Teppco deal may draw federal review; Validus sticks to plan; First Advantage mulls bid

By Cristal Cody

Tupelo, Miss., June 29 - Enterprise Products Partners LP said Monday it will acquire Teppco Partners, LP in an increased stock deal valued at about $3.3 billion.

The deal will form the largest publicly traded energy company with operations across the United States, but the vast expanse of the new company could trigger an antitrust review by the U.S. Department of Justice, an analyst told Prospect News.

Validus Holdings, Ltd. said Monday that it garnered enough requisitions from shareholders of IPC Holdings, Ltd. to call for a special meeting to replace the Bermuda insurer's board. The victory was "just barely," said one analyst who remains bearish on Validus' chances for a takeover.

First American Corp. offered on Monday to acquire the remaining 26.00% of the outstanding shares that it does not control of its publicly traded subsidiary, First Advantage Corp., for about $218 million in stock, but market observers expect a sweetened bid, an analyst told Prospect News.

Meanwhile, rising oil prices were credited with sending stocks up Monday.

The Dow Jones Industrial Average gained 90.99 points, or 1.08%, to close at 8,529.38.

The Standard & Poor's 500 index rose 8.33 points, or 0.91%, to 927.23, and the Nasdaq Composite index closed up 5.84 points, or 0.32%, at 1,844.06.

Energy heavyweight

Under the offer from Enterprise, Teppco unitholders will receive 1.24 Enterprise units for each Teppco unit, representing a 14.5% premium to the initial offer made by Enterprise on March 9 and a 9.30% premium to the closing price of Teppco units on Friday.

The combined partnership will own almost 48,000 miles of oil and gas pipelines.

The completion of the merger is subject to the approval of Teppco unitholders and regulatory clearance under the Hart-Scott-Rodino Antitrust Improvements Act.

In a conference call Monday to discuss the deal, Randy Fowler, chief financial officer for Enterprise, said regulatory concerns are not an issue because the companies have been operating under a shared services agreement since 2005.

The companies expect the deal to close in the fourth quarter.

William Eddleman, an analyst with Argus Research Co., said in an interview Monday that the transaction should pass reviews by the Federal Power Commission and state regulators.

"The question mark [is when] you look at the map of how extensive this asset network is," he said. "There could be an antitrust review that might slow this thing down. A lot of times when the Justice Department gets involved, there's always a horse trade where they have to give up some assets to somebody."

Houston-based Enterprise Products is a leading oil and gas producer in the United States, Canada and the Gulf of Mexico, while Teppco, also of Houston, operates a network of oil and gas pipelines across the United States.

Eddleman said the offer is fair.

"Since the fourth quarter of last year, we've had a huge re-evaluation of equities downward. A $30.00 price is not unreasonable in the environment we're in now," he said.

Teppco units added $1.43, or 4.98%, to close at $30.12 on Monday. Units have traded from $16.90 to $34.02 over the past year.

Enterprise units lost 33 cents, or 1.30%, to $24.96.

Round two: Validus

Validus said Monday that holders of 54.00% of IPC shares submitted requisitions to call for the special meeting.

"As Validus has submitted requisitions to IPC from shareholders representing 10.00% or more of the issued and outstanding common shares of IPC, the IPC board is required by Bermuda law to call a special meeting of IPC shareholders," Validus said in a statement.

But "54.00% is just barely a majority," Mark Dwelle, an analyst with RBC Capital Markets Corp., told Prospect News on Monday.

Dwelle said the special meeting is unlikely to occur before fall.

"All it does is keep the process afloat to some degree," he said. "Between now and when that meeting gets held any number of things could happen to change the circumstances. It keeps the pressure on IPC to continue to search for a solution with Validus or to find an alternative party."

Validus, a Hamilton, Bermuda-based provider of reinsurance and insurance services, has offered IPC shareholders $3.75 in cash and 1.1234 Validus shares for each IPC share for an offer valued at $28.24 a share based on the closing price of Validus shares on Friday.

IPC shareholders voted down an amalgamation merger proposal with Max Capital Group Ltd., a specialty insurer based in Hamilton, Bermuda, on June 12.

Representatives of IPC, a Pembroke, Bermuda-based insurer, did not have an immediate comment on Monday.

Validus extended its exchange offer for IPC shares to July 6.

As of Friday, 14,313,622 shares of IPC had been tendered, Validus said. According to its latest regulatory filings, IPC has 55.95 million shares outstanding.

IPC's stock lost 24 cents, or 0.88%, to close Monday at $27.15.

Shares of Validus fell 3 cents, or 0.14%, to $21.77.

Max Capital shares rose 32 cents, or 1.77%, to $18.44.

Knockout bid for First Advantage?

First Advantage shareholders would receive 0.5375 of a share of First American for each share of First Advantage in the offer announced on Monday.

The fixed exchange ratio values shares at $14.04 each and represents a 10.20% premium to First Advantage's stock price based on both companies' closing stock prices on Friday.

Shares of First Advantage jumped on speculation of a sweetened bid down the line, Brian Ruttenbur, an analyst with Morgan, Keegan & Co., Inc., told Prospect News on Monday.

First Advantage shares closed up $2.32, or 18.20%, at $15.07 on Monday. Shares have traded from $6.99 to $18.75 over the past year.

Santa Ana, Calif.-based First American, the nation's largest provider of business information, owns about 74.00% of shares of Poway, Calif.-based consumer information firm First Advantage.

"They're thinking the board of First Advantage will ask for a higher price from First American," Ruttenbur said.

First Advantage said in a statement Monday that the proposal is under consideration by the board's special committee, which also is in the process of selecting a financial adviser.

First American spun First Advantage off into a public shell company nearly nine years ago and "grew it quietly," Ruttenbur said.

"It was so long ago when it was about $50 million in revenue and now it's $800 million," he said.

Parker S. Kennedy, chairman and chief executive officer of First American, said in a statement that the transaction would boost the company's financial strength "as we continue to prepare for the separation of our information solutions and financial services businesses."

First American's stock fell 37 cents, or 1.42%, to $25.76 on Monday.

Mentioned in this article:

Enterprise Products Partners LP NYSE: EPD

First Advantage Corp. Nasdaq: FADV

First American Corp. NYSE: FAF

IPC Holdings, Ltd. Nasdaq: IPCR

Max Capital Group Ltd. Nasdaq: MXGL

Teppco Partners, LP NYSE: TPP

Validus Holdings, Ltd. NYSE: VR

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