e424b3
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-174321
Dear Duncan Energy Partners L.P.
Unitholders:
On April 28, 2011, Enterprise Products Partners L.P.
(Enterprise), Enterprise Products Holdings LLC
(Enterprise GP), which is the general partner of
Enterprise, EPD MergerCo LLC (MergerCo), which is a
wholly owned subsidiary of Enterprise, Duncan Energy Partners
L.P. (Duncan), and DEP Holdings, LLC (Duncan
GP), which is the general partner of Duncan, entered into
a merger agreement (the merger agreement). Pursuant
to the merger agreement, MergerCo will merge with and into
Duncan (the merger), with Duncan surviving the
merger as a wholly owned subsidiary of Enterprise, and all
common units representing limited partner interests in Duncan
outstanding at the effective time of the merger (Duncan
common units) will be cancelled and converted into the
right to receive common units representing limited partner
interests in Enterprise (Enterprise common units)
based on an exchange ratio of 1.01 Enterprise common units per
Duncan common unit. No fractional Enterprise common units will
be issued in the merger, and Duncan unitholders will, instead,
receive cash in lieu of fractional Enterprise common units, if
any.
Pursuant to the merger agreement, the number of votes actually
cast in favor of the proposal by Duncan unaffiliated
unitholders (which consist of Duncan unitholders other
than Enterprise and its affiliates) must exceed the number of
votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. Accordingly, the merger vote is not assured and
your vote is important. In addition, pursuant to the Duncan
partnership agreement, the merger agreement and the merger must
be approved by the affirmative vote of the Duncan unitholders
holding a majority of the outstanding Duncan common units.
Pursuant to a voting agreement between Duncan, Enterprise and
Enterprise GTM Holdings L.P. (GTM) executed in
connection with the merger agreement, Enterprise and GTM have
agreed to vote any Duncan common units owned by them or their
subsidiaries in favor of adoption of the merger agreement and
the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Duncan has scheduled a special meeting of its unitholders to
vote on the merger agreement and the merger on September 7,
2011 at 8:00 a.m., local time, at 1100 Louisiana Street,
10th Floor, Houston, Texas 77002. Regardless of the
number of units you own or whether you plan to attend the
meeting, it is important that your common units be represented
and voted at the meeting. Voting instructions are set forth
inside this proxy statement/prospectus.
The Audit, Conflicts and Governance Committee (Duncan
ACG Committee) of the Duncan GP board of directors (the
Duncan Board) determined unanimously that the
merger, the merger agreement, and the transactions contemplated
thereby are fair and reasonable, advisable to and in the best
interests of Duncan and the Duncan unaffiliated unitholders. The
Duncan ACG Committee also recommended that the merger be
approved by the Duncan Board. Based on such determination and
recommendation, the Duncan Board has approved the merger and,
together with the Duncan ACG Committee, recommends that the
Duncan unitholders vote in favor of the merger proposal.
This proxy statement/prospectus provides you with detailed
information about the proposed merger and related matters.
Duncan encourages you to read the entire document carefully.
In particular, please read Risk Factors beginning
on page 32 of this proxy statement/prospectus for a
discussion of risks relevant to the merger and Enterprises
business following the merger.
Enterprises common units are listed on the New York Stock
Exchange (NYSE) under the symbol EPD,
and Duncans common units are listed on the NYSE under the
symbol DEP. The last reported sale price of
Enterprises common units on the NYSE on July 29, 2011
was $41.59. The last reported sale price of Duncan common units
on the NYSE on July 29, 2011 was $41.85.
W. Randall Fowler
President and Chief Executive
Officer
DEP Holdings, LLC
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued under this proxy statement/prospectus or
has determined if this document is truthful or complete. Any
representation to the contrary is a criminal offense.
All information in this document concerning Enterprise has been
furnished by Enterprise. All information in this document
concerning Duncan has been furnished by Duncan. Enterprise has
represented to Duncan, and Duncan has represented to Enterprise,
that the information furnished by and concerning it is true and
correct in all material respects.
This proxy statement/prospectus is dated August 1, 2011 and
is being first mailed to Duncan unitholders on or about
August 8, 2011.
Houston,
Texas
August 1, 2011
Notice of
Special Meeting of Unitholders
To the Unitholders of Duncan Energy
Partners L.P.:
A special meeting of unitholders of Duncan Energy Partners L.P.
(Duncan) will be held on September 7, 2011 at
8:00 a.m., local time, at 1100 Louisiana Street,
10th Floor, Houston, Texas 77002, for the following
purposes:
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To consider and vote upon the approval of the Agreement and Plan
of Merger dated as of April 28, 2011, by and among
Enterprise Products Partners L.P. (Enterprise),
Enterprise Products Holdings LLC, EPD MergerCo LLC, Duncan and
DEP Holdings, LLC (Duncan GP), as it may be amended
from time to time (the merger agreement), and the
merger contemplated by the merger agreement (the
merger); and
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To transact such other business as may properly be presented at
the meeting or any adjournments or postponements of the meeting.
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Pursuant to the merger agreement, the number of votes actually
cast in favor of the proposal by Duncan unaffiliated
unitholders (which consist of Duncan unitholders other
than Enterprise and its affiliates) must exceed the number of
votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. Failures to vote, abstentions and broker non-votes
will result in the absence of a vote for or against the merger
for purposes of the vote by the Duncan unaffiliated unitholders
required under the merger agreement.
In addition, pursuant to the Duncan partnership agreement, the
merger agreement and the merger must be approved by the
affirmative vote of the Duncan unitholders holding a majority of
the outstanding common units representing limited partner
interests in Duncan (the Duncan common units).
Pursuant to a voting agreement (the voting
agreement) between Duncan, Enterprise and Enterprise GTM
Holdings L.P. (GTM), an indirect wholly owned
subsidiary of Enterprise, executed in connection with the merger
agreement, Enterprise and GTM have agreed to vote any Duncan
common units owned by them or their subsidiaries in favor of
adoption of the merger agreement and the merger, including the
33,783,587 Duncan common units currently directly owned by GTM
(representing approximately 58.5% of the outstanding Duncan
common units), at any meeting of Duncan unitholders, which is
sufficient to approve the merger agreement and the merger under
the Duncan partnership agreement. Failures to vote, abstentions
and broker non-votes will have the same effect as a vote against
the merger proposal for purposes of the majority vote required
under the Duncan partnership agreement.
The Audit, Conflicts and Governance Committee (Duncan
ACG Committee) of the Duncan GP board of directors (the
Duncan Board) determined unanimously that the
merger, the merger agreement, and the transactions contemplated
thereby are fair and reasonable, advisable to and in the best
interests of Duncan and the Duncan unaffiliated unitholders. The
Duncan ACG Committee also recommended that the merger be
approved by the Duncan Board. Based on such determination and
recommendation, the Duncan Board approved the merger and,
together with the Duncan ACG Committee, recommends that the
Duncan unitholders vote in favor of the merger proposal.
Only unitholders of record at the close of business on
July 25, 2011 are entitled to notice of and to vote at the
meeting and any adjournments or postponements of the meeting. A
list of unitholders entitled to vote at the meeting will be
available for inspection at Duncans offices in Houston,
Texas for any purpose relevant to the meeting during normal
business hours for a period of 10 days before the meeting
and at the meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING, PLEASE VOTE IN ONE OF THE FOLLOWING WAYS. If
you hold your units in the name of a bank, broker or other
nominee, you should follow the instructions provided by your
bank, broker or nominee when voting your Duncan common units. If
you hold your units in your own name, you may vote by:
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using the toll-free telephone number shown on the proxy card;
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using the Internet website shown on the proxy card; or
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marking, signing, dating and promptly returning the enclosed
proxy card in the postage-paid envelope. It requires no postage
if mailed in the United States.
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By order of the Board of Directors
of DEP Holdings, LLC, as the general partner of Duncan Energy
Partners L.P.
W. Randall Fowler
President and Chief Executive
Officer
DEP Holdings, LLC
IMPORTANT
NOTE ABOUT THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus, which forms part of a
registration statement on
Form S-4
filed with the Securities and Exchange Commission, which is
referred to as the SEC or the
Commission, constitutes a proxy statement of Duncan
under Section 14(a) of the Securities Exchange Act of 1934,
as amended, which is referred to as the Exchange
Act, with respect to the solicitation of proxies for the
special meeting of Duncan unitholders to, among other things,
approve the merger agreement and the merger. This proxy
statement/prospectus is also a prospectus of Enterprise under
Section 5 of the Securities Act of 1933, as amended, which
is referred to as the Securities Act, for Enterprise
common units that will be issued to Duncan unitholders in the
merger pursuant to the merger agreement.
As permitted under the rules of the SEC, this proxy
statement/prospectus incorporates by reference important
business and financial information about Enterprise and Duncan
from other documents filed with the SEC that are not included in
or delivered with this proxy statement/prospectus. Please read
Where You Can Find More Information beginning on
page 145. You can obtain any of the documents incorporated
by reference into this document from Enterprise or Duncan, as
the case may be, or from the SECs website at
http://www.sec.gov.
This information is also available to you without charge upon
your request in writing or by telephone from Enterprise or
Duncan at the following addresses and telephone numbers:
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Enterprise Products Partners L.P.
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Duncan Energy Partners L.P.
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1100 Louisiana Street, 10th Floor
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1100 Louisiana Street, 10th Floor
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Attention: Investor Relations
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Attention: Investor Relations
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Houston, Texas 77002
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Houston, Texas 77002
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Telephone:
(713) 381-6500
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Telephone: (713) 381-6500
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Please note that copies of the documents provided to you will
not include exhibits, unless the exhibits are specifically
incorporated by reference into the documents or this proxy
statement/prospectus.
You may obtain certain of these documents at Enterprises
website, www.epplp.com, by selecting
Investors and then selecting SEC
Filings, and at Duncans website,
www.deplp.com, by selecting Investors and
then selecting SEC Filings. Information contained on
Duncans and Enterprises websites is expressly not
incorporated by reference into this proxy statement/prospectus.
In order to receive timely delivery of requested documents in
advance of the Duncan special meeting of unitholders, your
request should be received no later than August 30, 2011.
If you request any documents, Enterprise or Duncan will mail
them to you by first class mail, or another equally prompt
means, within one business day after receipt of your request.
Enterprise and Duncan have not authorized anyone to give any
information or make any representation about the merger,
Enterprise or Duncan that is different from, or in addition to,
that contained in this proxy statement/prospectus or in any of
the materials that have been incorporated by reference into this
proxy statement/prospectus. Therefore, if anyone distributes
this type of information, you should not rely on it. If you are
in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this proxy statement/prospectus or the solicitation
of proxies is unlawful, or you are a person to whom it is
unlawful to direct these types of activities, then the offer
presented in this proxy statement/prospectus does not extend to
you. The information contained in this proxy
statement/prospectus speaks only as of the date of this proxy
statement/prospectus, or in the case of information in a
document incorporated by reference, as of the date of such
document, unless the information specifically indicates that
another date applies. All information in this document
concerning Enterprise has been furnished by Enterprise. All
information in this document concerning Duncan has been
furnished by Duncan. Enterprise has represented to Duncan, and
Duncan has represented to Enterprise, that the information
furnished by and concerning it is true and correct in all
material respects.
PROXY
STATEMENT/PROSPECTUS
TABLE OF
CONTENTS
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2
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32
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144
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144
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144
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145
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145
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145
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146
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F-1
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ANNEX A Agreement and Plan
of Merger dated as of April 28, 2011
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ANNEX B Opinion of Duncan
ACG Committees Financial Advisor
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iii
DEFINITIONS
The following terms have the meanings set forth below for
purposes of this proxy statement/prospectus, unless the context
otherwise indicates:
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Duncan means Duncan Energy Partners L.P.
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Duncan ACG Committee means the Audit, Conflicts and
Governance Committee of the Duncan Board.
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Duncan Board means the board of directors of Duncan
GP.
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Duncan GP means DEP Holdings, LLC.
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Duncan unaffiliated unitholders means the Duncan
unitholders other than Enterprise and its affiliates (including
GTM as an Enterprise affiliate).
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Enterprise means Enterprise Products Partners L.P.
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Enterprise Board means the board of directors of
Enterprise GP.
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Enterprise GP means Enterprise Products Holdings
LLC, the general partner of Enterprise.
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EPCO means Enterprise Products Company, a Texas
corporation.
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GTM means Enterprise GTM Holdings L.P., an indirect
wholly owned subsidiary of Enterprise.
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MergerCo means EPD MergerCo LLC, a Delaware limited
liability company and wholly owned subsidiary of Enterprise.
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Special Approval under the Duncan partnership
agreement means the approval of a majority of the members of the
Duncan ACG Committee.
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1
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Important Information and Risks. The
following are brief answers to some questions that you may have
regarding the proposed merger and the proposal being considered
at the special meeting of Duncan unitholders. You should read
and consider carefully the remainder of this proxy
statement/prospectus, including the Risk Factors beginning on
page 32 and the attached Annexes, because the information
in this section does not provide all of the information that
might be important to you. Additional important information and
descriptions of risk factors are also contained in the documents
incorporated by reference in this proxy statement/prospectus.
Please read Where You Can Find More Information
beginning on page 145.
