Cheniere Creeps Along And Acquires More Of Cheniere Energy Partners

| About: Cheniere Energy, (LNG)
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Summary

Cheniere begins to acquire shares of Cheniere Energy Partners.

Premium paid of 6.2% is substantially lower than the last offer of a 10% premium to CQH's closing price.

Cheniere files an updated prospectus announcing that certain shareholders are selling stock, which we believe were acquired as part of the private exchange.

Any weakness in the shares stemming from this event should be used as an entry point.

On Tuesday, Chenier Energy, Inc. (NYSEMKT:LNG) ("LNG" or "Cheniere") filed a Form 8-K and Form 424B7 announcing that certain shareholders were selling LNG stock to the public. The stock sale stems from LNG's recent acquisition of additional shares in its subsidiary Cheniere Energy Partners LP Holdings, LLC (NYSEMKT:CQH) ("CQH"), and any weakness in LNG's shares should be used as an opportunity to enter the stock, and long-term shareholders should continue to hold given the recent transactions.

Background

Late last year, Cheniere Energy, Inc. ("LNG" or "Cheniere") pulled its offer to acquire the remaining 19.9% of Cheniere Energy Partners LP Holdings, LLC ("CQH") because it was unable to agree to a fair market price for the remaining shares. As LNG held 80.1% of CQH, CQH established a conflicts committee to negotiate with LNG.

Cheniere subsequently increased its offer to 0.54 shares of LNG for each outstanding publicly-held share of CQH, which represented a 10% premium to CQH's closing price of $21.26 the day before the initial offer was made public (the premium was an increase from 0.5049/share or a 3% premium).

Creeping Acquisition

After the termination, we believed based on Cheniere's filing that the company would embark on a creeping acquisition. On December 20, the company announced in a Form 8-K filing that it had acquired 3.25M shares of CQH from Falcon Edge and Pennant Capital Management in exchange for approximately 1.7M shares of LNG. These shares were acquired using an exchange ratio of 0.5205/share, which represents a 6.2% premium to the CQH closing price of $21.26 on September 29, 2016.

Initial Offer

Last Offer

Private Purchase

LNG Share Price 9/29/2016

$43.37

$43.37

$43.37

Exchange Ratio

0.5049

0.5400

0.5205

Value of CQH

$21.90

$23.42

$22.57

CQH Share Price 9/29/2016

$21.26

$21.26

$21.26

Premium to CQH Closing Price

3.0%

10.2%

6.2%

After hours Tuesday, Cheniere filed a Form 8-K and a Form 424B7 announcing that certain shareholders were now selling LNG stock to the public. It turns out, the selling shareholders include Falcon Edge and Pennant Capital Management. Black Diamond and Compass are also selling LNG shares, albeit in smaller amounts.

Selling Stockholders

Shares Owned Prior to Offering

# of Common Stock Offered

Common Stock Owned After Offering

Double Black Diamond Offshore Ltd.

418,134

418,134

0

Black Diamond Arbitrage Offshore Ltd.

31,005

31,005

0

Black Diamond Offshore Ltd.

16,228

16,228

0

Shares Sold

465,367

Compass HTV LLC

9,178

9,178

0

Compass Offshore HTV PCC Ltd.

6,918

6,918

0

Shares Sold

16,096

Falcon Edge Global Master Fund, LP

1,935,514

1,211,620

723,894

Pennant Master Fund, L.P.

295,897

295,897

0

Pennant Windward Master Fund, L.P.

1,022,197

1,022,197

0

Shares Sold

1,318,094

If we cross-check Tuesday's filings with the December 20th filing, we can see that the shares being sold by Falcon Edge were likely the shares it received in exchange for CQH shares. In the December 20th exchange, Falcon Edge received 1,211,620 shares of LNG, and today's filing indicates that it is selling the same amount. In contrast, Pennant received 481,463 LNG shares. Therefore, the planned sale of 1.3M shares likely means it is selling other positions (unless the Pennant Windward Master Fund also sold exchanged shares of CQH in earlier transactions. However, we could not locate any public filings for such a transaction).

Ultimately, Tuesday's filing was neither a fund-raising event nor one that should concern long-term shareholders. What's more interesting is that LNG's original decision to walk away from negotiating against itself for CQH is proving correct, as the premium paid has fallen by at least 40% from the last 10% premium offer to the 6.2% recently agreed to. We believe the private acquisitions, if continued, will allow LNG to acquire CQH shares much more cheaply, thereby minimizing any dilutive impacts stemming from this effort to simplify its corporate structure.

Cheniere now owns 82.6% of CQH, an increase of 2.5% (as of December 22, 2016). No doubt more to come. Lastly, given the 3M shares being offered, and the reasons for the sale, we believe any price weakness will prove temporary.

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Disclosure: I am/we are long LNG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.