Flint Hills buys Texas propane dehydrogenation group PetroLogistics

By Ben DuBose
Online Editor

HOUSTON -- US refiner Flint Hills Resources has agreed to acquire PetroLogistics in a deal valued near $2.1 billion, the companies announced on Wednesday.

PetroLogistics owns and operates the only propane deydrogenation (PDH) facility in the US, with a capacity of 1.45 billion lb/year of propylene. It is located near the Houston Ship Channel.

The plant, which began operations in 2010, is among the largest of its kind in the world, according to PetroLogistics officials.

"PetroLogistics built this facility from the ground up.  It is a world-class operation," said Brad Razook, CEO of Flint Hills Resources. "Its capabilities are well aligned with our existing chemical and refining business. We look forward to welcoming PetroLogistics employees to Flint Hills Resources as we work together to build on their success."

The acquisition could also provide Flint Hills with a key raw material for its existing polypropylene (PP) plants in Texas and Michigan.

Flint Hills spokesman Jake Reint said his company could use its existing pipeline system to send the propylene to those facilities.

"We will continue to serve the customers of the business but will look for synergies with our existing businesses in the future," Reint told Bloomberg.

Flint Hills also produces cumene, a propylene derivative, according to its website.

The all-cash transaction includes the assumption of debt by Flint Hills, which is a subsidiary of Koch Industries.

Based on the closing unit price on May 27, the $14.00/unit purchase price represents a premium in excess of 8%, according to company officials.

The companies expect to complete the deal before the end of 2014, subject to closing conditions and regulatory approvals.

"Additionally, the consummation of the transaction is subject to a requirement that PetroLogistics' facility perform at a certain level of production for a period of four days before the closing, and to PetroLogistics' receipt of a legal opinion regarding certain tax matters," officials said in a statement.

Until July 6, PetroLogistics will be allowed to enter into discussions and negotiations with any third party that submits an unsolicited superior acquisition proposal. In response to such a proposal, the board of directors of PetroLogistics may, after providing Flint Hills Resources the opportunity to match the proposal, terminate the agreement with Flint Hills Resources and enter into or recommend a transaction with the third party that submitted the proposal.  

In that event, Flint Hills would receive a $57 million termination fee from PetroLogistics. In addition, Flint Hills may be entitled to receive from Lindsay Goldberg and York Capital 50% of any incremental value received by them upon consummation of such a transaction, up to a total cap of $50 million.

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