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Why am I receiving these materials? |
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Enterprise and Duncan have agreed to combine by merging
MergerCo, a wholly owned subsidiary of Enterprise with and into
Duncan, with Duncan surviving the merger. The merger cannot be
completed without the approval of the Duncan unitholders. |
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Who is soliciting my proxy? |
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Duncan GP, on behalf of the Duncan Board, is sending you this
proxy statement/prospectus in connection with its solicitation
of proxies for use at Duncans special meeting of
unitholders. Certain directors and officers of Duncan GP and
certain employees of EPCO and its affiliates who provide
services to Duncan may also solicit proxies on Duncans
behalf by mail, telephone, fax or other electronic means, or in
person. |
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What are the proposed transactions? |
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Enterprise and Duncan have agreed to combine by merging MergerCo
with and into Duncan, under the terms of a merger agreement that
is described in this proxy statement/prospectus and attached as
Annex A to this proxy statement/prospectus. As a result of
the merger, each outstanding Duncan common unit will be
converted into the right to receive 1.01 common units
representing limited partner interests in Enterprise
(Enterprise common units). No Enterprise common
units will be issued as merger consideration to GTM, a wholly
owned subsidiary of Enterprise that owns 33,783,587 Duncan
common units, which represent approximately 58.5% of the
outstanding Duncan common units, pursuant to the merger
agreement and an agreement by GTM to exchange its rights to
merger consideration for a retained limited partner interest in
Duncan immediately following the effective time of the merger. |
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The merger will become effective on the date and at the time
that the certificate of merger is filed with the Secretary of
State of the State of Delaware, or a later date and time if set
forth in the certificate of merger. Throughout this proxy
statement/prospectus, this is referred to as the effective
time of the merger. |
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Why are Enterprise and Duncan proposing the merger? |
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Enterprise and Duncan believe that the merger will benefit both
Enterprise and Duncan unitholders by combining into a single
partnership that is better positioned to compete in the
marketplace. |
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Please read The Merger Recommendation of the
Duncan ACG Committee and the Duncan Board and Reasons for the
Merger and The Merger Enterprises
Reasons for the Merger. |
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What will happen to Duncan as a result of the merger? |
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As a result of the merger, MergerCo will merge with and into
Duncan, and Duncan will survive as a wholly owned subsidiary of
Enterprise. |
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What will Duncan unitholders receive in the merger? |
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If the merger is completed, Duncan unitholders will be entitled
to receive 1.01 Enterprise common units in exchange for each
Duncan common unit owned. This exchange ratio is fixed and will
not be adjusted, regardless of any change in price of either
Enterprise common units or Duncan common units prior to
completion of the merger. If the exchange ratio would result in
a Duncan unitholder being entitled to receive a fraction of an
Enterprise common unit, that unitholder will receive cash from
Enterprise in lieu |
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of such fractional interest in an amount equal to such
fractional interest multiplied by the average of the closing
price of Enterprise common units for the ten consecutive New
York Stock Exchange (NYSE) full trading days ending
at the close of trading on the last NYSE full trading day
immediately preceding the day the merger closes. For additional
information regarding exchange procedures, please read The
Merger Agreement Exchange of Certificates;
Fractional Units. |
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Where will my units trade after the merger? |
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Enterprise common units will continue to trade on the NYSE under
the symbol EPD. Duncan common units will no longer
be publicly traded. |
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What will Enterprise common unitholders receive in the
merger? |
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Enterprise common unitholders will simply retain the Enterprise
common units they currently own. They will not receive any
additional Enterprise common units in the merger. |
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What happens to my future distributions? |
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Once the merger is completed and Duncan common units are
exchanged for Enterprise common units, when distributions are
approved and declared by Enterprise GP and paid by Enterprise,
former Duncan unitholders will receive distributions on
Enterprise common units they receive in the merger in accordance
with Enterprises partnership agreement. Assuming that the
merger will close during September 2011, Duncan unitholders will
receive distributions on their Duncan common units for the
quarter ended June 30, 2011, and will receive distributions
on Enterprise common units they receive in the merger for the
quarter ended September 30, 2011 to be declared and paid
during the fourth quarter of 2011. Duncan unitholders will not
receive distributions from both Duncan and Enterprise for the
same quarter. For additional information, please read
Market Prices and Distribution Information. |
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Current Enterprise common unitholders will continue to receive
distributions on their common units in accordance with
Enterprises partnership agreement and at the discretion of
the Enterprise Board. For a description of the distribution
provisions of Enterprises partnership agreement, please
read Comparison of the Rights of Enterprise and Duncan
Unitholders. |
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The current annualized distribution rate per Duncan common unit
is $1.84 (based on the quarterly distribution rate of $0.46 per
Duncan common unit to be paid on August 10, 2011 with
respect to the second quarter of 2011). Based on the exchange
ratio, the annualized distribution rate for each Duncan common
unit exchanged for 1.01 Enterprise common units would be
approximately $2.4442 (based on the quarterly distribution rate
of $0.605 per Enterprise common unit to be paid on
August 10, 2011 with respect to the second quarter of
2011). Accordingly, based on current distribution rates and the
1.01x exchange ratio, a Duncan unitholder would initially
receive approximately 33% more in quarterly cash distributions
on an annualized basis after giving effect to the merger. For
additional information, please read Comparative Per Unit
Information and Market Prices and Distribution
Information. |
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If I am a holder of Duncan common units represented by a unit
certificate, should I send in my certificates representing
Duncan common units now? |
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No. After the merger is completed, Duncan unitholders who
hold their units in certificated form will receive written
instructions for exchanging their certificates representing
Duncan common units. Please do not send in your certificates
representing Duncan common units with your proxy card. If you
own Duncan common units in street name, the merger
consideration should be credited by your broker to your account
within a few days following the closing date of the merger. |
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What constitutes a quorum? |
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The presence in person or by proxy at the special meeting of the
holders of a majority of Duncans outstanding common units
on the record date will constitute a quorum and will permit
Duncan to conduct the proposed business at the special meeting.
Your units will be counted as present at the special meeting if
you: |
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are present in person at the meeting; or
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have submitted a properly executed proxy card or
properly submitted your proxy by telephone or Internet.
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Proxies received but marked as abstentions will be counted as
units that are present and entitled to vote for purposes of
determining the presence of a quorum. If an executed proxy is
returned by a broker or other nominee holding units in
street name indicating that the broker does not have
discretionary authority as to certain units to vote on the
proposals (a broker non-vote), such units will be
considered present at the meeting for purposes of determining
the presence of a quorum but cannot be included in the vote;
therefore, broker non-votes have the same effect as a vote
against the merger for purposes of the vote required under the
partnership agreement and will result in the absence of a vote
for or against the merger proposal for purposes of the vote
required under the merger agreement. |
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Q: |
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What is the vote required of Duncan unitholders to approve
the merger agreement and the merger? |
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A: |
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Pursuant to the merger agreement, the number of votes actually
cast in favor of the proposal by Duncan unaffiliated unitholders
must exceed the number of votes actually cast against the
proposal by the Duncan unaffiliated unitholders in order for the
proposal to be approved. Failures to vote, abstentions and
broker non-votes will result in the absence of a vote for or
against the merger proposal for purposes of the vote by the
Duncan unaffiliated unitholders required under the merger
agreement. Accordingly, the merger vote is not assured and
your vote is important. |
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In addition, pursuant to the Duncan partnership agreement, the
merger agreement and the merger must be approved by the
affirmative vote of the Duncan unitholders holding a majority of
the outstanding Duncan common units. Pursuant to a voting
agreement between Duncan, Enterprise and GTM executed in
connection with the merger agreement, Enterprise and GTM have
agreed to vote any Duncan common units owned by them or their
subsidiaries in favor of adoption of the merger agreement and
the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Failures to vote, abstentions and broker non-votes will have the
same effect as a vote against the merger proposal for purposes
of the vote required under the Duncan partnership agreement. |
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Q: |
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When do you expect the merger to be completed? |
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A: |
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A number of conditions must be satisfied before Enterprise and
Duncan can complete the merger, including approval of the merger
agreement and the merger by the common unitholders of Duncan.
Although Enterprise and Duncan cannot be sure when all of the
conditions to the merger will be satisfied, Enterprise and
Duncan expect to complete the merger as soon as practicable
following the Duncan unitholder meeting (assuming the merger
proposal is approved by the common unitholders). For additional
information, please read The Merger Agreement
Conditions to the Merger. |
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Q: |
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What is the recommendation of the Duncan ACG Committee and
the Duncan Board? |
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A: |
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The Duncan ACG Committee and the Duncan Board recommend that you
vote FOR the merger proposal. |
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On April 28, 2011, the Duncan ACG Committee determined
unanimously that the merger agreement and the merger are fair
and reasonable, advisable to and in the best interests of Duncan
and the Duncan unaffiliated unitholders and recommended that the
merger, the merger agreement and the transactions contemplated
thereby be approved by the Duncan Board and the Duncan
unitholders. |
4
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Based on the Duncan ACG Committees determination and
recommendation, the Duncan Board approved the merger agreement
and the merger and recommended that the Duncan unitholders vote
in favor of the merger proposal. |
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Q: |
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What are the expected U.S. federal income tax consequences to
a Duncan unitholder as a result of the transactions contemplated
by the merger agreement? |
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A: |
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Under current law, it is anticipated that for U.S. federal
income tax purposes no income or gain should be recognized by a
Duncan unitholder solely as a result of the merger, other than
an amount of income or gain, which Duncan expects to be
relatively small on a per unit basis, due to (i) any
decrease in a Duncan unitholders share of partnership
liabilities pursuant to Section 752 of the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code)
or (ii) any cash received in lieu of any fractional
Enterprise common unit in the merger. |
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Please read Risk Factors Tax Risks Related to
the Merger and Material U.S. Federal Income Tax
Consequences of the Merger Tax Consequences of the
Merger to Duncan and Its Common Unitholders. |
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Q: |
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Under what circumstances could the merger result in a Duncan
unitholder recognizing taxable income or gain? |
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A: |
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As a result of the merger, Duncan unitholders who receive
Enterprise common units will become limited partners of
Enterprise and will be allocated a share of Enterprises
nonrecourse liabilities. Each Duncan unitholder will be treated
as receiving a deemed cash distribution equal to the excess, if
any, of such unitholders share of nonrecourse liabilities
of Duncan immediately before the merger over such
unitholders share of nonrecourse liabilities of Enterprise
immediately following the merger. If the amount of the deemed
cash distribution received by a Duncan unitholder exceeds the
unitholders basis in his Duncan common units, such
unitholder will recognize gain in an amount equal to such
excess. Enterprise and Duncan do not expect any Duncan
unitholders to recognize gain in this manner. For additional
information, please read Material U.S. Federal Income Tax
Consequences of the Merger. |
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To the extent holders of Duncan common units receive cash in
lieu of fractional Enterprise common units in the merger, such
unitholders will recognize gain or loss equal to the difference
between the cash received and the unitholders adjusted tax
basis allocated to such fractional Enterprise common units. |
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Q: |
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What are the expected U.S. federal income tax consequences
for a Duncan unitholder of the ownership of Enterprise common
units after the merger is completed? |
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A: |
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Each Duncan unitholder who becomes an Enterprise unitholder as a
result of the merger will, as is the case for existing
Enterprise common unitholders, be required to report on its U.S.
federal income tax return such unitholders distributive
share of Enterprises income, gains, losses, deductions and
credits. In addition to U.S. federal income taxes, such a holder
will be subject to other taxes, including state and local income
taxes, unincorporated business taxes, and estate, inheritance or
intangibles taxes that may be imposed by the various
jurisdictions in which Enterprise conducts business or owns
property or in which the unitholder is resident. Please read
U.S. Federal Income Taxation of Ownership of Enterprise
Common Units. |
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Q: |
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Are Duncan unitholders entitled to appraisal rights? |
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A: |
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No. Duncan unitholders do not have appraisal rights under
applicable law or contractual appraisal rights under the Duncan
partnership agreement or the merger agreement. |
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Q: |
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How do I vote my common units if I hold my common units in my
own name? |
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A: |
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After you have read this proxy statement/prospectus carefully,
please respond by completing, signing and dating your proxy card
and returning it in the enclosed postage-paid envelope, or by
submitting your proxy by telephone or the Internet as soon as
possible in accordance with the instructions provided under
The Special Unitholder Meeting Voting
Procedures Voting by Duncan Unitholders
beginning on page 37. |
5
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Q: |
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If my Duncan common units are held in street name
by my broker or other nominee, will my broker or other nominee
vote my common units for me? |
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A: |
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No. Your broker cannot vote your Duncan common units held
in street name for or against the merger proposal
unless you tell the broker or other nominee how you wish to
vote. To tell your broker or other nominee how to vote, you
should follow the directions that your broker or other nominee
provides to you. Please note that you may not vote your Duncan
common units held in street name by returning a
proxy card directly to Duncan or by voting in person at the
special meeting of Duncan unitholders unless you provide a
legal proxy, which you must obtain from your broker
or other nominee. If you do not instruct your broker or other
nominee on how to vote your Duncan common units, your broker or
other nominee may not vote your Duncan common units, which will
have the same effect as a vote against the merger for purposes
of the vote required under the Duncan partnership agreement and
will result in the absence of a vote for or against the merger
proposal for purposes of the vote by the Duncan unaffiliated
unitholders required under the merger agreement. You should
therefore provide your broker or other nominee with instructions
as to how to vote your Duncan common units. |
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Q: |
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What if I do not vote? |
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A: |
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If you do not vote in person or by proxy or if you abstain from
voting, or a broker non-vote is made, it will have the same
effect as a vote against the merger proposal for purposes of the
vote required under the Duncan partnership agreement, and these
actions will result in the absence of a vote for or against the
merger proposal for purposes of the vote by the Duncan
unaffiliated unitholders required under the merger agreement. If
you sign and return your proxy card but do not indicate how you
want to vote, your proxy will be counted as a vote in favor of
the merger proposal. |
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Q: |
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Who can attend and vote at the special meeting of Duncan
unitholders? |
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A: |
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All Duncan unitholders of record as of the close of business on
July 25, 2011, the record date for the special meeting of
Duncan unitholders, are entitled to receive notice of and vote
at the special meeting of Duncan unitholders. |
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Q: |
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When and where is the special meeting? |
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A: |
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The special meeting will be held on September 7, 2011, at
8:00 a.m., local time, at 1100 Louisiana Street, 10th
Floor, Houston, Texas 77002. |
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Q: |
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If I am planning to attend the special meeting in person,
should I still vote by proxy? |
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A: |
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Yes. Whether or not you plan to attend the special meeting, you
should vote by proxy. Your common units will not be voted if you
do not vote by proxy and do not vote in person at the scheduled
special meeting of the common unitholders of Duncan to be held
on September 7, 2011. |
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Q: |
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Can I change my vote after I have voted by proxy? |
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A: |
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Yes. If you own your common units in your own name, you may
revoke your proxy at any time prior to its exercise by: |
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giving written notice of revocation to the Secretary
of Duncan GP at or before the special meeting;
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appearing and voting in person at the special
meeting; or
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properly completing and executing a later dated
proxy and delivering it to the Secretary of Duncan GP at or
before the special meeting.
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Your presence without voting at the meeting will not
automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken. |
6
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Q: |
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What should I do if I receive more than one set of voting
materials for the special meeting of Duncan unitholders? |
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A: |
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You may receive more than one set of voting materials for the
special meeting of Duncan unitholders and the materials may
include multiple proxy cards or voting instruction cards. For
example, you will receive a separate voting instruction card for
each brokerage account in which you hold units. If you are a
holder of record registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date
and return each proxy card and voting instruction card that you
receive according to the instructions on it. |
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Q: |
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Whom do I call if I have further questions about voting, the
meeting or the merger? |
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A: |
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Duncan unitholders may call Duncans Investor Relations
department at
(866) 230-0745.
