SemGroup To Acquire Rose Rock Midstream Through Stock Deal

SemGroup Corporation

and Rose Rock Midstream

revealed an agreement under which the former would buy all of the outstanding common units of Rose Rock in an all stock-for-unit transaction. The ratio of offer would be 0.8136 SemGroup common shares per Rose Rock common unit. That implied Rose Rock unit price represented a 7.4% and 19.2% premium to its volume-weighted average prices in the 10-trading days and 20-trading days ending May 27 respectively. The transaction is expected to be completed by the third quarter of the current year. SemGroup is aiming for 8% compound annual dividend growth rate and dividend coverage of 1.5 times or greater through 2018 once the transaction is completed. Both the companies expect to maintain their current level of dividends, as well as, respectively, through closing of this transaction. The company's president and CEO, Carlin Conner, commented, "We are pleased to announce the combination of SemGroup and Rose Rock, which we expect will provide immediate and long-term benefits for SemGroup and Rose Rock investors. We expect the transaction will simplify our corporate capital structure and deliver several important benefits to our shareholders." He added, "The elimination of Rose Rock's incentive distribution structure coupled with Rose Rock's fee-based cash flows from strong investment grade counterparties will help drive SemGroup's strategic growth plans. We anticipate that Rose Rock's businesses, already managed by SemGroup, will enhance our combined credit profile, dividend coverage, and future dividend growth rate beyond 2016." Both the companies clarified that the transaction would be a taxable event to Rose Rock unitholders with recognition of gain or loss in the same manner as if they had sold their Rose Rock units for cash equivalent to the fair market value of the SemGroup shares received. SemGroup would also get tax gains over an approximate 15 year period from the asset step-up resulting from the consideration paid to the Rose Rock unitholders. The companies indicated that all of the outstanding common units of Rose Rock would be owned by SemGroup once the transaction is completed. As a result, Rose Rock would no longer be publicly traded and related IDRs would be eliminated. SEMG Closed with a gain of 4.06 percent while RRMS edged higher by 10.29 percent on Friday.