Phillips 66 (NYSE: PSX) is offering $34.75 per unit in cash for DCP Midstream (NYSE: DCP) it doesn’t already own. That follows Phillips’ swap of crude oil assets for natural gas related infrastructure owned by Canadian midstream company Enbridge Inc (TSX: ENB, NYSE: ENB).
For both companies, this deal making is about increasing scale and therefore efficiency in areas they’ve chosen to focus on. For Phillips, consolidating DCP follows the pattern of its 2021 buyout of Phillips 66 Partners, reducing cost of capital to fund further expansion. And S&P has now upgraded DCP Midstream’s credit rating to BBB+ from BBB- in anticipation of full asset integration.
We’ve yet to see our first proposed merger between real energy giants this cycle. And with the Federal Trade Commission stepping up scrutiny of M&A economy-wide, there would be definite hurdles to getting one done this year.
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Elliott and Roger on Sep. 27, 2022