If you would like additional copies, without charge, of this
proxy statement/prospectus or if you have questions about the
merger, including the procedures for voting your units, you
should contact Wells Fargo Shareowner Services, which is
assisting Duncan as tabulation agent and Enterprise as exchange
agent in connection with the merger, at (855)
235-0839. |
7
SUMMARY
This summary highlights some of the information in this proxy
statement/prospectus. It may not contain all of the information
that is important to you. To understand the merger fully and for
a more complete description of the terms of the merger, you
should read carefully this document, the documents incorporated
by reference, and the Annexes to this document, including the
full text of the merger agreement included as Annex A.
Please also read Where You Can Find More
Information.
The
Merger Parties Businesses (page 89)
Enterprise
Products Partners L.P.
Enterprise is a publicly traded Delaware limited partnership,
the common units of which are listed on the NYSE under the
ticker symbol EPD. Enterprise was formed in April
1998 to own and operate certain natural gas liquids
(NGLs) related businesses of EPCO. Enterprise is a
leading North American provider of midstream energy services to
producers and consumers of natural gas, NGLs, crude oil, refined
products and certain petrochemicals. Enterprises midstream
energy asset network links producers of natural gas, NGLs and
crude oil from some of the largest supply basins in the United
States, Canada and the Gulf of Mexico with domestic consumers
and international markets. Enterprises assets include
approximately: 50,200 miles of onshore and offshore
pipelines; 192 million barrels (MMBbls) of
storage capacity for NGLs, refined products and crude oil; and
27 billion cubic feet (Bcf) of natural gas
storage capacity.
Enterprises midstream energy operations include: natural
gas gathering, treating, processing, transportation and storage;
NGL transportation, fractionation, storage, and import and
export terminaling; crude oil and refined products
transportation, storage and terminaling; offshore production
platforms; petrochemical transportation and services; and a
marine transportation business that operates primarily on the
United States inland and Intracoastal Waterway systems and in
the Gulf of Mexico.
Enterprise is owned 100% by its limited partners from an
economic perspective. Enterprise is managed and controlled by
Enterprise GP, which has a non-economic general partner interest
in Enterprise. Enterprise GP is a wholly owned subsidiary of Dan
Duncan LLC (DDLLC). Enterprise conducts
substantially all of its business through its operating company,
Enterprise Products Operating LLC (EPO).
Enterprises principal executive offices are located at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002,
and its telephone number is
(713) 381-6500.
Duncan
Energy Partners L.P.
Duncan is a publicly traded Delaware limited partnership, the
common units of which are listed on the NYSE under the ticker
symbol DEP. Duncans business purpose is to
acquire, own and operate a diversified portfolio of midstream
energy assets and to support the growth objectives of EPO and
other affiliates of EPCO that are under common control. Duncan
is engaged in the business of: (i) NGL transportation,
fractionation and marketing; (ii) storage of NGL,
petrochemical and refined products; (iii) transportation of
petrochemical products; and (iv) the gathering,
transportation, marketing and storage of natural gas.
Duncans assets, located primarily in Texas and Louisiana,
include approximately: 11,200 miles of natural gas, NGL and
petrochemical pipelines; two NGL fractionation facilities;
17.3 MMBbls of leased NGL storage capacity; 8.1 Bcf of
leased natural gas storage capacity; and 34 underground salt
dome caverns with approximately 100 MMBbls of NGL and
related product storage capacity. Duncans assets are
integral to EPOs midstream energy operations and are
located near significant natural gas production basins such as
the Eagle Ford Shale, Barnett Shale and Haynesville Shale.
At March 31, 2011, Duncan was owned 99.3% by its limited
partners and 0.7% by its general partner, Duncan GP. Enterprise
indirectly beneficially owned approximately 58.5% of the limited
partner interests in Duncan and 100% of Duncan GP. Duncan GP is
responsible for managing Duncans business and operations.
Duncans principal executive offices are located at 1100
Louisiana Street, 10th Floor, Houston, Texas 77002, and its
telephone number is
(713) 381-6500.
8
Relationship
of Enterprise and Duncan (page 91)
Enterprise and Duncan are closely related. Duncans general
partner is an indirect wholly owned subsidiary of Enterprise. In
addition, approximately 59.9% of Duncans common units are
owned by Enterprise and its affiliates, including GTM, the
directors and officers of Enterprise GP and Duncan GP, EPCO and
certain of EPCOs privately held affiliates.
Enterprise is controlled by DDLLC and EPCO. EPCO and DDLLC, a
private affiliate of EPCO, are each controlled by three voting
trustees, pursuant to the EPCO Inc. Voting Trust Agreement
dated April 26, 2006 (the EPCO Voting
Trust Agreement) and the Dan Duncan LLC Voting
Trust Agreement dated April 26, 2006 (the DDLLC
Voting Trust Agreement), respectively. The current
EPCO voting trustees are Randa Duncan Williams, Ralph S.
Cunningham and Richard H. Bachmann. The current DDLLC voting
trustees are also Ms. Williams, Dr. Cunningham and
Mr. Bachmann.
Enterprises operating subsidiary, EPO, was the sponsor of
Duncans drop down transactions in 2007 and 2008, and has
continuing involvement with Duncans subsidiaries, as
described further in Certain Relationships; Interests of
Certain Persons in the Merger Relationship of
Enterprise and Duncan Relationship of Duncan and
EPO.
Neither Duncan nor Enterprise has employees. All of the
operating functions and general and administrative support
services of Duncan and Enterprise are provided by employees of
EPCO pursuant to an administrative services agreement
(ASA) or by other service providers.
All of the executive officers of Duncan GP are also executive
officers of Enterprise GP including W. Randall Fowler, A. James
Teague, William Ordemann, Bryan F. Bulawa, Stephanie C.
Hildebrandt and Michael J. Knesek. For information about the
common executive officers of Enterprise GP and Duncan GP and
these executive officers relationships with EPCO and its
affiliates and the resulting interests of Duncan GP directors
and officers in the merger, please read Certain
Relationships; Interests of Certain Persons in the Merger.
Structure
of the Merger (page 65)
Pursuant to the merger agreement, at the effective time of the
merger, a wholly owned subsidiary of Enterprise will merge with
and into Duncan, with Duncan surviving the merger as a wholly
owned subsidiary of Enterprise, and each outstanding common unit
of Duncan will be cancelled and converted into the right to
receive 1.01 Enterprise common units. This merger consideration
represented a 35% premium to the closing price of Duncan common
units based on the closing prices of Duncan common units and
Enterprise common units on February 22, 2011, the last
trading day before Enterprise announced its initial proposal to
acquire all of the Duncan common units owned by the public.
Immediately following the effective time of the merger, the
consideration that GTM is entitled to receive in the merger will
be exchanged pursuant to the merger agreement and the Exchange
and Contribution Agreement for the assignment by Enterprise of a
limited partner interest in Duncan equal to the limited partner
interest represented by the Duncan common units owned by GTM
immediately prior to the effective time of the merger.
Accordingly, no Enterprise common units will be issued as
consideration to GTM for its 33,783,587 Duncan common units,
which represent approximately 58.5% of the outstanding Duncan
common units.
If the exchange ratio would result in a Duncan unitholder being
entitled to receive a fraction of an Enterprise common unit,
that Duncan common unitholder will receive cash from Enterprise
in lieu of such fractional interest in an amount equal to such
fractional interest multiplied by the average of the closing
price of Enterprise common units for the ten consecutive NYSE
full trading days ending at the close of trading on the last
NYSE full trading day immediately preceding the day the merger
closes.
Once the merger is completed and Duncan common units are
exchanged for Enterprise common units (and cash in lieu of
fractional units, if applicable), when distributions are
declared by the general partner of Enterprise and paid by
Enterprise, former Duncan unitholders will receive distributions
on their Enterprise
9
common units in accordance with Enterprises partnership
agreement. For a description of the distribution provisions of
Enterprises partnership agreement, please read
Comparison of the Rights of Enterprise and Duncan
Unitholders.
As of July 25, 2011, there were 845,831,873 Enterprise
common units and 4,520,431 Class B units of Enterprise
outstanding. Based on the 24,008,683 Duncan common units
outstanding at July 25, 2011 (other than those owned by
GTM) and an assumed additional 100,000 common units issued under
the DEP Unit Purchase Plan and distribution reinvestment plan
through the closing of the merger, Enterprise expects to issue
approximately 24,349,770 Enterprise common units in connection
with the merger.
Other
Transactions Related to the Merger (page 64)
Voting
Agreement
In connection with the merger agreement, Duncan, Enterprise and
GTM entered into the voting agreement, dated as of
April 28, 2011. Pursuant to the voting agreement,
Enterprise and GTM have agreed to vote any Duncan common units
owned by them or their subsidiaries in favor of adoption of the
merger agreement and the merger, including the 33,783,587 Duncan
common units currently directly owned by GTM (representing
approximately 58.5% of the outstanding Duncan common units), at
any meeting of Duncan unitholders. The voting agreement will
terminate upon the completion of the merger or the termination
of the merger agreement.
Directors
and Officers of Enterprise GP and Duncan GP
(page 102)
DDLLC, the sole member of Enterprise GP, has the power to
appoint and remove all of the directors of Enterprise GP.
Enterprise GP has indirect power to cause the appointment or
removal of the directors of Duncan GP, an indirect wholly owned
subsidiary of Enterprise. DDLLC is controlled by the DDLLC
voting trustees under the DDLLC Voting Trust Agreement.
Each of the executive officers of Enterprise GP is currently
expected to remain an executive officer of Enterprise GP
following the merger. The DDLLC voting trustees have not yet
determined whether any directors of Duncan GP will serve as
directors of Enterprise GP following the merger. In the absence
of any changes, the current directors of Enterprise GP will
continue as directors following the merger.
The following individuals are currently executive officers of
Enterprise GP and those persons signified with an asterisk (*)
also currently serve as executive officers of Duncan GP. All of
the current executive officers of Duncan GP are also
executive officers of Enterprise GP.
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Michael A. Creel
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W. Randall Fowler*
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A. James Teague*
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William Ordemann*
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Lynn L. Bourdon, III
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Bryan F. Bulawa*
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G. R. Cardillo
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James M. Collingsworth
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Stephanie C. Hildebrandt*
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Mark A. Hurley
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Michael J. Knesek*
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Christopher Skoog
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Thomas M. Zulim
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10
Market
Prices of Enterprise Common Units and Duncan Common Units Prior
to Announcing the Proposed Merger (page 30)
Enterprises common units are traded on the NYSE under the
ticker symbol EPD. Duncans common units are
traded on the NYSE under the ticker symbol DEP. The
following table shows the closing prices of Enterprise common
units and Duncan common units on February 22, 2011 (the
last full trading day before Enterprise announced its initial
proposal to acquire all of the Duncan common units owned by the
public) and the average closing price of Enterprise common units
and Duncan common units during the
20-day
trading period prior to and including February 22, 2011.
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Enterprise
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Duncan
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Date/Period
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Common Units
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Common Units
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February 22, 2011
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$
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43.70
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$
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32.56
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20-day
Average
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$
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43.40
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$
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32.59
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The
Special Unitholder Meeting (page 37)
Where and when: The Duncan special unitholder
meeting will take place at 1100 Louisiana Street,
10th Floor, Houston, Texas 77002 on September 7, 2011
at 8:00 a.m., local time.
What you are being asked to vote on: At the
Duncan meeting, Duncan unitholders will vote on the approval of
the merger agreement and the merger. Duncan unitholders also may
be asked to consider other matters as may properly come before
the meeting. At this time, Duncan knows of no other matters that
will be presented for the consideration of its unitholders at
the meeting.
Who may vote: You may vote at the Duncan
meeting if you owned Duncan common units at the close of
business on the record date, July 25, 2011. On that date,
there were 57,792,270 Duncan common units outstanding. You may
cast one vote for each outstanding Duncan common unit that you
owned on the record date.
What vote is needed: Under the merger
agreement, the number of votes actually cast in favor of the
proposal by the Duncan unaffiliated unitholders must exceed the
number of votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. In addition, pursuant to the Duncan partnership
agreement, the merger agreement and the merger must be approved
by the affirmative vote of the Duncan unitholders holding a
majority of the outstanding Duncan common units. Enterprise and
GTM have agreed to vote any Duncan common units owned by them or
their subsidiaries in favor of adoption of the merger agreement
and the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Recommendation
to Duncan Unitholders (page 47)
The members of the Duncan ACG Committee considered the benefits
of the merger and the related transactions as well as the
associated risks and determined unanimously that the merger
agreement and the merger are fair and reasonable, advisable to
and in the best interests of Duncan and the Duncan unaffiliated
unitholders. The Duncan ACG Committee also recommended that the
merger agreement and the merger be approved by the Duncan Board
and the Duncan unitholders. Based on the Duncan ACG
Committees determination and recommendation, the Duncan
Board has also approved the merger agreement and the merger and,
together with the Duncan ACG Committee, recommends that the
Duncan unitholders vote to approve the merger agreement and the
merger.
Duncan unitholders are urged to review carefully the background
and reasons for the merger described under The
Merger and the risks associated with the merger described
under Risk Factors.
11
Duncans
Reasons for the Merger (page 47)
The Duncan ACG Committee considered many factors in determining
that the merger agreement and the merger are fair and
reasonable, advisable to and in the best interests of Duncan and
the Duncan unaffiliated unitholders. The Duncan ACG Committee
viewed the following factors, among others described in greater
detail under The Merger Recommendation of the
Duncan ACG Committee and the Duncan Board and Reasons for the
Merger, as being generally positive or favorable in coming
to this determination and its related recommendations:
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The exchange ratio of 1.01 Enterprise common units for each
Duncan common unit in the merger, which represented a
premium of:
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approximately 34% above the $32.56 closing price of Duncan
common units on February 22, 2011, based on the $43.32
closing price of Enterprise common units on April 27, 2011
(the day before the merger agreement was approved and
executed); and
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approximately 36% above the ratio of closing prices of Duncan
common units to Enterprise common units of 0.7451 on
February 22, 2011.
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The pro forma increase of approximately 32% and 36% in quarterly
cash distributions expected to be received by Duncan unitholders
in 2011 and 2012, respectively, based upon the 1.01x exchange
ratio and quarterly cash distribution rates paid by Duncan and
Enterprise in May 2011.
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In the merger, Duncan unitholders will receive common units
representing limited partner interests in Enterprise, which have
substantially more liquidity than Duncan common units because of
the Enterprise common units significantly larger average
daily trading volume, as well as Enterprise having a broader
investor base and a larger public float.
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The current and prospective environment and growth prospects for
Duncan if it continues as a stand-alone entity, as compared to
the asset base, financial condition and growth prospects of the
combined entity, including the likelihood that future asset drop
downs to Duncan from Enterprise would diminish because of the
reduction in Enterprises cost of equity capital in
connection with Enterprises November 2010 acquisition of
Enterprise GP Holdings L.P. (Holdings).
