DENVER, Oct. 9, 2018 /PRNewswire/ -- Antero Resources
(NYSE: AR) ("Antero", the "Company" or "AR") today announced a
simplified midstream corporate structure in which Antero
Midstream GP LP (NYSE: AMGP) ("AMGP") and Antero Midstream
Partners LP (NYSE: AM) ("Antero Midstream Partners" or "AM")
have entered into a definitive agreement for AMGP to acquire all
outstanding AM common units in a stock and cash transaction. In
connection with the transaction, AMGP will convert into a
corporation and the combined entity will be renamed Antero
Midstream Corporation ("New AM"). Additionally, Antero
Resources board of directors approved a share repurchase program of
up to $600 million.
Highlights Include:
- With the simplification of the midstream structure, AR is
expected to receive 158.4 million New AM shares and cash
consideration of at least $300
million, each depending on the cash election of other AM
unitholders
- The simplification results in further alignment of interest
in the midstream entity, with AR owning approximately 31% of New AM
as the single largest shareholder, assuming it does not elect to
receive additional cash
- Pro forma dividend targets keep AR's existing distributions
whole through 2022 (based on an all-in exchange ratio of 1.776
shares per unit)
- AR is expected to be substantially shielded from paying
current tax payments on its gain with respect to the simplification
transaction through the utilization of a portion of its
$3.0 billion of net operating losses
("NOLs"), as of December 31,
2017
- AMGP will be converted from a limited partnership into a
corporation at closing with a majority of its Board being
independent directors
- Simplification transaction is expected to close in the first
quarter of 2019 subject to favorable majority of minority
unitholder and shareholder votes at both Antero Midstream Partners
and AMGP, respectively
- The new C-corp entity will be renamed "Antero Midstream
Corporation" post-closing
- Antero intends to execute on a $600
million share repurchase program, representing over 10% of
shares outstanding, to be completed over the next 12 to 18 months
depending on market conditions
- Share repurchase program expected to be fully funded by cash
proceeds from the midstream simplification transaction and expected
free cash flow
- Stand-Alone financial leverage targets will not be impacted
by the share repurchase program, as the Company intends to maintain
leverage at or below 2.25x by year-end 2018 and at or below 2.0x by
year-end 2019
Commenting on today's announcements, Paul Rady, Co-founder, Chairman and CEO said,
"This is a "win-win-win" for the Antero family as it simplifies our
corporate structure, returns capital to shareholders and better
aligns shareholder interest. At the current AR share price, we
believe an open market share repurchase program is an attractive
way to deliver value to our shareholders. Additionally, by
maintaining our integrated structure, we continue to hold a
competitive advantage as we develop our core liquids Appalachian
Basin assets in a coordinated effort alongside our midstream
provider, New AM. We remain focused on executing on our five year
development plan announced at the January analyst day as Antero
joins an elite group of E&Ps with scale, attractive production
growth, low leverage and free cash flow generation."
Midstream Simplification Transaction Details
Under the terms of the simplification agreement, AMGP will
acquire 100% of Antero Midstream Partners' 188.1 million fully
diluted common units outstanding, including 98.9 million common
units owned by Antero Resources. Antero Resources will be entitled
to receive a combination of $3.00 in
cash and 1.6023 shares of New AM stock for each AM unit owned,
resulting in aggregate consideration valued at $30.43 per AM unit, based on the October 8, 2018 closing price. The consideration
to AR represents a premium of 3% based on the closing price as of
October 8, 2018 and a premium of 15%
based on closing prices as of February 23,
2018 prior to the announcement of the Special Committee
formation. AM public unitholders will be entitled to receive
a combination of $3.415 in cash and
1.635 shares of New AM stock per AM unit owned, resulting in
aggregate consideration valued at $31.41 per AM unit, based on the October 8, 2018 closing price. AM public
unitholders will be entitled to elect to receive their merger
consideration in all cash, all stock or a combination of cash and
stock as outlined above. AR will have the ability to elect to take
a larger portion of its merger consideration in cash if the AM
public unitholders elect to receive more stock consideration,
subject to pro ration, to ensure that the aggregate amount of cash
consideration paid to all AM unitholders equals $598 million. Following the simplification,
New AM will eliminate all incentive distribution rights in AM (the
"IDRs") and the Series B units, which represent 10-year profits
interests in Antero IDR Holdings ("IDR LLC"), the entity that holds
all of the outstanding IDRs in AM.
