Energy Transfer Merger Comes Early: 7 Important Things Investors Need To Know

Aug. 07, 2018 4:39 PM ETEnergy Transfer LP (ET)253 Comments


  • Energy Transfer Partners has struggled for years with: dangerously high debt, a liquidity trap, and distribution cuts.
  • Despite an increasingly successful turnaround in 2018 management made it clear the days of a standalone ETP would be ending with ETE buying it out.
  • That deal was expected to be announced in 2019 but management just surprised us by announcing a $27 billion merger about 12 months early.
  • There are 7 important things investors need to know pertaining to this merger and how it effects unit holders in both MLPs.
  • Most importantly, find out why the bigger and better ETE is likely to make a potentially excellent: long-term low risk, high-yield income growth stock over the next decade. Especially from today's attractive valuation.

(Source: imgflip)

My high-yield income growth retirement portfolio is now 100% focused on my best investing ideas. I define these as the stocks that offer the best combination of:

  • high but sustainable (through a recession) yield
  • strong long-term payout growth potential (long growth runways)
  • highly favorable valuations

Recently I highlighted why I consider Energy Transfer Equity (ETE) to be a great long-term high-yield income growth investment. That was predicated on the upcoming acquisition of its MLP Energy Transfer Partners (ETP). With management telegraphing that ETE would be buying out ETP in an all stock deal, I decided to take a 5% stake in ETP as a way to arbitrage my way into more discounted ETE units once the merger closed.

At the time, this merger appeared most likely to occur in 2019. However, on August 1st, Energy Transfer pulled the trigger much earlier than expected, announcing the ETE would be buying ETP in a $27 billion all stock deal.

As with most large mergers there are a lot of moving pieces to consider, that will have important short and long-term ramifications for investors in both stocks. So let's take a closer look at the seven most important things investors in both MLPs need to know about this merger. Most importantly, find out why this deal is ultimately a great thing for Energy Transfer investors because it's likely to result in a stock that provides: generous, safe, and fast growing income over the coming decade. Or to put another way, the new ETE is going to become a low risk industry blue chip. And when combined with its attractive current valuation, one that is capable of market crushing total returns over the next 10 years.

1. Basics Of The Deal

Note that ETE is also an MLP which means its

This article was written by

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Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

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I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Disclosure: I am/we are long ETP. 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.

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