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Enterprises stronger balance sheet and credit profile
relative to Duncans.
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That the merger provides Duncan unitholders with an opportunity
to benefit from unit price appreciation and increased
distributions through ownership of Enterprise common units,
which should benefit from Enterprises much larger and more
diversified asset and cash flow base and lower dependence on
individual capital projects, and Enterprises greater
ability to compete for future acquisitions and finance organic
growth projects.
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The Duncan unaffiliated unitholders have an opportunity to
determine whether the merger will be approved, because the
merger agreement provides that the unitholder voting conditions
(including the majority of votes cast by Duncan unaffiliated
unitholders condition) may not be waived.
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The opinion of Morgan Stanley rendered to the Duncan ACG
Committee on April 28, 2011 to the effect that, as of that
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Duncan unaffiliated unitholders.
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The committees belief that the merger and the exchange
ratio present the best opportunity to maximize value for
Duncans unitholders and achieve the highest value
obtainable for Duncans unitholders.
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The Duncan ACG Committee considered the following factors to be
generally negative or unfavorable in making its determination
and recommendations:
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That the exchange ratio is fixed and there is a possibility that
the Enterprise common unit price could decline relative to the
Duncan common unit price prior to closing, reducing the premium
available to Duncan unitholders.
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The risk that potential benefits sought in the merger might not
be fully realized.
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That pro forma, the merger is expected to be dilutive to Duncan
unitholders distributable cash flow on a per unit basis.
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The risk that the merger might not be completed in a timely
manner, or that the merger might not be consummated as a result
of a failure to satisfy the conditions contained in the merger
agreement, and that a failure to complete the merger could
negatively affect the trading price of the Duncan common units.
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The limitations on Duncan considering unsolicited offers from
third parties not affiliated with Duncan GP.
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That certain members of management of Duncan GP and the Duncan
Board may have interests that are different from those of the
Duncan unaffiliated unitholders.
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Overall, the Duncan ACG Committee believed that the advantages
of the merger outweighed the negative factors.
Opinion
of Duncan ACG Committees Financial Advisor
(page 53)
In connection with the merger, the Duncan ACG Committee retained
Morgan Stanley as its financial advisor. On April 28, 2011,
Morgan Stanley rendered to the Duncan ACG Committee its oral
opinion, subsequently confirmed in writing, that, as of such
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the Duncan
unaffiliated unitholders. The full text of the written opinion
of Morgan Stanley, which sets forth, among other things, the
assumptions made, specified work performed, procedures followed,
matters considered and qualifications and limitations on the
scope of the review undertaken by Morgan Stanley in rendering
its opinion, is attached as Annex B to this proxy
statement/prospectus. The opinion was directed to the Duncan ACG
Committee and addresses only the fairness from a financial point
of view of the exchange ratio pursuant to the merger agreement
to the Duncan unaffiliated unitholders as of the date of the
opinion. The opinion does not address any other aspect of the
merger or related transactions and does not constitute a
recommendation to any Duncan unitholder as to how to vote or act
on any matter with respect to the merger or related transactions.
Certain
Relationships; Interests of Certain Persons in the Merger
(page 91)
Enterprise and Duncan have extensive and ongoing relationships
with EPCO and its affiliates, which include both Enterprise GP
and Duncan GP. Enterprise GP is a wholly owned subsidiary of
DDLLC, which is controlled by the three DDLLC voting trustees
under the DDLLC Voting Trust Agreement. EPCO is also
controlled by the three EPCO voting trustees under the EPCO
Voting Trust Agreement. The EPCO voting trustees and the
DDLLC voting trustees are the same three individuals: Randa
Duncan Williams, Richard H. Bachmann and Ralph S. Cunningham.
Ms. Williams, Mr. Bachmann and Dr. Cunningham are
also executors of the estate of Dan L. Duncan (the
Estate).
As of May 31, 2011, the DDLLC voting trustees, the EPCO
voting trustees and the executors of the Estate, in their
capacities as such trustees, as executors and individually,
collectively owned or controlled approximately 40.1% of
Enterprises outstanding common units and 100% of the
limited liability company interests in Enterprise GP. Enterprise
and GTM, both of which have agreed to vote in favor of the
merger and the merger agreement, currently own approximately
58.5% of Duncans outstanding common units. The directors,
executive officers and other affiliates of Enterprise
collectively owned or controlled an additional 1.4% of
Duncans outstanding common units.
The officers of Duncan GP are employees of EPCO. A number of
EPCO employees who provide services to Duncan also provide
services to Enterprise, often serving in the same positions.
Enterprise GP also has indirect power to cause the appointment
or removal of the directors of Duncan GP, an indirect wholly
owned
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subsidiary of Enterprise. Duncan has an extensive and ongoing
relationship with Enterprise, EPCO and other entities controlled
by the DDLLC voting trustees and the EPCO voting trustees.
Further, Duncan GPs directors and executive officers have
interests in the merger that may be different from, or in
addition to, your interests as a unitholder of Duncan, including:
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All of the directors and executive officers of Duncan GP will
receive continued indemnification for their actions as directors
and executive officers.
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All of the directors of Duncan GP own Enterprise common units.
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Some of Duncan GPs directors (none of whom is a member of
the Duncan ACG Committee) and all of Duncan GPs executive
officers also serve as directors or executive officers of
Enterprise GP, have certain duties to the limited partners of
Enterprise and are compensated, in part, based on the
performance of Enterprise. In addition to serving as a director
and President and Chief Executive Officer of Duncan GP,
Mr. Fowler also serves as the Executive Vice President and
Chief Financial Officer of Enterprise GP; Mr. Bulawa serves
as a director and Senior Vice President, Treasurer and Chief
Financial Officer of Duncan GP and also as Senior Vice President
and Treasurer of Enterprise GP; Mr. Teague serves as
Executive Vice President and Chief Operating Officer of Duncan
GP and also as a director and Executive Vice President and Chief
Operating Officer of Enterprise GP; Mr. Ordemann serves as
an Executive Vice President for both of Duncan GP and Enterprise
GP; Ms. Hildebrandt serves as Senior Vice President, Chief
Legal Officer and Secretary for Duncan GP and as Senior Vice
President, General Counsel and Secretary for Enterprise GP; and
Mr. Knesek serves as Senior Vice President, Controller and
Principal Accounting Officer for both Duncan GP and
Enterprise GP.
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Each of the executive officers and directors of Enterprise GP is
currently expected to remain an executive officer of Enterprise
GP following the merger.
The
Merger Agreement (page 65)
The merger agreement is attached to this proxy
statement/prospectus as Annex A and is incorporated by
reference into this document. You are encouraged to read the
merger agreement because it is the legal document that governs
the merger.
What
Needs to Be Done to Complete the Merger
Enterprise and Duncan will complete the merger only if the
conditions set forth in the merger agreement are satisfied or,
in some cases, waived. The obligations of Enterprise and Duncan
to complete the merger are subject to, among other things, the
following conditions:
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the approval of the merger agreement and the merger by the
affirmative vote or consent of holders (as of the record date
for the Duncan special meeting) of (i) a majority of the
outstanding Duncan common units held by the Duncan unaffiliated
unitholders that actually vote for or against the merger
proposal (i.e., the votes cast by Duncan unaffiliated
unitholders in favor of the proposal must exceed the votes cast
by Duncan unaffiliated unitholders against the proposal) and
(ii) a majority of the outstanding Duncan common units;
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the making of all required filings and the receipt of all
required governmental consents, approvals, permits and
authorizations from any applicable governmental authorities
prior to the merger effective time, except where the failure to
obtain such consent, approval, permit or authorization would not
be reasonably likely to result in a material adverse effect (as
defined in the merger agreement) on Duncan or Enterprise;
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the absence of any order, decree, injunction or law that
enjoins, prohibits or makes illegal the consummation of any of
the transactions contemplated by the merger agreement, and any
action, proceeding or investigation by any governmental
authority seeking to restrain, enjoin, prohibit or delay such
consummation;
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the continued effectiveness of the registration statement of
which this proxy statement/prospectus is a part; and
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the approval for listing on the NYSE of Enterprise common units
to be issued in the merger, subject to official notice of
issuance.
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Enterprises obligation to complete the merger is further
subject to the following conditions:
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the representations and warranties of each of Duncan and Duncan
GP set forth in the merger agreement being true and correct in
all material respects, and Duncan and Duncan GP having performed
all of their obligations under the merger agreement in all
material respects;
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Enterprise having received an opinion of Andrews Kurth LLP,
counsel to Enterprise (Andrews Kurth), as to the
treatment of the merger for U.S. federal income tax
purposes and as to certain other tax matters; and
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No material adverse effect (as defined in the merger agreement)
having occurred with respect to Duncan.
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Duncans obligation to complete the merger is further
subject to the following conditions:
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the representations and warranties of each of Enterprise and
Enterprise GP set forth in the merger agreement being true and
correct in all material respects, and Enterprise and Enterprise
GP having performed all of their obligations under the merger
agreement in all material respects;
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Duncan having received an opinion of Vinson & Elkins
L.L.P., counsel to Duncan (Vinson &
Elkins), as to the treatment of the merger for
U.S. federal income tax purposes and as to certain other
tax matters; and
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No material adverse effect (as defined under the merger
agreement) having occurred with respect to Enterprise.
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The merger agreement provides that the unitholder voting
conditions (including the majority of votes cast by Duncan
unaffiliated unitholders condition) may not be waived. Each of
Enterprise and Duncan (with the consent of the Duncan ACG
Committee and the Duncan Board) may choose to complete the
merger even though any condition to its obligation has not been
satisfied if the necessary unitholder approval has been obtained
and the law allows it to do so.
No
Solicitation
Duncan GP and Duncan have agreed that they will not, and they
will use their commercially reasonable best efforts to cause
their representatives not to, directly or indirectly, initiate,
solicit, knowingly encourage or facilitate any inquiries or the
making or submission of any proposal that constitutes, or may
reasonably be expected to lead to, an acquisition proposal, or
participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect
to, any acquisition proposal, unless the Duncan ACG Committee,
after consultation with its outside legal counsel and financial
advisors, determines in good faith that such acquisition
proposal constitutes or is likely to result in a superior
proposal and the failure to do so would be inconsistent with its
duties under the Duncan partnership agreement and applicable
law. Please read The Merger Agreement
Covenants Acquisition Proposals; Change in
Recommendation for more information about what constitutes
an acquisition proposal and a superior proposal.
Change
in Recommendation
The Duncan ACG Committee is permitted to withdraw, modify or
qualify in any manner adverse to Enterprise its recommendation
of the merger or publicly approve or recommend, or publicly
propose to approve or recommend, any acquisition proposal,
referred to in this proxy statement/prospectus as a change
in recommendation, in certain circumstances. Specifically,
if, prior to receipt of Duncan unitholder approval, the Duncan
ACG Committee concludes in good faith, after consultation with
its outside legal counsel and financial advisors, that a failure
to change its recommendation would be inconsistent with its
duties under the
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Duncan partnership agreement and applicable law, the Duncan ACG
Committee may determine to make a change in recommendation.
Termination
of the Merger Agreement
Enterprise and Duncan can agree to terminate the merger
agreement by mutual written consent at any time without
completing the merger, even after the Duncan unitholders have
approved the merger agreement and the merger. In addition,
either party may terminate the merger agreement on its own upon
written notice to the other without completing the
merger if:
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the merger is not completed on or before October 31, 2011;
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any legal prohibition to completing the merger has become final
and non-appealable, provided that the terminating party is not
in breach of its covenant to use commercially reasonable best
efforts to complete the merger promptly; or
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any condition to the terminating partys obligation to
close the merger cannot be satisfied.
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Enterprise may terminate the merger agreement at any time if
(i) the Duncan ACG Committee, upon written notice to
Enterprise, determines to make a change in recommendation in
accordance with the merger agreement and subsequently determines
not to hold, or otherwise fails to hold, the Duncan special
meeting or (ii) Duncan does not obtain the necessary
unitholder approval at the Duncan special meeting.
Duncan may terminate the merger agreement if (i) the Duncan
ACG Committee determines, in accordance with the merger
agreement, to make a change in recommendation and subsequently
determines not to hold, or otherwise fails to hold, the Duncan
special meeting or (ii) Duncan does not obtain the
necessary unitholder approval at the Duncan special meeting.
Duncan may terminate the merger agreement upon written notice to
Enterprise, at any time prior to the Duncan special meeting, if
Duncan receives an acquisition proposal from a third party, the
Duncan ACG Committee concludes in good faith that such
acquisition proposal constitutes a superior proposal, the Duncan
ACG Committee has made a change in recommendation pursuant to
the merger agreement with respect to such superior proposal,
Duncan has not knowingly and intentionally breached the no
solicitation covenants contained in the merger agreement, and
the Duncan ACG Committee concurrently approves, and Duncan
concurrently enters into, a definitive agreement with respect to
such superior proposal.
Material
U.S. Federal Income Tax Consequences of the Merger
(page 124)
Tax matters associated with the merger are complicated. The
U.S. federal income tax consequences of the merger to a
Duncan unitholder will depend on such common unitholders
own situation. The tax discussions in this proxy
statement/prospectus focus on the U.S. federal income tax
consequences generally applicable to individuals who are
residents or citizens of the United States that hold their
Duncan common units as capital assets, and these discussions
have only limited application to other unitholders, including
those subject to special tax treatment. Duncan unitholders are
urged to consult their tax advisors for a full understanding of
the U.S. federal, state, local and foreign tax consequences
of the merger that will be applicable to them.
Duncan expects to receive an opinion from Vinson &
Elkins to the effect that no gain or loss should be recognized
by the holders of Duncan common units to the extent Enterprise
common units are received in exchange therefor as a result of
the merger, other than gain resulting from either (i) any
decrease in partnership liabilities pursuant to Section 752
of the Internal Revenue Code, or (ii) any cash received in
lieu of any fractional Enterprise common units. Enterprise
expects to receive an opinion from Andrews Kurth to the effect
that no gain or loss should be recognized by Enterprise
unaffiliated unitholders as a result of the merger (other than
gain resulting from any decrease in partnership liabilities
pursuant to Section 752 of the Internal Revenue Code).
Enterprise unaffiliated unitholders means Enterprise
common unitholders other than those controlling, controlled by
or under common control with Enterprise GP. Opinions of counsel,
however, are subject to certain limitations and are not binding
on the Internal Revenue Service, or IRS, and no
assurance
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can be given that the IRS would not successfully assert a
contrary position regarding the merger and the opinions of
counsel.
The U.S. federal income tax consequences described above
may not apply to some holders of Enterprise common units and
Duncan common units. Please read Material
U.S. Federal Income Tax Consequences of the Merger
beginning on page 124 for a more complete discussion of the
U.S. federal income tax consequences of the merger.