In connection with the transaction, Series B unitholders agreed
to an early termination to exchange their profits interests for an
aggregate of 17.35 million shares in New AM upon the closing of the
simplification transaction. The 17.35 million New AM shares
represent approximately 4.4% of the pro forma market capitalization
of New AM in excess of $2.0 billion
based on closing prices as of October
8, 2018. If the Series B units and the IDRs were not
eliminated as part of the transaction, the Series B units would be
entitled to receive up to 6% of the IDR cash flow stream above
$7.5 million per quarter from Antero
Midstream Partners and would be exchangeable, at the option of the
holders, into up to 6% of the pro forma market capitalization of
New AM in excess of $2.0 billion
through the maturity date of December
31, 2026. The New AM shares issued in exchange for
outstanding Series B units will be subject to the same vesting
conditions to which the Series B units are currently subject, with
one-third currently vested, another one-third vesting at
December 31, 2018 and the final
one-third vesting on December 31,
2019. Accordingly, a portion of the shares in New AM to be
issued to the Series B unitholders will continue to be subject to
vesting and forfeiture through December 31,
2019, and will not be entitled to receive any dividends from
New AM prior to their vesting on December
31, 2019. The exchange of the Series B units in
connection with the simplification transaction further aligns
management, employees, financial sponsors and pro forma
shareholders and lowers the cost of capital for future investment
decisions. Following the simplification transaction and
exchange of the Series B units, New AM will have approximately 508
million fully diluted shares outstanding.
The Antero Resources Special Committee, consisting of directors
not associated with management or the original financial sponsor
groups, evaluated the transaction on behalf of the public
shareholders and the board of directors of Antero Resources, which
currently owns approximately 53% of the Antero Midstream Partners
units outstanding. The Antero Resources Special Committee
recommended approval of the simplification transaction to the AR
board of directors. The AMGP Conflicts Committee, consisting of
directors not associated with management or the original financial
sponsor groups, evaluated the transaction on behalf of the public
shareholders and the AMGP board of directors. The AMGP
Conflicts Committee recommended approval of the simplification
transaction to the board of directors of AMGP. The Antero Midstream
Partners Conflicts Committee, consisting of directors not
associated with management or the original financial sponsor
groups, evaluated the transaction on behalf of the public
unitholders and the AM board of directors, and also recommended
approval of the simplification transaction to the AM board of
directors. The transaction was approved by the board of directors
of Antero Resources, AMGP and Antero Midstream Partners.
The transaction is subject to the approval of holders of a
majority of the shares held by AMGP's public shareholders excluding
the original private equity sponsors, Series B holders and
affiliates of AMGP's general partner. The transaction is also
subject to the approval of holders of a majority of the units held
by AM unitholders, excluding Antero Resources, the original private
equity sponsors, the Series B holders and affiliates of AM's
general partner. The closing of the transaction is expected in the
first quarter of 2019, subject to obtaining these approvals and
customary regulatory approvals.
$600 Million Share Repurchase
Program
The open market share repurchase program is expected to commence
during the fourth quarter of 2018 and extend over the next 12 to 18
months, allowing the company to be opportunistic regarding the
share repurchase price. However, leverage reduction remains a top
priority for AR. Therefore, share repurchases will be
executed only when leverage is expected to be at or below the 2.25x
Stand-Alone Net Debt to Stand-Alone Adjusted EBITDAX target for
year-end 2018 and at or below 2.0x for year-end 2019. This
program is expected to be fully funded with cash proceeds from the
following:
- Approximately $300 million in
cash proceeds related to the midstream simplification (which cash
amount may be increased by AR depending on cash election from all
AM public unitholders)
- $300 million from a portion of
the expected free cash flow to be generated over the next 12 to 18
months, including $125 million from
the first tranche of the Antero Midstream water earn-out payments
expected in early 2020
Cash Proceeds from AMGP Acquisition of AM
In connection with the simplification transaction, AR expects to
elect to receive a minimum of approximately $300 million in cash proceeds, or $3.00 per unit for each AM unit held, as well as
receive 158.4 million New AM shares. Depending on the cash
election of AM unitholders other than AR, the cash consideration
could increase up to the total cash pool in the simplification
transaction of approximately $598
million and conversely the number of New AM shares could
decrease depending on the outcome of the cash election. Upon
completion of the transaction and assuming the $3.00 per unit is received in cash, AR will have
a 31% ownership in the pro forma midstream entity. While the
simplification transaction will be fully taxable to AR and the
other AM unitholders, AR is expected to be substantially shielded
from paying current tax on its gain with respect to the
simplification transaction through the utilization of a portion of
its $3.0 billion of NOLs held at
December 31, 2017. Even with
the utilization of NOLs in connection with the simplification
transaction, AR does not expect to pay a material amount of cash
taxes through at least 2022 based on the long-term development plan
outlined at the 2018 analyst day.
