outstanding common
units of Archrock Partners it does not already own
for Archrock common stock valued at approximately $607
million, based on the most recent closing price of Archrock
common stock.
Under the merger agreement, each outstanding common unit of
Archrock Partners that Archrock does not already own will be
converted into 1.400 shares of Archrock common stock, representing
a 23.4 percent premium to the Archrock Partners closing price on
December 29, 2017; and a 23.9 percent premium to Archrock Partners
volume-weighted average trading price during the ten trading days
ended December 29, 2017.
“We believe the combination of Archrock and Archrock Partners
will enhance our cash available for dividend coverage, improve our
credit profile, simplify our capital structure, and lower our cost
of capital. Additionally, our increased retained cash flow will
better position us to continue to invest in our robust opportunity
set of growth projects and significantly reduce our need for equity
capital,” said Brad Childers, President and Chief Executive
Officer. “We believe this transaction is attractive for our
stockholders and unitholders, as it will improve our platform to
capture the next leg of growth in the U.S. natural gas compression
market.”
The transaction is expected to be immediately accretive to
Archrock, and the combined company is expected to have a cash
available for dividend coverage ratio above 2.00x through 2020.
Management intends to recommend to the Archrock board of directors
a 10 percent increase in the first full quarterly dividend
following the completion of the transaction and expects a 10 to 15
percent annual dividend growth rate through 2020.
Following the completion of the transaction, Archrock is
expected to have an approximate $2.8 billion enterprise value
and will continue to be the largest outsourced provider of natural
gas compression services in the United States. Stockholders of
Archrock and unitholders of Archrock Partners are expected to
benefit from the larger size of the combined company, improved
equity trading liquidity, and a lower cost of funding for future
growth. Following the completion of the transaction, Archrock does
not expect to pay cash federal income taxes through at least
2023.
Additional Transaction Terms and Details
Under the terms of the merger agreement, Archrock will acquire
all of the approximately 41.3 million outstanding units of Archrock
Partners it does not already own at a fixed exchange ratio of 1.400
Archrock common shares for each publicly held common unit of
Archrock Partners. Archrock Partners common units will no longer be
publicly traded after the transaction. In aggregate, Archrock will
issue approximately 57.8 million shares in connection with the
proposed transaction, representing approximately 44.9 percent of
the total shares outstanding of the pro forma combined entity.
Following completion of the transaction, all senior notes of
Archrock Partners will remain outstanding. Because Archrock
Partners will be wholly owned by Archrock, the incentive
distribution rights in Archrock Partners will be terminated upon
the closing of the transaction.
The transaction terms were negotiated, reviewed and approved by
the conflicts committee of the board of directors of the managing
general partner of Archrock Partners and approved by the board of
directors of the managing general partner of Archrock Partners. The
Archrock Partners conflicts committee is composed of the
independent members of the board of directors of Archrock Partners’
managing general partner. The board of directors of Archrock also
approved the merger agreement.
Conditions to Closing
Subject to customary approvals and conditions, the transaction
is expected to close in the second quarter of 2018. The transaction
is subject to the approval of APLP common unitholders and AROC
stockholders and the effectiveness of a registration statement
related to the issuance of the new AROC shares to Archrock
Partners’ unitholders.
Advisors
Citi is acting as exclusive financial advisor and Latham &
Watkins is acting as legal advisor to Archrock. Evercore Group
L.L.C. is acting as exclusive financial advisor and Akin Gump
Strauss Hauer & Feld LLP and Morris, Nichols, Arsht &
Tunnell LLP are acting as legal advisors to the Archrock
Partners conflicts committee.
Conference Call Details
Archrock and Archrock Partners will host a joint conference call
on January 2, 2018 to discuss the transaction. The call will begin
at 10:00 a.m. Eastern Time.
To listen to the call via a live webcast, please visit
Archrock’s website at www.archrock.com. The call will also be
available by dialing 1-888-771-4371 in the United States and Canada
or +1-847-585-4405 for international calls. Please call
approximately 15 minutes prior to the scheduled start time and
reference Archrock conference call number 4624 2542.
A replay of the conference call will be available on Archrock’s
website for approximately seven days. Also, a replay may be
accessed for approximately seven days by dialing 1-888-843-7419 in
the United States and Canada, or +1-630-652-3042 for international
calls. The access code is 4624 2542#.
Archrock non-GAAP measures
Cash available for dividend, a non-GAAP measure, is defined as
distributions received by Archrock from Archrock Partners, L.P.,
plus Archrock deconsolidated gross margin (defined as total revenue
less cost of sales (excluding depreciation and amortization
expense), less the following deconsolidated items: maintenance and
other capital expenditures, cash sales, general and administrative
expense excluding corporate office relocation costs, cash interest
expense associated with Archrock’s debt, cash tax and (gain) loss
on sale of property, plant and equipment. Cash available for
dividend coverage is defined as cash available for dividend divided
by total dividends.
Archrock is unable, without unreasonable efforts, to provide a
quantitative reconciliation of its preliminary non-GAAP outlook of
cash available for dividend coverage because net income or loss,
maintenance and other capital expenditures, expense or benefit from
income taxes, and cash tax expense or refund cannot be estimated
due to the level of unpredictability and uncertainty associated
with these items. For these same reasons, Archrock is unable to
assess the probable significance of these excluded items.
About Archrock
Archrock, Inc. (NYSE:AROC) is a pure-play U.S. natural gas
contract compression services business and a leading supplier of
aftermarket services to customers that own compression equipment in
the United States. Archrock holds interests in Archrock Partners,
L.P. (NASDAQ:APLP), a master limited partnership and the leading
provider of natural gas compression services to customers
throughout the United States. Archrock is headquartered in Houston,
Texas, operating in the major oil and gas producing regions in the
United States, with approximately 1,700 employees. For more
information, visit www.archrock.com.