Other
Information Related to the Merger
No
Appraisal Rights (page 62)
Duncan unitholders do not have appraisal rights under applicable
law or contractual appraisal rights under the Duncan partnership
agreement or the merger agreement.
Antitrust
and Regulatory Matters (page 62)
The merger is subject to both state and federal antitrust laws.
Under the rules applicable to partnerships, no filing is
required under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the HSR Act).
However, Enterprise or Duncan may receive requests for
information concerning the proposed merger and related
transactions from the Federal Trade Commission, or FTC, the
Antitrust Division of the Department of Justice, or DOJ, or
individual states.
Listing
of Common Units to be Issued in the Merger
(page 62)
Enterprise expects to obtain approval to list on the NYSE the
Enterprise common units to be issued pursuant to the merger
agreement, which approval is a condition to the merger.
Accounting
Treatment (page 62)
The merger will be accounted for in accordance with Financial
Accounting Standards Board Accounting Standards Codification
810, Consolidations Overall Changes
in Parents Ownership Interest in a Subsidiary, which
is referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger for financial reporting purposes.
Comparison
of the Rights of Enterprise and Duncan Unitholders
(page 109)
Duncan unitholders will own Enterprise common units following
the completion of the merger, and their rights associated with
Enterprise common units will be governed by, in addition to
Delaware law, Enterprises partnership agreement, which
differs in a number of respects from Duncans partnership
agreement.
Pending
Litigation (page 63)
On March 8, 2011, Michael Crowley, a purported unitholder
of Duncan, filed a complaint in the Court of Chancery of the
State of Delaware, as a putative class action on behalf of the
public unitholders of Duncan, captioned Michael
Crowley v. Duncan Energy Partners L.P., DEP Holdings, LLC,
W. Randall Fowler, Bryan F. Bulawa, William A.
Bruckmann, III, Larry J. Casey, Richard S. Snell,
Enterprise Products Partners L.P., Enterprise Product Holdings
LLC, and Enterprise Production Operating LLC, Civil Action
No. 6252-VCN
(the Crowley Complaint). The Crowley Complaint
alleges, among other things, that the named directors of Duncan
GP have breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units, that Duncan and Duncan
GP aided and abetted in these alleged breaches of fiduciary
duties and that Enterprise, as the majority and controlling
unitholder, along with EPO, has breached fiduciary duties by not
acting in the minority unitholders best interests to
ensure the transaction resulting from Enterprises proposal
is entirely fair.
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On March 11, 2011, Sanjay Israni, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Sanjay Israni v. Duncan
Energy Partners, L.P., DEP Holdings, LLC, Enterprise Products
Partners L.P., Enterprise Product Holdings LLC, Enterprise
Production Operating LLC, W. Randall Fowler, Bryan F. Bulawa,
William A. Bruckmann, III, Larry J. Casey, and Richard S.
Snell, Civil Action
No. 6270-VCN
(the Israni Complaint). The Israni Complaint
alleges, among other things, that the named directors of Duncan
GP have breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units and that Duncan along
with all of the other named defendants aided and abetted in
these alleged breaches of fiduciary duties.
On March 28, 2011, Michael Rubin, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Michael Rubin v. Duncan
Energy Partners L.P., DEP Holdings, LLC, W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
Richard S. Snell, Enterprise Products Partners L.P., Enterprise
Products Holdings LLC, and Enterprise Products Operating LLC,
Civil Action
No. 6320-VCS
(the Rubin Complaint). The Rubin Complaint alleges,
among other things, that the named directors of Duncan GP have
breached fiduciary duties in connection with Enterprises
initial proposal to acquire Duncans outstanding publicly
held common units, that Duncan and Duncan GP aided and abetted
in these alleged breaches of fiduciary duties and that
Enterprise, as the majority and controlling unitholder, along
with EPO, has breached fiduciary duties by not acting in the
best interests of the minority unitholders to ensure the
transaction resulting from Enterprises proposal is
entirely fair.
On April 5, 2011, the plaintiffs in the Crowley Complaint,
the Israni Complaint and the Rubin Complaint filed a Proposed
Order of Consolidation and Appointment of Lead Counsel in the
Court of Chancery of the State of Delaware. The Court granted
that Order on the same day consolidating the three actions into
a single consolidated action captioned In re Duncan Energy
Partners L.P. Unitholders Litigation, Consolidated Civil
Action
No. 6252-VCN.
On June 3, 2011 the Delaware plaintiffs filed a
consolidated amended complaint which alleges, among other
things, breach of express and implied contractual duties
contained in the Duncan limited partnership agreement by Duncan
GP and the named directors of Duncan GP and that all defendants
have aided and abetted these alleged breaches. The consolidated
amended complaint also alleges that the defendants failed to
provide full and fair disclosures regarding the proposed
transaction.
On March 7, 2011, Merle Davis, a purported unitholder of
Duncan, filed a petition in the 269th District Court of Harris
County, Texas, as a putative class action on behalf of the
unitholders of Duncan, captioned Merle Davis, on Behalf of
Himself and All Others Similarly Situated v. Duncan Energy
Partners L.P., W. Randall Fowler, Bryan F. Bulawa, William A.
Bruckmann, III, Larry J. Casey, Richard S. Snell, DEP
Holdings, LLC, and Enterprise Products Partners L.P. (the
Davis Petition). The Davis Petition alleged, among
other things, that Enterprise and the named directors of Duncan
GP breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units and that Duncan and
Enterprise aided and abetted in these alleged breaches of
fiduciary duties.
On March 9, 2011, Donald Weilersbacher, a purported
unitholder of Duncan, filed a petition in the 334th District
Court of Harris County, Texas, as a putative class action on
behalf of the unitholders of Duncan, captioned Donald
Weilersbacher, on Behalf of Himself and All Others Similarly
Situated v. Duncan Energy Partners L.P., Enterprise
Products Partners L.P., DEP Holdings, LLC, W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
and Richard S. Snell (the Weilersbacher
Petition). The Weilersbacher Petition alleged, among other
things, that the named directors of Duncan GP breached fiduciary
duties in connection with Enterprises initial proposal to
acquire Duncans outstanding publicly held common units and
that Enterprise aided and abetted in these alleged breaches of
fiduciary duties.
On March 17, 2011, the plaintiffs in the Davis Petition and
the Weilersbacher Petition filed a motion and proposed Order for
Consolidation of Related Actions, Appointment of Interim Co-Lead
Counsel, and Order Compelling Limited Expedited Discovery.
Plaintiffs and defendants subsequently agreed to postpone
discovery until after the plaintiffs file a consolidated
petition. On March 28, 2011, the plaintiffs filed an
amended motion and proposed Order for Consolidation of Related
Actions and Appointment of Interim Co-Lead Counsel. On
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May 4, 2011, the court entered an order consolidating the
cases and appointing interim lead counsel. On May 11, 2011,
plaintiffs filed their consolidated petition. On June 23, 2011,
the plaintiffs filed a Notice of Nonsuit Without Prejudice,
which was granted by the court, thereby dismissing the suits
without prejudice.
On July 5, 2011, Merle Davis and Donald Weilersbacher,
purported unitholders of Duncan, filed a complaint in the United
States District Court of the Southern District of Texas, Houston
Division, as a putative class action on behalf of the
unitholders of Duncan, captioned Merle Davis and Donald
Weilersbacher, on Behalf of Themselves and All Others Similarly
Situated vs. Duncan Energy Partners, L.P., W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
Richard Snell, DEP Holdings, LLC, and Enterprise Products
Partners L.P. (Case
No. 4:11-cv-02486)(the
Davis/Weilersbacher Federal Complaint). The
Davis/Weilersbacher Federal Complaint alleged, among other
things, that Duncan, Duncan GP and the named directors of Duncan
GP breached implied and express duties under the Duncan limited
partnership agreement in connection with Enterprises
proposal to acquire Duncans outstanding publicly held
common units, that all defendants aided and abetted these
alleged breaches, and that Duncan and Enterprise violated
Section 14(a) and Section 20(a) of the Exchange Act.
Enterprise and Duncan cannot predict the outcome of these or any
other lawsuits that might be filed subsequent to the date of the
filing of this proxy statement/prospectus, nor can Enterprise
and Duncan predict the amount of time and expense that will be
required to resolve these lawsuits. Enterprise, Duncan and the
other defendants named in these lawsuits intend to defend
vigorously against these and any other actions.
Summary
of Risk Factors (page 32)
You should consider carefully all the risk factors together with
all of the other information included in this proxy
statement/prospectus before deciding how to vote. The risks
related to the merger and the related transactions,
Enterprises business, Enterprise common units and risks
resulting from Enterprises organizational structure are
described under the caption Risk Factors beginning
on page 32 of this proxy statement/prospectus. Some of
these risks include, but are not limited to, those described
below:
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Duncans partnership agreement limits the fiduciary duties
of Duncan GP to unitholders and restricts the remedies available
to unitholders for actions taken by Duncan GP that might
otherwise constitute breaches of fiduciary duty.
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The directors and executive officers of Duncan GP have interests
relating to the merger that differ in certain respects from the
interests of the Duncan unaffiliated unitholders.
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The exchange ratio is fixed and the market value of the merger
consideration to Duncan unitholders will be equal to 1.01 times
the price of Enterprise common units at the closing of the
merger, which market value will decrease if the market value of
Enterprises common units decreases.
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The transactions contemplated by the merger agreement may not be
consummated even if Duncan unitholders approve the merger
agreement and the merger.
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Financial projections by Enterprise and Duncan may not prove
accurate.
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While the merger agreement is in effect, both Duncan and
Enterprise may lose opportunities to enter into different
business combination transactions with other parties on more
favorable terms and may be limited in their ability to pursue
other attractive business opportunities.
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No ruling has been requested with respect to the
U.S. federal income tax consequences of the merger.
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The intended U.S. federal income tax consequences of the
merger are dependent upon each of Enterprise and Duncan being
treated as a partnership for U.S. federal income tax
purposes.
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The U.S. federal income tax treatment of the merger is
subject to potential legislative change and differing judicial
or administrative interpretations.
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Duncan unitholders could recognize taxable income or gain for
U.S. federal income tax purposes as a result of the merger.
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Organizational
Chart
Before
the Merger
The following diagram depicts the organizational structure of
Enterprise and Duncan as of July 25, 2011 before the
consummation of the merger and the other transactions
contemplated by the merger agreement.
GP = General Partner Interest
LP = Limited Partner Interest
LLC = Limited Liability Company Interest
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(1) |
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Includes certain Duncan common units beneficially owned by the
Estate, Randa Duncan Williams and certain trusts and privately
held affiliates other than DDLLC. |
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Enterprise percentage includes 4,520,431 Class B units of
Enterprise owned by a privately held affiliate of EPCO. |
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(3) |
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Includes directors and executive officers of Duncan GP and of
Enterprise GP other than Randa Duncan Williams, representing an
aggregate of approximately 0.3% of the outstanding Duncan common
units. |
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After
the Merger
The following diagram depicts the organizational structure of
Enterprise and Duncan immediately after giving effect to the
merger, the other transactions contemplated by the merger
agreement and a planned contribution by Enterprise of limited
partner interests in Duncan to GTM and Enterprise Products
OLPGP, Inc. (OLPGP) immediately thereafter, pursuant
to the Exchange and Contribution Agreement.
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(1) |
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Enterprise percentage includes 4,520,431 Class B units of
Enterprise owned by a privately held affiliate of EPCO. |
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SUMMARY
HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION OF
ENTERPRISE AND DUNCAN
The following tables set forth, for the periods and at the dates
indicated, summary historical financial and operating
information for Enterprise and Duncan and summary unaudited pro
forma financial information for Enterprise after giving effect
to the proposed merger with Duncan. The summary historical
financial data as of and for each of the years ended
December 31, 2008, 2009 and 2010 are derived from and
should be read in conjunction with the audited financial
statements and accompanying footnotes of Enterprise and Duncan,
respectively. The summary historical financial data as of and
for the three-month periods ended March 31, 2010 and 2011
are derived from and should be read in conjunction with the
unaudited financial statements and accompanying footnotes of
Enterprise and Duncan, respectively. Enterprises and
Duncans consolidated balance sheets as of
December 31, 2009 and 2010 and as of March 31, 2011,
and the related statements of consolidated operations,
comprehensive income, cash flows and equity for each of the
three years in the period ended December 31, 2010 and the
three months ended March 31, 2011 and 2010 are incorporated
by reference into this proxy statement/prospectus from
Enterprises and Duncans respective annual reports on
Form 10-K
for the year ended December 31, 2010, and their quarterly
reports on
Form 10-Q
for the three months ended March 31, 2011.
The summary unaudited pro forma condensed consolidated financial
statements of Enterprise show the pro forma effect of
Enterprises proposed merger with Duncan. In addition to
the proposed merger, the historical consolidated statement of
operations for the year ended December 31, 2010 has been
adjusted to give effect to the merger of Holdings with a wholly
owned subsidiary of Enterprise in November 2010 (the
Holdings Merger). For a complete discussion of the
pro forma adjustments underlying the amounts in the table on the
following page, please read Unaudited Pro Forma Condensed
Consolidated Financial Statements beginning on
page F-2
of this document.
Duncan is a consolidated subsidiary of Enterprise for financial
accounting and reporting purposes. The proposed merger will be
accounted for in accordance with Financial Accounting Standards
Board Accounting Standards Codification 810,
Consolidations Overall Changes in
Parents Ownership Interest in a Subsidiary, which is
referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger.
The unaudited pro forma condensed consolidated financial
statements have been prepared to assist in the analysis of
financial effects of the proposed merger between Enterprise and
Duncan. The unaudited pro forma condensed statements of
consolidated operations for the year ended December 31,
2010 and the three months ended March 31, 2011 assume the
proposed merger-related transactions occurred on January 1,
2010. The unaudited pro forma condensed consolidated balance
sheet assumes the proposed merger-related transactions occurred
on March 31, 2011. The unaudited pro forma condensed
consolidated financial statements are based upon assumptions
that Enterprise and Duncan believe are reasonable under the
circumstances, and are intended for informational purposes only.
They are not necessarily indicative of the financial results
that would have occurred if the transactions described herein
had taken place on the dates indicated, nor are they indicative
of the future consolidated results of the combined entity.
Enterprises non-generally accepted accounting principles,
or non-GAAP, financial measures of gross operating margin and
Adjusted EBITDA are presented in the summary historical and pro
forma financial information. Please read
Non-GAAP Financial Measures, which
provides the necessary explanations for these non-GAAP financial
measures and reconciliations to their most closely related GAAP
financial measures.