Free Cash Flow
The remainder of the share repurchase program will be funded
through free cash flow expected to be generated over the next 12 to
18 months.
Commenting on the share repurchase program, Glen Warren, Co-founder, President, and Chief
Financial Officer of Antero Resources said, "Today's announcements
provide Antero Resources an exciting opportunity to unlock
shareholder value. We will remain disciplined in utilizing the
share repurchase program along with our priority to reduce
Stand-Alone leverage metrics to at or below 2.25x by year-end 2018
and at or below 2.0x by year-end 2019. If fully utilized at the
current share price, this initial $600
million program would result in a reduction of more than 10%
of the current shares outstanding. Additionally, we believe the
midstream simplification will unlock shareholder value with a
best-in-class midstream structure, a more liquid vehicle from a
trading perspective and better alignment of interest between Antero
entities, while also accelerating the return of capital to our
shareholders."
Conference Call
A conference call for Antero Resources is scheduled on
Tuesday, October 9th, 2018 at
9 am MT to discuss the details of
today's announcement. A brief Q&A session for security
analysts will immediately follow the discussion. To
participate in the call, dial in at 1-888-347-8204 (U.S.),
1-855-669-9657 (Canada), or
1-412-902-4229 (International) and reference "Antero
Resources". A telephone replay of the call will be available
until October 16, 2018 at
9 am MT at 1-844-512-2921 (U.S.) or
1-412-317-6671 (International) using the passcode 10125145.
Presentation
An updated presentation will be posted to the Company's website
before the October 9, 2018
transaction conference call. The presentation can be found at
www.anteroresources.com on the homepage. Information on the
Company's website does not constitute a portion of this press
release.
Financial and Legal Advisors
Vinson & Elkins acted as legal advisor to AMGP, Antero
Midstream Partners and Antero Resources. J.P. Morgan
Securities LLC acted as financial advisor to Antero Resources.
Baird and Sidley Austin LLP acted as financial and legal advisors,
respectively, to the Special Committee of AR. Goldman Sachs
and Hunton Andrews Kurth acted as financial and legal advisors,
respectively, to the Conflicts Committee of AMGP. Richards,
Layton & Finger acted as Delaware counsel to the Conflicts Committee of
AMGP. Morgan Stanley & Co. LLC acted as the financial
advisor to Antero Midstream Partners. Tudor, Pickering, Holt
& Co. and Gibson, Dunn & Crutcher LLP acted as financial
and legal advisors, respectively to the Conflicts Committee of
Antero Midstream Partners.
Antero Resources is an independent natural gas and oil
company engaged in the acquisition, development and production of
unconventional liquids-rich natural gas properties located in the
Appalachian Basin in West Virginia
and Ohio. The Company's website is
located at www.anteroresources.com.
This release includes "forward-looking statements".
Such forward-looking statements are subject to a number of risks
and uncertainties, many of which are beyond Antero's control. All
statements, except for statements of historical fact, made in this
release regarding activities, events or developments Antero
expects, believes or anticipates will or may occur in the future,
such as the expected sources of funding and timing for completion
of the share repurchase program if at all, statements regarding the
simplification transaction, the expected consideration to be
received in connection with the closing of the simplification
transaction, pro forma descriptions of the Company and its
operations following the simplification transaction, the timing of
the consummation of the simplification transaction, if at all, the
extent to which AR will be shielded from tax payments associated
with the simplification transactions, anticipated cost savings,
AR's expected free cash flow generation, AR's targeted leverage
metrics and opportunities and anticipated future performance, are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. All forward-looking statements speak only as of
the date of this release. Although Antero believes that the plans,
intentions and expectations reflected in or suggested by the
forward-looking statements are reasonable, there is no assurance
that these plans, intentions or expectations will be achieved.
Therefore, actual outcomes and results could materially differ from
what is expressed, implied or forecast in such statements.
