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Blueknight Offers Attractive Risk/Reward Given Non-Binding Offer And U.S. Infrastructure Spend

Rational Expectations profile picture
Rational Expectations


  • Blueknight, owner of various U.S. asphalt terminals, has received a non-binding offer at $3.32/unit from its General Partner.
  • This offer appears to undervalue the company and may not succeed.
  • Blueknight appears to be taking sensible actions to increase the value of the business; the infrastructure bill helps too.
  • The risk/reward seems favorable, the potential offer backstops the price, but there is material upside should it fail as it did in 2019.


Jasonfang/E+ via Getty Images

On October 8, 2021, General Partner Ergon offers a cash purchase price of $3.32 per Common Unit (NASDAQ:BKEP) and $8.46 per Series A Preferred Unit (BKEPP) in a non-binding proposal.

A major shareholder (DG Capital Management) lists potential

This article was written by

Rational Expectations profile picture
Value-oriented ideas and special situations, generally mid/small cap. Also, orphaned and unfashionable investment ideas, ideally with a catalyst and the prospect of asymmetric upside/downside payoffs. Contrarian tendencies. To some extent I'll go anywhere if it's cheap and I'm more influenced by momentum and quality than I used to be.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BKEP either through stock ownership, options, or other derivatives. 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.

Not intended as investment advice. Position may be updated without notice. Author's opinion only and may contain errors and inaccuracies which may not be updated. Investing involves risk of loss of capital. Seek professional advice.

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Comments (35)

Rational Expectations profile picture
Relevant parts of today's release on improved transaction terms: blueknight2020ir.q4web.com/..."Each holder of the Public Common Units would receive $4.65 per common unit owned"
"Each holder of the Public Preferred Units would receive $8.75 per preferred unit owned"
"The transaction is expected to close in mid-2022, subject to customary approvals."
Nice to see the attractive IRR on this one, but still disappointing that there's not a way to own this long-term given the clear potential for long-term compounding and sorting out the capital structure, and, of course, a good reminder that you really don't control your own destiny with MLPs. Moving on, SHLX may offer a somewhat similar setup, but already at 10% a premium to the $12.89/unit offer price and haven't done much work on it.
Ace24mn profile picture
Did I miss some news? How could those imbeciles still be looking at this deal? Are they negotiating some under the table bribes to okay this joke? How much more money will they waste? $700k in last quarter. The committee should be investigated. No one wants to buy as long as this shit deal overhangs us. Maybe committee is giving Ergon time to buy up a majority of stock. This is just criminal being this inept. We've had explanations of value on these comments selection that could have been used as reason enough to turn down. If this isn't turned down I will be contacting a lawyer. Too many shares to let them steal this company.
feeling stupid buying at $3.80 with it trickling down to the offer price now....is this a real good company with good growth opportunities that can benefit from the infrastructure bill for real? Then a higher real offer price for purchase $4+ is just gravy
Looking at recent price action and the shares trading from $3.70 down to $3.33 today, I would say the cat's out of the bag and the takeunder is completed at the $3.32 offer price. Hope I am wrong.
CincinnatiRick profile picture
Not quite sure what i will do with that quarter of a cent. But it does seem like something might be moving here as, if the takeunder was going down, why raise the divy at all?
careful investor 1 profile picture
@CincinnatiRick If you have enough shares you can buy a cup of coffee...but not at Starbucks
careful investor 1 profile picture
Still no news?
Nat Stewart profile picture
Enterprise value for BKEP in an acquisition **should be** in the neighborhood of $650M.

The current proposal's enterprise value is ~$520M.

This value gap (and then some, potentially) should accrue to BKEP if Blueknight is acquired.

$650M is a good deal, particularly for Ergon who can take out a lot of overhead cost and boost EBITDA easily, and operate this business with vastly more leverage with no problem.

Blueknight's business has has elements that are similar to industrial real estate given long term contracts, inflation adjustments, high quality counterparties, but with the upside benefit on volume.

This is what most don't get. This is not a stranded terminal asset or a volatile infrastructure play and shouldn't be stolen for that type of sub-par multiple.