For information regarding the effect of the merger on pro forma
distributions to Duncan unitholders, please read
Comparative Per Unit Information. For additional
financial information, please read Selected Financial Data
and Pro Forma Information of Enterprise and Duncan on
page 87.
22
Summary
Historical and Pro Forma Financial and Operating Information of
Enterprise
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Enterprise Consolidated Historical
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Enterprise Pro Forma
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For the
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For the
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Months
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For the Three Months
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Year Ended
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Ended
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For the Year Ended December 31,
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Ended March 31,
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December 31,
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March 31,
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2008
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2009
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2010
|
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2010
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2011
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2010
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2011
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(In millions, except per unit amounts)
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(Unaudited)
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(Unaudited)
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Income statement data:
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Revenues
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$
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35,469.6
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$
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25,510.9
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$
|
33,739.3
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$
|
8,544.5
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|
|
$
|
10,183.7
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|
|
$
|
33,739.3
|
|
|
$
|
10,183.7
|
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Cost and expenses
|
|
|
33,763.7
|
|
|
|
23,748.6
|
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|
|
31,654.1
|
|
|
|
8,012.2
|
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|
|
9,575.0
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|
|
31,654.1
|
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|
9,575.0
|
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Equity in income of unconsolidated affiliates
|
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|
66.2
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|
92.3
|
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|
|
62.0
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|
26.6
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|
|
|
16.2
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|
|
62.0
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|
|
16.2
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Operating income
|
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|
1,772.1
|
|
|
|
1,854.6
|
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|
|
2,147.2
|
|
|
|
558.9
|
|
|
|
624.9
|
|
|
|
2,147.2
|
|
|
|
624.9
|
|
Other income (expense):
|
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|
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Interest expense
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|
|
(608.3
|
)
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|
|
(687.3
|
)
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|
|
(741.9
|
)
|
|
|
(157.9
|
)
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|
|
(183.8
|
)
|
|
|
(741.9
|
)
|
|
|
(183.8
|
)
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Other, net
|
|
|
12.3
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|
|
|
(1.7
|
)
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|
|
4.5
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
4.5
|
|
|
|
0.5
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|
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|
|
|
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Total other expense, net
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(596.0
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)
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|
|
(689.0
|
)
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|
|
(737.4
|
)
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|
|
(157.8
|
)
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|
|
(183.3
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)
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|
(737.4
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)
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|
|
(183.3
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)
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Income before provision for income taxes
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1,176.1
|
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1,165.6
|
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1,409.8
|
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401.1
|
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|
|
441.6
|
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|
|
1,409.8
|
|
|
|
441.6
|
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Provision for income taxes
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|
|
(31.0
|
)
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|
|
(25.3
|
)
|
|
|
(26.1
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)
|
|
|
(8.7
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)
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|
|
(7.1
|
)
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|
|
(26.1
|
)
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|
|
(7.1
|
)
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|
|
|
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Net income
|
|
|
1,145.1
|
|
|
|
1,140.3
|
|
|
|
1,383.7
|
|
|
|
392.4
|
|
|
|
434.5
|
|
|
|
1,383.7
|
|
|
|
434.5
|
|
Net income attributable to noncontrolling interests
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|
|
(981.1
|
)
|
|
|
(936.2
|
)
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|
|
(1,062.9
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)
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|
|
(322.5
|
)
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|
(13.8
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)
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|
|
(25.5
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)
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|
|
(5.9
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)
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Net income attributable to partners
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$
|
164.0
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|
$
|
204.1
|
|
|
$
|
320.8
|
|
|
$
|
69.9
|
|
|
$
|
420.7
|
|
|
$
|
1,358.2
|
|
|
$
|
428.6
|
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Earnings per unit:
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Basic earnings per unit
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$
|
0.89
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|
|
$
|
0.99
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|
|
$
|
1.17
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
|
$
|
1.67
|
|
|
$
|
0.51
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|
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|
|
|
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Diluted earnings per unit
|
|
$
|
0.89
|
|
|
$
|
0.99
|
|
|
$
|
1.15
|
|
|
$
|
0.33
|
|
|
$
|
0.49
|
|
|
$
|
1.59
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
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|
|
|
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Distributions to limited partners:
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Per common unit(1)
|
|
$
|
2.0750
|
|
|
$
|
2.1950
|
|
|
$
|
2.3150
|
|
|
$
|
0.5675
|
|
|
$
|
0.5975
|
|
|
$
|
2.3150
|
|
|
$
|
0.5975
|
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|
|
|
|
|
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Balance sheet data (at period end):
|
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|
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|
|
|
|
|
|
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|
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|
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|
|
Total assets
|
|
$
|
25,780.4
|
|
|
$
|
27,686.3
|
|
|
$
|
31,360.8
|
|
|
$
|
28,025.1
|
|
|
$
|
31,821.2
|
|
|
|
n/a
|
|
|
$
|
31,807.1
|
|
Total long-term and current maturities of debt
|
|
|
12,714.9
|
|
|
|
12,427.9
|
|
|
|
13,563.5
|
|
|
|
12,183.9
|
|
|
|
14,055.9
|
|
|
|
n/a
|
|
|
|
14,055.9
|
|
Total equity
|
|
|
9,759.4
|
|
|
|
10,473.1
|
|
|
|
11,900.8
|
|
|
|
10,822.1
|
|
|
|
11,800.0
|
|
|
|
n/a
|
|
|
|
11,785.9
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,566.4
|
|
|
$
|
2,410.3
|
|
|
$
|
2,300.0
|
|
|
$
|
696.4
|
|
|
$
|
802.7
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cash used in investing activities
|
|
|
3,246.9
|
|
|
|
1,547.7
|
|
|
|
3,251.6
|
|
|
|
370.5
|
|
|
|
726.4
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cash provided by (used in) financing activities
|
|
|
1,695.9
|
|
|
|
(863.9
|
)
|
|
|
961.1
|
|
|
|
(246.4
|
)
|
|
|
8.6
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Distributions received from unconsolidated affiliates
|
|
|
157.2
|
|
|
|
169.3
|
|
|
|
191.9
|
|
|
|
51.4
|
|
|
|
42.5
|
|
|
$
|
191.9
|
|
|
|
42.5
|
|
Total segment gross operating margin(2)
|
|
|
2,640.3
|
|
|
|
2,880.9
|
|
|
|
3,253.0
|
|
|
|
806.0
|
|
|
|
875.4
|
|
|
|
3,253.0
|
|
|
|
875.4
|
|
Adjusted EBITDA (unaudited)(2)
|
|
|
2,615.3
|
|
|
|
2,759.9
|
|
|
|
3,256.1
|
|
|
|
802.5
|
|
|
|
890.4
|
|
|
|
3,256.1
|
|
|
|
890.4
|
|
|
|
|
(1) |
|
Represents cash distributions per unit declared with respect to
period by Enterprise. |
|
(2) |
|
Please read Non-GAAP Financial
Measures below beginning on page 25 for a
reconciliation of non-GAAP total gross operating margin and
Adjusted EBITDA to their most closely related GAAP financial
measures. |
23
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical(1)
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
Selected volumetric operating data by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes (MBPD)
|
|
|
2,021
|
|
|
|
2,196
|
|
|
|
2,322
|
|
|
|
2,240
|
|
|
|
2,366
|
|
NGL fractionation volumes (MBPD)
|
|
|
441
|
|
|
|
461
|
|
|
|
485
|
|
|
|
473
|
|
|
|
549
|
|
Equity NGL production (MBPD)
|
|
|
108
|
|
|
|
117
|
|
|
|
121
|
|
|
|
122
|
|
|
|
119
|
|
Fee-based natural gas processing
(MMcf/d)
|
|
|
2,524
|
|
|
|
2,650
|
|
|
|
2,932
|
|
|
|
2,679
|
|
|
|
3,698
|
|
Onshore Natural Gas Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
9,612
|
|
|
|
10,435
|
|
|
|
11,482
|
|
|
|
10,706
|
|
|
|
11,678
|
|
Onshore Crude Oil Pipelines & Services, net:
Crude oil transportation volumes (MBPD)
|
|
|
696
|
|
|
|
680
|
|
|
|
670
|
|
|
|
672
|
|
|
|
666
|
|
Offshore Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
1,408
|
|
|
|
1,420
|
|
|
|
1,242
|
|
|
|
1,406
|
|
|
|
1,155
|
|
Crude oil transportation volumes (MBPD)
|
|
|
169
|
|
|
|
308
|
|
|
|
320
|
|
|
|
354
|
|
|
|
299
|
|
Platform natural gas processing
(MMcf/d)
|
|
|
632
|
|
|
|
700
|
|
|
|
513
|
|
|
|
632
|
|
|
|
445
|
|
Platform crude oil processing (MBPD)
|
|
|
15
|
|
|
|
12
|
|
|
|
17
|
|
|
|
18
|
|
|
|
16
|
|
Petrochemical & Refined Products Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes (MBPD)
|
|
|
86
|
|
|
|
97
|
|
|
|
89
|
|
|
|
73
|
|
|
|
88
|
|
Propylene fractionation volumes (MBPD)
|
|
|
58
|
|
|
|
68
|
|
|
|
77
|
|
|
|
80
|
|
|
|
73
|
|
Octane enhancement production volumes (MBPD)
|
|
|
9
|
|
|
|
10
|
|
|
|
16
|
|
|
|
11
|
|
|
|
12
|
|
Transportation volumes, primarily refined products and
petrochemicals (MBPD)
|
|
|
818
|
|
|
|
806
|
|
|
|
869
|
|
|
|
804
|
|
|
|
743
|
|
/d = per day
BBtus = billion British thermal units
MBPD = thousand barrels per day
MMcf = million cubic feet
|
|
|
(1) |
|
Enterprise consolidated historical operating data includes
Duncan assets and operations. For Duncan consolidated historical
operating data, please read the Duncan reports filed with the
SEC and incorporated by reference into this proxy
statement/prospectus. |
24
Summary
Historical Financial Information of Duncan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Consolidated Historical
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,598.1
|
|
|
$
|
979.3
|
|
|
$
|
1,115.1
|
|
|
$
|
290.6
|
|
|
$
|
283.2
|
|
Costs and expenses
|
|
|
1,531.1
|
|
|
|
919.5
|
|
|
|
1,050.4
|
|
|
|
272.1
|
|
|
|
261.6
|
|
Equity in income of Evangeline
|
|
|
0.9
|
|
|
|
1.1
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67.9
|
|
|
|
60.9
|
|
|
|
65.5
|
|
|
|
18.7
|
|
|
|
21.9
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(12.0
|
)
|
|
|
(14.0
|
)
|
|
|
(12.1
|
)
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
Other, net
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(11.5
|
)
|
|
|
(13.8
|
)
|
|
|
(12.1
|
)
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before benefit from (provision for) income taxes
|
|
|
56.4
|
|
|
|
47.1
|
|
|
|
53.4
|
|
|
|
15.6
|
|
|
|
18.8
|
|
Benefit from (provision for) income taxes
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
55.3
|
|
|
|
45.8
|
|
|
|
53.4
|
|
|
|
15.7
|
|
|
|
18.3
|
|
Net loss (income) attributable to noncontrolling interests
|
|
|
(7.4
|
)
|
|
|
45.3
|
|
|
|
36.7
|
|
|
|
5.5
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Duncan
|
|
$
|
47.9
|
|
|
$
|
91.1
|
|
|
$
|
90.1
|
|
|
$
|
21.2
|
|
|
$
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per unit
|
|
$
|
1.22
|
|
|
$
|
1.57
|
|
|
$
|
1.55
|
|
|
$
|
0.37
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit (declared with respect to period)
|
|
$
|
1.6775
|
|
|
$
|
1.7500
|
|
|
$
|
1.8050
|
|
|
$
|
0.4475
|
|
|
$
|
0.4575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,594.7
|
|
|
$
|
4,770.8
|
|
|
$
|
5,571.9
|
|
|
$
|
4,804.3
|
|
|
$
|
5,877.4
|
|
Total long-term debt, including current maturities
|
|
|
484.3
|
|
|
|
457.3
|
|
|
|
788.3
|
|
|
|
457.3
|
|
|
|
897.8
|
|
Equity
|
|
|
3,844.2
|
|
|
|
4,136.9
|
|
|
|
4,519.6
|
|
|
|
4,182.7
|
|
|
|
4,692.5
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
220.1
|
|
|
$
|
201.6
|
|
|
$
|
310.4
|
|
|
$
|
61.5
|
|
|
$
|
55.9
|
|
Cash used in investing activities
|
|
|
748.8
|
|
|
|
428.8
|
|
|
|
927.3
|
|
|
|
69.7
|
|
|
|
326.3
|
|
Cash provided by financing activities
|
|
|
539.5
|
|
|
|
218.1
|
|
|
|
645.4
|
|
|
|
26.0
|
|
|
|
260.6
|
|
Total segment gross operating margin(1)
|
|
|
253.0
|
|
|
|
262.1
|
|
|
|
299.6
|
|
|
|
71.8
|
|
|
|
77.2
|
|
|
|
|
(1) |
|
Please read Non-GAAP Financial
Measures below for a reconciliation of non-GAAP total
gross operating margin to its most closely related GAAP
financial measure. |
Non-GAAP Financial
Measures
This section provides reconciliations of Enterprises and
Duncans non-GAAP financial measures included in this proxy
statement/prospectus to their most directly comparable financial
measures calculated and presented in accordance with GAAP.
Enterprise and Duncan both present the non-GAAP financial
measure of gross operating margin and Enterprise presents the
non-GAAP financial measure of Adjusted EBITDA. These non-GAAP
financial measures should not be considered as an alternative to
GAAP measures such as net income, operating income, net cash
flows provided by operating activities or any other measure of
liquidity or financial performance calculated and presented in
accordance with GAAP. These non-GAAP financial
25
measures may not be comparable to similarly titled measures of
other companies because they may not calculate such measures in
the same manner as Enterprise or Duncan do.
Gross
Operating Margin
Enterprise and Duncan evaluate segment performance based on the
non-GAAP financial measure of gross operating margin. Total
segment gross operating margin is an important performance
measure of the core profitability of both Enterprises and
Duncans operations. This measure forms the basis of
Enterprises and Duncans internal financial reporting
and is used by management in deciding how to allocate capital
resources among business segments. Enterprise and Duncan believe
that investors benefit from having access to the same financial
measures that management uses in evaluating segment results. The
GAAP measure most directly comparable to total segment gross
operating margin is operating income. The non-GAAP financial
measure of total segment gross operating margin should not be
considered an alternative to GAAP operating income.