Antero cautions you that these forward-looking
statements are subject to all of the risks and uncertainties, most
of which are difficult to predict and many of which are beyond the
Antero's control, incident to the exploration for and development,
production, gathering and sale of natural gas, NGLs and oil. These
risks include, but are not limited to, the expected timing and
likelihood of completion of the simplification transaction,
including the ability to obtain requisite regulatory, unitholder
and shareholder approval and the satisfaction of the other
conditions to the consummation of the proposed simplification
transaction, risks that the proposed simplification transaction may
not be consummated or the benefits contemplated therefrom may not
be realized, the cost savings, tax benefits and any other synergies
from the simplification transaction may not be fully realized or
may take longer to realize than expected, commodity price
volatility, inflation, lack of availability of drilling and
production equipment and services, environmental risks, drilling
and other operating risks, regulatory changes, the uncertainty
inherent in estimating natural gas and oil reserves and in
projecting future rates of production, cash flow and access to
capital, the timing of development expenditures, and the other
risks described under the heading "Item 1A. Risk Factors" in
Antero's Annual Report on Form 10-K for the year ended December 31, 2017.
No Offer or Solicitation
This communication relates to a proposed business combination
transaction between AM and AMGP. This communication is for
informational purposes only and does not constitute an offer to
sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval, in any jurisdiction, pursuant
to the transaction or otherwise, nor shall there be any sale,
issuance, exchange or transfer of the securities referred to in
this document in any jurisdiction in contravention of applicable
law. No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
Additional Information And Where To Find It
In connection with the transaction, AMGP will file with the
U.S. Securities and Exchange Commission ("SEC") a registration
statement on Form S-4, that will include a joint proxy statement of
AM and AMGP and a prospectus of AMGP. The transaction will be
submitted to AM's unitholders and AMGP's shareholders for their
consideration. AM and AMGP may also file other documents with the
SEC regarding the transaction. The definitive joint proxy
statement/prospectus will be sent to the shareholders of AMGP and
unitholders of AM. This document is not a substitute for the
registration statement and joint proxy statement/prospectus that
will be filed with the SEC or any other documents that AMGP or AM
may file with the SEC or send to shareholders of AMGP or
unitholders of AM in connection with the Transaction. INVESTORS
AND SECURITY HOLDERS OF AM AND AMGP ARE URGED TO READ THE
REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS
REGARDING THE TRANSACTION WHEN IT BECOMES AVAILABLE AND ALL OTHER
RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS
WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY
AND IN THEIR ENTIRETY BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE TRANSACTION AND RELATED MATTERS.
Investors and security holders will be able to obtain free
copies of the registration statement and the joint proxy
statement/prospectus (when available) and all other documents filed
or that will be filed with the SEC by AMGP or AM through the
website maintained by the SEC at http://www.sec.gov. Copies of
documents filed with the SEC by AM will be made available free of
charge on AM's website at
http://investors.anteromidstream.com/investor-relations/AM, under
the heading "SEC Filings," or by directing a request to Investor
Relations, Antero Midstream Partners LP, 1615 Wynkoop Street,
Denver, Colorado 75219, Tel. No.
(303) 357-7310. Copies of documents filed with the SEC by AMGP will
be made available free of charge on AMGP's website at
http://investors.anteromidstreamgp.com/Investor-Relations/AMGP or
by directing a request to Investor Relations, Antero Midstream GP
LP, 1615 Wynkoop Street, Denver,
Colorado 75219, Tel. No. (303) 357-7310.
Participants In The Solicitation
AR, AMGP, AM and the directors and executive officers of AMGP
and AM's respective general partners and of AR may be deemed to be
participants in the solicitation of proxies in respect to the
proposed transaction.
Information regarding the directors and executive officers of
AM's general partner is contained in AM's 2018 Annual Report on
Form 10-K filed with the SEC on February 13,
2018, and certain of its Current Reports on Form 8-K. You
can obtain a free copy of this document at the SEC's website at
http://www.sec.gov or by accessing AM's website at
http://www.anteromidstream.com. Information regarding the executive
officers and directors of AMGP's general partner is contained in
AMGP's 2018 Annual Report on Form 10-K filed with the SEC on
February 13, 2018 and certain of its
Current Reports on Form 8-K. You can obtain a free copy of this
document at the SEC's website at www.sec.gov or by accessing the
AMGP's website at http://www.anteromidstream.com. Information
regarding the executive officers and directors of AR is contained
in AR 2018 Annual Report on Form 10-K filed with the SEC on
February 13, 2018 and certain of its
Current Reports on Form 8-K. You can obtain a free copy of this
document at the SEC's website at www.sec.gov or by accessing the
AMGP's website at http:// www.anteroresources.com.
Investors may obtain additional information regarding the
interests of those persons and other persons who may be deemed
participants in the proposed transaction by reading the joint proxy
statement/prospectus regarding the proposed transaction when it
becomes available. You may obtain free copies of this document as
described above.
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SOURCE Antero Resources