8-KEarnings & ResultsMaterial AgreementsRegulation FD+1

Targa Resources Corp. 8-K Report, Material Agreement (Jan 23, 2017)

Filed January 23, 2017For Securities:TRGP

Summary

Targa Resources Corp. (TRGP) has announced a significant acquisition through its subsidiary, Targa Resources Partners LP, with the entry into a Membership Interest Purchase and Sale Agreement to acquire 100% of the membership interests in Outrigger Delaware Operating, LLC, Outrigger Southern Delaware Operating, LLC, and Outrigger Midland Operating, LLC. This strategic move, termed the "Outrigger Permian Acquisition," involves an initial cash payment of $475 million at closing, followed by an additional $90 million within 90 days. Furthermore, the transaction includes potential performance-linked earn-out payments of up to $935 million in 2018 and 2019, subject to specific conditions. The acquired assets include gas gathering and processing and crude gathering systems in key Permian Basin counties (Loving, Winkler, Ward, Howard, Martin, and Borden). Targa expects to fund the initial purchase price through its revolving credit facility or by issuing securities. While the acquisition is subject to regulatory approvals and customary closing conditions, Targa anticipates closing during the first quarter of 2017. Separately, the company is also anticipating a non-cash goodwill impairment charge in the fourth quarter of 2016 for its WestTX and SouthTX operations, which will impact net income but not Adjusted EBITDA or distributable cash flow.

Key Highlights

  • 1Targa Resources to acquire 100% of Outrigger Delaware and Outrigger Midland operations for up to $1.5 billion ($475M initial + $90M deferred + up to $935M earn-out).
  • 2Acquisition focuses on gathering and processing and crude gathering systems in strategic Permian Basin locations (Loving, Winkler, Ward, Howard, Martin, Borden counties).
  • 3Transaction expected to close in Q1 2017, subject to regulatory approvals and closing conditions.
  • 4Initial purchase price to be funded by revolving credit facility or potential securities issuance.
  • 5Anticipates a non-cash goodwill impairment charge for WestTX and SouthTX operations in Q4 2016, impacting net income but not Adjusted EBITDA or distributable cash flow.
  • 6Expected Q4 2016 LPG export volumes of approximately 205 MBbl/d.
  • 7Anticipated Q4 2016 dividend coverage to exceed 1.2x, with full-year 2016 coverage expected to exceed 1.05x.

Frequently Asked Questions

This 8-K filing announces Targa Resources Corp.'s entry into a material definitive agreement for the acquisition of Outrigger Delaware and Outrigger Midland, along with providing an update on expected Q4 2016 results and a potential goodwill impairment.

Targa will pay $475 million in cash at closing, with an additional $90 million due within 90 days. There is also a potential for up to $935 million in performance-linked earn-out payments in 2018 and 2019, subject to certain conditions. The total potential consideration could reach $1.5 billion.

The company expects to record a non-cash goodwill impairment charge in the fourth quarter of 2016 for its WestTX and SouthTX operations. This impairment will affect net income but is not expected to impact Adjusted EBITDA or distributable cash flow, which are key non-GAAP metrics for assessing operational performance and cash generation.

Targa expects to fund the initial purchase price of the Outrigger Permian Acquisition using borrowings under its revolving credit facility. Alternatively, depending on market conditions, it may also raise funds through the private or public issuance of securities.