Enterprise and Duncan define total segment gross operating
margin as operating income before: (i) depreciation,
amortization and accretion expenses; (ii) non-cash asset
impairment charges; (iii) operating lease expenses for
which Enterprise does not have the payment obligation;
(iv) gains and losses from asset sales and related
transactions; and (v) general and administrative costs.
Gross operating margin is presented on a 100% basis before the
allocation of earnings to noncontrolling interests.
The following table presents a reconciliation of
Enterprises non-GAAP financial measure of total gross
operating margin to its GAAP financial measure of operating
income, on a historical and pro forma basis, as applicable for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical
|
|
|
Enterprise Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Total segment gross operating margin
|
|
$
|
2,640.3
|
|
|
$
|
2,880.9
|
|
|
$
|
3,253.0
|
|
|
$
|
806.0
|
|
|
$
|
875.4
|
|
|
$
|
3,253.0
|
|
|
$
|
875.4
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(725.4
|
)
|
|
|
(809.3
|
)
|
|
|
(936.3
|
)
|
|
|
(212.4
|
)
|
|
|
(230.8
|
)
|
|
|
(936.3
|
)
|
|
|
(230.8
|
)
|
Non-cash asset impairment charges
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
(8.4
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(8.4
|
)
|
|
|
|
|
Operating lease expenses paid by EPCO
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
Gain from asset sales and related transactions in operating
costs and expenses
|
|
|
4.0
|
|
|
|
|
|
|
|
44.4
|
|
|
|
7.3
|
|
|
|
18.4
|
|
|
|
44.4
|
|
|
|
18.4
|
|
General and administrative costs
|
|
|
(144.8
|
)
|
|
|
(182.8
|
)
|
|
|
(204.8
|
)
|
|
|
(40.3
|
)
|
|
|
(37.9
|
)
|
|
|
(204.8
|
)
|
|
|
(37.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
2,147.2
|
|
|
|
558.9
|
|
|
|
624.9
|
|
|
|
2,147.2
|
|
|
|
624.9
|
|
Other expense, net
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(737.4
|
)
|
|
|
(157.8
|
)
|
|
|
(183.3
|
)
|
|
|
(737.4
|
)
|
|
|
(183.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
1,176.1
|
|
|
$
|
1,165.6
|
|
|
$
|
1,409.8
|
|
|
$
|
401.1
|
|
|
$
|
441.6
|
|
|
$
|
1,409.8
|
|
|
$
|
441.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The following table presents a reconciliation of Duncans
non-GAAP financial measure of total gross operating margin to
its GAAP financial measure of operating income, on a historical
basis, for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Consolidated Historical
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Total segment gross operating margin
|
|
$
|
253.0
|
|
|
$
|
262.1
|
|
|
$
|
299.6
|
|
|
$
|
71.8
|
|
|
$
|
77.2
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(167.3
|
)
|
|
|
(186.3
|
)
|
|
|
(201.0
|
)
|
|
|
(47.6
|
)
|
|
|
(50.9
|
)
|
Non-cash asset impairment charges
|
|
|
|
|
|
|
(4.2
|
)
|
|
|
(5.2
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
Gain (loss) from asset sales and related transactions in
operating costs and expenses
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
(7.9
|
)
|
|
|
0.9
|
|
|
|
0.2
|
|
General and administrative costs
|
|
|
(18.3
|
)
|
|
|
(11.2
|
)
|
|
|
(20.0
|
)
|
|
|
(4.9
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67.9
|
|
|
|
60.9
|
|
|
|
65.5
|
|
|
|
18.7
|
|
|
|
21.9
|
|
Other expense, net
|
|
|
(11.5
|
)
|
|
|
(13.8
|
)
|
|
|
(12.1
|
)
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
56.4
|
|
|
$
|
47.1
|
|
|
$
|
53.4
|
|
|
$
|
15.6
|
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA of Enterprise
Enterprise defines Adjusted EBITDA as consolidated net income
less equity in income from unconsolidated affiliates; plus
distributions received from unconsolidated affiliates, interest
expense, provision for income taxes and depreciation,
amortization and accretion expenses. The GAAP measure most
directly comparable to Adjusted EBITDA is net cash flows
provided by operating activities. Adjusted EBITDA is commonly
used as a supplemental financial measure by management and by
external users of Enterprises financial statements, such
as investors, commercial banks, research analysts and rating
agencies, to assess:
|
|
|
|
|
the financial performance of Enterprises assets without
regard to financing methods, capital structures or historical
cost basis;
|
|
|
|
the ability of Enterprises assets to generate cash
sufficient to pay interest cost and support its
indebtedness; and
|
|
|
|
the viability of projects and the overall rates of return on
alternative investment opportunities.
|
Since Enterprises Adjusted EBITDA is based on its
consolidated net income, it includes amounts attributable to
Duncan.
27
The following table presents Enterprises calculation of
Adjusted EBITDA (unaudited) on a historical and pro forma basis
and a reconciliation of Enterprises non-GAAP financial
measure of Adjusted EBITDA to its GAAP financial measure of net
cash flows provided by operating activities on a historical
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical
|
|
|
Enterprise Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Months
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Net income
|
|
$
|
1,145.1
|
|
|
$
|
1,140.3
|
|
|
$
|
1,383.7
|
|
|
$
|
392.4
|
|
|
$
|
434.5
|
|
|
$
|
1,383.7
|
|
|
$
|
434.5
|
|
Adjustments to GAAP net income to derive
non-GAAP Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(66.2
|
)
|
|
|
(92.3
|
)
|
|
|
(62.0
|
)
|
|
|
(26.6
|
)
|
|
|
(16.2
|
)
|
|
|
(62.0
|
)
|
|
|
(16.2
|
)
|
Distributions received from unconsolidated affiliates
|
|
|
157.2
|
|
|
|
169.3
|
|
|
|
191.9
|
|
|
|
51.4
|
|
|
|
42.5
|
|
|
|
191.9
|
|
|
|
42.5
|
|
Interest expense (including related amortization)
|
|
|
608.3
|
|
|
|
687.3
|
|
|
|
741.9
|
|
|
|
157.9
|
|
|
|
183.8
|
|
|
|
741.9
|
|
|
|
183.8
|
|
Provision for income taxes
|
|
|
31.0
|
|
|
|
25.3
|
|
|
|
26.1
|
|
|
|
8.7
|
|
|
|
7.1
|
|
|
|
26.1
|
|
|
|
7.1
|
|
Depreciation, amortization and accretion in costs and expenses
|
|
|
739.9
|
|
|
|
830.0
|
|
|
|
974.5
|
|
|
|
218.7
|
|
|
|
238.7
|
|
|
|
974.5
|
|
|
|
238.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
2,615.3
|
|
|
$
|
2,759.9
|
|
|
$
|
3,256.1
|
|
|
$
|
802.5
|
|
|
$
|
890.4
|
|
|
$
|
3,256.1
|
|
|
$
|
890.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to non-GAAP Adjusted EBITDA to derive GAAP
net cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(608.3
|
)
|
|
|
(687.3
|
)
|
|
|
(741.9
|
)
|
|
|
(157.9
|
)
|
|
|
(183.8
|
)
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(26.1
|
)
|
|
|
(8.7
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
Operating lease expenses paid by EPCO
|
|
|
2.0
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Gain from asset sales and related transactions
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(46.7
|
)
|
|
|
(7.5
|
)
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
Loss on forfeiture of Texas Offshore Port System
|
|
|
|
|
|
|
68.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous non-cash and other amounts to reconcile Adjusted
EBITDA and net cash flows provided by operating activities
|
|
|
7.0
|
|
|
|
43.8
|
|
|
|
48.3
|
|
|
|
(5.6
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Net effect of changes in operating accounts
|
|
|
(414.6
|
)
|
|
|
250.1
|
|
|
|
(190.4
|
)
|
|
|
73.4
|
|
|
|
120.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,566.4
|
|
|
$
|
2,410.3
|
|
|
$
|
2,300.0
|
|
|
$
|
696.4
|
|
|
$
|
802.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
COMPARATIVE
PER UNIT INFORMATION
The following table sets forth (i) historical per unit
information of Enterprise, (ii) the unaudited pro forma per
unit information of Enterprise after giving pro forma effect to
the proposed merger and the transactions contemplated thereby,
including Enterprises issuance of 1.01 Enterprise common
units for each outstanding Duncan common unit (other than Duncan
common units owned by GTM), and (iii) the historical and
equivalent pro forma per unit information for Duncan.
You should read this information in conjunction with
(i) the summary historical financial information included
elsewhere in this proxy statement/prospectus, (ii) the
historical consolidated financial statements of Duncan and
Enterprise and related notes that are incorporated by reference
in this proxy statement/prospectus and (iii) the
Unaudited Pro Forma Condensed Consolidated Financial
Statements and related notes included elsewhere in this
proxy statement/prospectus. The unaudited pro forma per unit
information does not purport to represent what the actual
results of operations of Duncan and Enterprise would have been
had the proposed merger been completed in another period or to
project Duncans and Enterprises results of
operations that may be achieved if the proposed merger is
completed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
Enterprise
|
|
|
Duncan
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
Equivalent
|
|
|
|
Historical
|
|
|
Pro Forma(1)
|
|
|
Historical
|
|
|
Pro Forma(2)
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.17
|
|
|
$
|
1.67
|
|
|
$
|
1.55
|
|
|
$
|
1.68
|
|
Diluted
|
|
$
|
1.15
|
|
|
$
|
1.59
|
|
|
$
|
1.55
|
|
|
$
|
1.61
|
|
Cash distributions declared per unit(3)
|
|
$
|
2.3150
|
|
|
$
|
2.3150
|
|
|
$
|
1.8050
|
|
|
$
|
2.3382
|
|
Book value per common unit
|
|
$
|
13.41
|
|
|
$
|
N/A
|
|
|
$
|
13.18
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
Enterprise
|
|
|
Duncan
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
Equivalent
|
|
|
|
Historical
|
|
|
Pro Forma(1)
|
|
|
Historical
|
|
|
Pro Forma(2)
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.52
|
|
|
$
|
0.51
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
Diluted
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
|
$
|
0.33
|
|
|
$
|
0.49
|
|
Cash distributions declared per unit(3)
|
|
$
|
0.5975
|
|
|
$
|
0.5975
|
|
|
$
|
0.4575
|
|
|
$
|
0.6035
|
|
Book value per common unit
|
|
$
|
13.27
|
|
|
$
|
13.48
|
|
|
$
|
13.07
|
|
|
$
|
13.62
|
|
|
|
|
(1) |
|
Enterprises pro forma information includes the effect of
the merger on the basis described in the notes to the
Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this proxy
statement/prospectus. |
|
(2) |
|
Duncans equivalent pro forma earnings, book value and cash
distribution amounts have been calculated by multiplying
Enterprises pro forma per unit amounts by the 1.01x
exchange ratio. |
|
(3) |
|
With respect to Enterprise, represents cash distributions per
common unit declared and paid with respect to the period by
Enterprise. |
29
MARKET
PRICES AND DISTRIBUTION INFORMATION
Enterprise common units are traded on the NYSE under the ticker
symbol EPD, and the Duncan common units are traded
on the NYSE under the ticker symbol DEP. The
following table sets forth, for the periods indicated, the range
of high and low sales prices per unit for Enterprise common
units and Duncan common units, on the NYSE composite tape, as
well as information concerning quarterly cash distributions
declared and paid on those units. The sales prices are as
reported in published financial sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Common Units
|
|
|
Duncan Common Units
|
|
|
|
High
|
|
|
Low
|
|
|
Distributions(1)
|
|
|
High
|
|
|
Low
|
|
|
Distributions(1)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
32.63
|
|
|
$
|
26.75
|
|
|
$
|
0.5075
|
|
|
$
|
23.65
|
|
|
$
|
18.29
|
|
|
$
|
0.4100
|
|
Second Quarter
|
|
$
|
32.64
|
|
|
$
|
29.04
|
|
|
$
|
0.5150
|
|
|
$
|
21.29
|
|
|
$
|
18.04
|
|
|
$
|
0.4200
|
|
Third Quarter
|
|
$
|
30.07
|
|
|
$
|
22.58
|
|
|
$
|
0.5225
|
|
|
$
|
18.96
|
|
|
$
|
14.91
|
|
|
$
|
0.4200
|
|
Fourth Quarter
|
|
$
|
26.30
|
|
|
$
|
16.00
|
|
|
$
|
0.5300
|
|
|
$
|
16.99
|
|
|
$
|
9.68
|
|
|
$
|
0.4275
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.20
|
|
|
$
|
17.71
|
|
|
$
|
0.5375
|
|
|
$
|
18.07
|
|
|
$
|
13.55
|
|
|
$
|
0.4300
|
|
Second Quarter
|
|
$
|
26.55
|
|
|
$
|
21.10
|
|
|
$
|
0.5450
|
|
|
$
|
20.15
|
|
|
$
|
14.75
|
|
|
$
|
0.4350
|
|
Third Quarter
|
|
$
|
29.45
|
|
|
$
|
24.50
|
|
|
$
|
0.5525
|
|
|
$
|
20.00
|
|
|
$
|
15.91
|
|
|
$
|
0.4400
|
|
Fourth Quarter
|
|
$
|
32.24
|
|
|
$
|
27.25
|
|
|
$
|
0.5600
|
|
|
$
|
24.19
|
|
|
$
|
19.19
|
|
|
$
|
0.4450
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.69
|
|
|
$
|
29.44
|
|
|
$
|
0.5675
|
|
|
$
|
27.25
|
|
|
$
|
22.08
|
|
|
$
|
0.4475
|
|
Second Quarter
|
|
$
|
36.73
|
|
|
$
|
29.05
|
|
|
$
|
0.5750
|
|
|
$
|
28.56
|
|
|
$
|
22.27
|
|
|
$
|
0.4500
|
|
Third Quarter
|
|
$
|
39.69
|
|
|
$
|
34.21
|
|
|
$
|
0.5825
|
|
|
$
|
31.20
|
|
|
$
|
26.04
|
|
|
$
|
0.4525
|
|
Fourth Quarter
|
|
$
|
44.32
|
|
|
$
|
39.26
|
|
|
$
|
0.5900
|
|
|
$
|
33.39
|
|
|
$
|
30.50
|
|
|
$
|
0.4550
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
44.35
|
|
|
$
|
36.00
|
|
|
$
|
0.5975
|
|
|
$
|
41.00
|
|
|
$
|
30.94
|
|
|
$
|
0.4575
|
|
Second Quarter
|
|
$
|
43.95
|
|
|
$
|
38.67
|
|
|
$
|
0.6050
|
|
|
$
|
43.50
|
|
|
$
|
38.77
|
|
|
$
|
0.4600
|
|
Third Quarter (through July 29, 2011)
|
|
$
|
43.95
|
|
|
$
|
40.75
|
|
|
$
|
|
(2)
|
|
$
|
44.94
|
|
|
$
|
40.97
|
|
|
$
|
|
(2)
|
|
|
|
(1) |
|
Represents cash distributions per Enterprise common unit or
Duncan common unit declared with respect to the quarter
presented and paid in the following quarter. |
|
(2) |
|
Cash distributions with respect to the third quarter of 2011
have not been declared or paid. |
The last reported sale price of Duncan common units on the NYSE
on February 22, 2011, the last trading day before
Enterprise announced its initial proposal to acquire all of the
Duncan common units owned by the public, was $32.56. The last
reported sale price of Enterprise common units on the NYSE on
February 22, 2011, the last trading day before Enterprise
announced its initial proposal to acquire all of the Duncan
common units owned by the public, was $43.70. The last reported
sale price of Duncan common units on the NYSE on July 25,
2011, the last trading day before the filing of the registration
statement of which this proxy statement/prospectus is a part,
was $43.61. The last reported sale price of Enterprise common
units on the NYSE on July 25, 2011, the last trading day
before the filing of the registration statement of which this
proxy statement/prospectus is a part, was $43.52.