Blueknight's current biz sailed through covid crisis without a glitch. Do you think this proven record has *some* value in today's market? Sure has been true of every other cash flow asset that performed similarly.

$650M - $291M for pref (8.46 * 34.4) - 92M debt = $267M for common.

$267 / 41.5M shares = $6.43/unit for BKEP

In no way, shape or form would a slight boost be acceptable.

Show us the money and top trying to pull fast ones on your LP partners or lets get on the same team and win for many years to come.
@Nat Stewart Thanks for the recap. Looking thru their eyes, you never know if a low ball offer will be accepted as you can always raise the price. Now it looks like the longer they wait, the more it should cost them. I am in no hurry to get rid of my units and will wait them out. I just hope the conflicts committee do their job like they did the last time.

Put it up for sale on the open market and see what it might fetch.
zerobid profile picture
Up 12% on a pickup in volume. I suspect a revised offer is coming soon. Whether we like it or not!
careful investor 1 profile picture
Up 5 cents after hours. Something going down.
@careful investor 1 If you said up to $5 after hours I would agree with you.
careful investor 1 profile picture
@jzwmnb01 Reason I sled is because its above the $3.32 offer. Maybe they had raised it.
@careful investor 1 Hopefully you were a day or two early here.
careful investor 1 profile picture
Fair value is over $8. Anything less than that is a a steal. The offer is the only thing holding this stock back. It wants to run.
When must the deal be closed?
Rational Expectations profile picture
@Colargol It's a non-binding offer, so lots of vague language and no firm timeline at this point investor.bkep.com/...
@Rational Expectations thank you for your answer.
CincinnatiRick profile picture
@Colargol In other words, we must be mushrooms. They keep us in the dark and feed us lots of bullshit.
Nat Stewart profile picture
Your valuation is absurdly low and does a disservice to BKEP unitholders who Ergon is attempting to rob.

It is a crummy valuation with zero grasp for the real private market value of this business.
zerobid profile picture
@Nat Stewart Well said Nat. If you didn't lay that out in very blunt terms, I would have:)
Nat Stewart profile picture
@zerobid just to add on...


• Long term inflation-indexed take-or-pay contracts = 95% revenue
• 32% op margin
• 47% EBITDA margin
• sector tailwinds
• large barriers to entry
• substantial reinvestment opportunities at good IRR
• sailed through covid
• can borrow at libor+2% and can easily support a shit ton of leverage for a private owner

• scaled, instutional size platform - the largest private asphault terminal network

...should be acquired for the same multiple as crummy pipeline gathering asset or for less than volatile and speculative crude storage assets?

Most folks don't get the quality here. Not at all. That is a big part of the problem and why "the steal" effort is possible at all.

BKEP gains $1.30/unit for every 1 EBITDA turn increase in valuation of the deal - and that is if BKEPP's unfounded premium stands. So lots of torque to a fair value.

Ergon will be able to cut plenty of SG&A, so no one should cry for them if they need to pay something approaching a fair price if they want to close.

DG Capital suggested +$6/BKEP unit, I agree.
Rational Expectations profile picture
@Nat Stewart I'm unsure where the disagreement is here. Perhaps the table in the write up is unclear, but I get to just north of $6/unit when including the passage of the infrastructure bill and bolt-on acquisitions.
Will BKEPP be affected somehow by the offer?
Rational Expectations profile picture
@JANFA yes, arguably the non-binding offer price for BKEPP is inflated, certainly compared to the meagre price offered for BKEP. As such, if the non-binding offer doesn't move forward BKEPP could see downside. That's also potentially a reason the deal breaks, because the divergent levels of premium for BKEP vs. BKEPP are very odd, unless there was something else going on, and that's perhaps one factor the conflicts committee may consider.
@JANFA I sold my BKEPP after the recent spike to the $8.50 range and used some of the profits to buy shares of BKEP. Reasons are as the author noted in his reply.
@Rational Expectations Thank you, RE.
catsaunders financial profile picture
With the infra. bill passed, BKEP is a no brainer. We own and are rather confident the sale will not happen at the price offered. An increase to $5 seems sensible. With BKEP investing in terminals is a sign, to me, that the price of the sale will be increased.
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