About Archrock Partners
Archrock Partners, L.P., a master limited
partnership, is the leading provider of natural gas contract
compression services to customers throughout the United States.
Archrock, Inc. (NYSE:AROC) owns an equity interest in Archrock
Partners, including all of the general partner interest. For more
information, visit www.archrock.com.
Forward-Looking Statements
All statements in this release (and oral statements made
regarding the subjects of this release) other than historical facts
are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. These
forward-looking statements rely on a number of assumptions
concerning future events and are subject to a number of
uncertainties and factors, many of which are outside the control of
Archrock and Archrock Partners, which could cause actual results to
differ materially from such statements. Forward-looking information
includes, but is not limited to: statements regarding the expected
benefits of the proposed transaction to Archrock and Archrock
Partners and their stockholders and unitholders, respectively; the
anticipated completion of the proposed transaction and the timing
thereof; the expected future growth, dividends and distributions of
the combined company; and plans and objectives of management for
future operations.
While Archrock and Archrock Partners believe that the
assumptions concerning future events are reasonable, they caution
that there are inherent difficulties in predicting certain
important factors that could impact the future performance or
results of their businesses. Among the factors that could cause
results to differ materially from those indicated by such
forward-looking statements are: the failure to realize the
anticipated costs savings, synergies and other benefits of the
transaction; the possible diversion of management time on
transaction-related issues; the risk that the requisite approvals
to complete the transaction are not obtained; local, regional and
national economic conditions and the impact they may have on
Archrock, Archrock Partners and their customers; changes in tax
laws that impact master limited partnerships; conditions in the oil
and gas industry, including a sustained decrease in the level of
supply or demand for oil or natural gas or a sustained decrease in
the price of oil or natural gas; the financial condition of
Archrock’s or Archrock Partners’ customers; any non-performance by
customers of their contractual obligations; changes in customer,
employee or supplier relationships resulting from the transaction;
changes in safety, health, environmental and other regulations; the
results of any reviews, investigations or other proceedings by
government authorities; the results of any shareholder actions that
may be filed relating to the restatement of Archrock’s financial
statements; the potential additional costs relating to Archrock’s
restatement, cost-sharing with Exterran Corporation and to
addressing any reviews, investigations or other proceedings by
government authorities or shareholder actions; and the performance
of Archrock Partners.
These forward-looking statements are also affected by the risk
factors, forward-looking statements and challenges and
uncertainties described in each of Archrock’s and Archrock
Partners’ Annual Reports on Form 10-K for the year ended December
31, 2016, and those set forth from time to time in each party’s
filings with the Securities and Exchange Commission (the “SEC”),
which are available at www.archrock.com. Except as required by law,
Archrock and Archrock Partners expressly disclaim any intention or
obligation to revise or update any forward-looking statements
whether as a result of new information, future events or
otherwise.
No Offer or Solicitation
This release is for informational purposes only and shall not
constitute an offer to sell or the solicitation of an offer to buy
any securities pursuant to the transaction or otherwise, nor shall
there be any sale of securities in any jurisdiction in which the
offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such
jurisdiction. No offer of securities shall be made except by means
of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended.
Important Additional Information Regarding the
Transaction Will Be Filed With the SEC
In connection with the proposed transaction,
Archrock will file a registration statement on Form S-4, including
a joint proxy statement/prospectus of Archrock and Archrock
Partners, with the SEC. INVESTORS AND SECURITY HOLDERS OF
ARCHROCK AND ARCHROCK PARTNERS ARE ADVISED TO CAREFULLY READ THE
REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS
(INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
TRANSACTION, THE PARTIES TO THE TRANSACTION AND THE RISKS
ASSOCIATED WITH THE TRANSACTION. A definitive joint proxy
statement/prospectus will be sent to security holders of Archrock
and Archrock Partners in connection with the Archrock shareholder
meeting and the Archrock Partners unitholder meeting.
Investors and security holders may obtain a free copy of the joint
proxy statement/prospectus (when available) and other relevant
documents filed by Archrock and Archrock Partners with the SEC from
the SEC’s website at www.sec.gov. Security holders and other
interested parties will also be able to obtain, without charge, a
copy of the joint proxy statement/prospectus and other relevant
documents (when available) from www.archrock.com under the tab
“Investors” and then under the heading “SEC Filings.” Security
holders may also read and copy any reports, statements and other
information filed with the SEC at the SEC public reference room at
100 F Street N.E., Room 1580, Washington D.C. 20549. Please call
the SEC at (800) 732-0330 or visit the SEC’s website for further
information on its public reference room.
Participants in the Solicitation
Archrock, Archrock Partners and their respective
directors, executive officers and certain other members of
management may be deemed to be participants in the solicitation of
proxies from their respective security holders with respect to the
transaction. Information about these persons is set forth in
Archrock’s proxy statement relating to its 2017 Annual Meeting of
Stockholders, which was filed with the SEC on March 14, 2017, and
Archrock Partners’ Annual Report on Form 10-K for the year ended
December 31, 2016, which was filed with the SEC on February 23,
2017, and subsequent statements of changes in beneficial ownership
on file with the SEC. Security holders and investors may
obtain additional information regarding the interests of such
persons, which may be different than those of the respective
companies’ security holders generally, by reading the joint proxy
statement/prospectus and other relevant documents regarding the
transaction, which will be filed with the SEC.
For information, contact:
David Skipper, 281-836-8155
Archrock Partners, L.P. (NASDAQ:APLP)
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