30
As of July 25, 2011, Enterprise had 845,831,873 common
units and 4,520,431 Class B units outstanding held by
approximately 2,211 holders of record. Class B units
generally have the same rights and privileges as Enterprise
common units, except that they are not entitled to receive
quarterly cash distributions until the fourth quarter of 2013.
Enterprises partnership agreement requires it to
distribute all of its available cash, as defined in
its partnership agreement, within 45 days after the end of
each quarter. The payment of quarterly cash distributions by
Enterprise in the future, therefore, will depend on the amount
of its available cash at the end of each quarter.
As of the record date for the special meeting, Duncan had
57,792,270 outstanding common units held by approximately 42
holders of record. Duncans partnership agreement requires
it to distribute all of its available cash, as
defined in its partnership agreement, within 45 days after
the end of each quarter. The payment of quarterly cash
distributions by Duncan in the future will depend on the amount
of its available cash at the end of each quarter.
31
RISK
FACTORS
You should consider carefully the following risk factors,
together with all of the other information included in, or
incorporated by reference into, this proxy statement/prospectus
before deciding how to vote. In particular, please read
Part I, Item 1A, Risk Factors, in the
Annual Reports on
Form 10-K
for the year ended December 31, 2010 for each of Enterprise
and Duncan incorporated by reference herein. This document also
contains forward-looking statements that involve risks and
uncertainties. Please read Information Regarding
Forward-Looking Statements.
Risks
Related to the Merger
Duncans
partnership agreement limits the fiduciary duties of Duncan GP
to common unitholders and restricts the remedies available to
common unitholders for actions taken by Duncan GP that might
otherwise constitute breaches of fiduciary duty.
The Duncan partnership agreement contains provisions that modify
and limit Duncan GPs fiduciary duties to Duncan
unitholders. The Duncan partnership agreement also restricts the
remedies available to Duncan unitholders for actions taken that,
without those limitations, might constitute breaches of
fiduciary duty.
Neither Duncan GP nor its affiliates (including directors of
Duncan GP) will be in breach of their obligations under the
Duncan partnership agreement or its duties to Duncan or the
Duncan unitholders if the resolution of the conflict is or is
deemed to be fair and reasonable to Duncan. Any resolution will
be deemed fair and reasonable if it is:
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approved by a majority of the members of the Duncan ACG
Committee; or
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on terms no less favorable to Duncan than those generally being
provided to or available from unrelated third parties.
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In light of conflicts of interest in connection with the merger
between Enterprise, Duncan GP and its controlling affiliates, on
the one hand, and Duncan and the Duncan unaffiliated
unitholders, on the other hand, the Duncan Board delegated
authority to the Duncan ACG Committee to consider, analyze,
review, evaluate and determine whether to pursue the merger and
related matters and if a determination to pursue a merger and
related matters were made, to negotiate the terms and conditions
of a merger and related matters. Approval by a majority of the
members of the Duncan ACG Committee is referred to as
Special Approval in Duncans partnership
agreement. Under the Duncan partnership agreement:
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any conflict of interest and any resolution thereof is permitted
and deemed approved by all parties and will not constitute a
breach of the partnership agreement of Duncan, or of any duty
expressed or implied by law or equity, if approved by
Special Approval; and
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the actions taken by the Duncan ACG Committee in granting
Special Approval, in the absence of bad faith by the
Duncan ACG Committee, are conclusive and binding on all persons
(including all partners) and do not constitute a breach of the
partnership agreement or any standard of care or duty imposed by
law.
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The
directors and executive officers of Duncan GP may have interests
relating to the merger that differ in certain respects from the
interests of the Duncan unaffiliated unitholders.
In considering the recommendations of the Duncan ACG Committee
and the Duncan Board to approve the merger agreement and the
merger, you should consider that some of the directors and
executive officers of Duncan GP may have interests that differ
from, or are in addition to, interests of Duncan unitholders
generally, including:
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All of the directors and executive officers of Duncan GP will
receive continued indemnification for their actions as directors
and executive officers.
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All of the directors of Duncan GP directly or beneficially own
Enterprise common units.
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Some of Duncan GPs directors and all of Duncan GPs
executive officers also serve as directors or executive officers
of Enterprise GP and may have certain duties to the limited
partners of Enterprise.
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Pursuant to the voting agreement, Enterprise has agreed, and it
has caused its indirect wholly owned subsidiary GTM to agree, to
vote any Duncan common units owned by them or their subsidiaries
in favor of adoption of the merger agreement and the merger,
including the 33,783,587 Duncan common units currently directly
owned by GTM (representing approximately 58.5% of the
outstanding Duncan common units), at any meeting of Duncan
unitholders.
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Members of senior management who prepared projections with
respect to Enterprises and Duncans future financial
and operating performance on a stand-alone basis and on a
combined basis (i) are officers of each of Duncan GP and
Enterprise GP, (ii) may hold the same or similar positions
in each entity and (iii) own both Duncan common units and
Enterprise common units.
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The
exchange ratio is fixed and the market value of the merger
consideration to Duncan unitholders on the closing date will be
equal to 1.01 times the price of Enterprise common units at the
closing of the merger, which market value will decrease if the
market value of Enterprises common units
decreases.
The market value of the consideration that Duncan unitholders
will receive in the merger will depend on the trading price of
Enterprises common units at the closing of the merger. The
1.01x exchange ratio that determines the number of Enterprise
common units that Duncan unitholders will receive in the merger
is fixed. This means that there is no price
protection mechanism contained in the merger agreement
that would adjust the number of Enterprise common units that
Duncan unitholders will receive based on any decreases in the
trading price of Enterprise common units. If Enterprises
common unit price at the closing of the merger is less than
Enterprises common unit price on the date that the merger
agreement was signed, then the market value of the consideration
received by Duncan unitholders will be less than contemplated at
the time the merger agreement was signed.
Enterprise common unit price changes may result from a variety
of factors, including general market and economic conditions,
changes in Enterprises business, operations and prospects,
and regulatory considerations. Many of these factors are beyond
Enterprises and Duncans control. For historical and
current market prices of Enterprise common units and Duncan
common units, please read the Market Prices and
Distribution Information section of this proxy
statement/prospectus.
The
transactions contemplated by the merger agreement may not be
consummated even if Duncan unitholders approve the merger
agreement and the merger.
The merger agreement contains conditions that, if not satisfied
or waived, would result in the merger not occurring, even though
Duncan unitholders may have voted in favor of the merger
agreement. In addition, Duncan and Enterprise can agree not to
consummate the merger even if Duncan unitholders approve the
merger agreement and the merger and the conditions to the
closing of the merger are otherwise satisfied.
Financial
projections by Enterprise and Duncan may not prove
accurate.
In performing its financial analyses and rendering its opinion
regarding the fairness from a financial point of view of the
exchange ratio, the financial advisor to the Duncan ACG
Committee reviewed and relied on, among other things, internal
financial analyses and forecasts for Duncan and Enterprise
prepared by their respective managements. These financial
projections include assumptions regarding future operating cash
flows, expenditures, growth and distributable income of
Enterprise and Duncan. These financial projections were not
provided with a view to public disclosure, are subject to
significant economic, competitive, industry and other
uncertainties and may not be achieved in full, at all or within
projected timeframes. In addition, the failure of
Enterprises or Duncans businesses to achieve
projected results, including projected cash flows or
distributable cash flows, could have a material adverse effect
on Enterprises common unit price, financial position and
ability to maintain or increase its distributions following the
merger.
While
the merger agreement is in effect, both Duncan and Enterprise
may lose opportunities to enter into different business
combination transactions with other parties on more favorable
terms, and may be limited in their ability to pursue other
attractive business opportunities.
While the merger agreement is in effect, Duncan is prohibited
from initiating, soliciting, knowingly encouraging or
facilitating any inquiries or the making or submission of any
proposal that constitutes or may
33
reasonably be expected to lead to a proposal to acquire Duncan,
or offering to enter into certain transactions such as a merger,
sale of assets or other business combination, with any other
person, subject to limited exceptions. As a result of these
provisions in the merger agreement, Duncan may lose
opportunities to enter into more favorable transactions. While
the merger agreement is in effect, Enterprise is prohibited from
merging, consolidating or entering into any other business
combination with any other entity or making any acquisition or
disposition that would likely have a material adverse effect, as
defined in the merger agreement.
Both Enterprise and Duncan have also agreed to refrain from
taking certain actions with respect to their businesses and
financial affairs pending completion of the merger or
termination of the merger agreement. These restrictions and the
non-solicitation provisions (described in more detail below in
The Merger Agreement) could be in effect for an
extended period of time if completion of the merger is delayed
and the parties agree to extend the October 31, 2011
outside termination date.
In addition to the economic costs associated with pursuing a
merger, each of Enterprise GPs and Duncan GPs
management is devoting substantial time and other resources to
the proposed transaction and related matters, which could limit
Enterprises and Duncans ability to pursue other
attractive business opportunities, including potential joint
ventures, stand-alone projects and other transactions. If either
Enterprise or Duncan is unable to pursue such other attractive
business opportunities, its growth prospects and the long-term
strategic position of its business and the combined business
could be adversely affected.
Risks
Related to Enterprises Business After the Merger
Enterprises
cash distributions may vary based on its operating performance
and level of cash reserves.
Distributions will be dependent on the amount of cash Enterprise
generates and may fluctuate based on its performance. Neither
Enterprise nor Duncan can guarantee that after giving effect to
the merger Enterprise will continue to be able to pay
distributions at the current level each quarter or make any
increase in the amount of distributions in the future. The
actual amount of cash that is available to be distributed each
quarter will depend upon numerous factors, some of which will be
beyond Enterprises control and the control of its general
partner. These factors include but are not limited to the
following:
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the volume of products that Enterprise handles and the prices it
receives for its products and services;
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the level of Enterprises operating costs;
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the level of competition from third parties;
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prevailing economic conditions, including the price of and
demand for NGLs, crude oil, natural gas and other products
Enterprise will process, transport, store and market;
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the level of capital expenditures Enterprise will make and the
availability of, and timing of completion of, organic growth
projects;
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the restrictions contained in Enterprises debt agreements
and debt service requirements;
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fluctuations in Enterprises working capital needs;
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the weather in Enterprises operating areas;
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the availability and cost of acquisitions, if any;
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regulatory changes; and
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the amount, if any, of cash reserves established by Enterprise
GP in its discretion.
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In addition, Enterprises ability to pay the minimum
quarterly distribution each quarter will depend primarily on its
cash flow, including cash flow from financial reserves and
working capital borrowings, and not solely on profitability,
which is affected by non-cash items. As a result, Enterprise may
make cash distributions during periods when it records losses,
and Enterprise may not make distributions during periods when it
records net income.
34
Risks
Related to Enterprises Common Units and Risks Resulting
from its Partnership Structure
The
general partner of Enterprise and its affiliates have limited
fiduciary responsibilities to, and have conflicts of interest
with respect to, Enterprise, which may permit the general
partner of Enterprise to favor its own interests to your
detriment.
The directors and officers of the general partner of Enterprise
and its affiliates have duties to manage the general partner of
Enterprise in a manner that is beneficial to its member. At the
same time, the general partner of Enterprise has duties to
manage Enterprise in a manner that is beneficial to Enterprise.
Therefore, the duties of the general partner to Enterprise may
conflict with the duties of its officers and directors to its
member. Such conflicts may include, among others, the following:
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neither Enterprises partnership agreement nor any other
agreement requires the general partner of Enterprise or EPCO to
pursue a business strategy that favors Enterprise;
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decisions of the general partner of Enterprise regarding the
amount and timing of asset purchases and sales, cash
expenditures, borrowings, issuances of additional units and
reserves in any quarter may affect the level of cash available
to pay quarterly distributions to unitholders and the general
partner of Enterprise;
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under Enterprises partnership agreement, the general
partner of Enterprise determines which costs incurred by it and
its affiliates are reimbursable by Enterprise;
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the general partner of Enterprise is allowed to resolve any
conflicts of interest involving Enterprise and the general
partner of Enterprise and its affiliates;
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the general partner of Enterprise is allowed to take into
account the interests of parties other than Enterprise, such as
EPCO, in resolving conflicts of interest, which has the effect
of limiting its fiduciary duty to Enterprises unitholders;
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any resolution of a conflict of interest by the general partner
of Enterprise not made in bad faith and that is fair and
reasonable to Enterprise is binding on the partners and will not
be a breach of Enterprises partnership agreement;
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affiliates of the general partner of Enterprise may compete with
Enterprise in certain circumstances;
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the general partner of Enterprise has limited its liability and
reduced its fiduciary duties and has also restricted the
remedies available to Enterprises unitholders for actions
that might, without the limitations, constitute breaches of
fiduciary duty. As a result of acquiring Enterprise common
units, you are deemed to consent to some actions and conflicts
of interest that might otherwise constitute a breach of
fiduciary or other duties under applicable law;
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Enterprise does not have any employees and relies solely on
employees of EPCO and its affiliates;
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In some instances, the general partner of Enterprise may cause
Enterprise to borrow funds in order to permit the payment of
distributions;
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Enterprises partnership agreement does not restrict the
general partner of Enterprise from causing Enterprise to pay it
or its affiliates for any services rendered to Enterprise or
entering into additional contractual arrangements with any of
these entities on Enterprises behalf;
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the general partner of Enterprise intends to limit its liability
regarding Enterprises contractual and other obligations
and, in some circumstances, may be entitled to be indemnified by
Enterprise;
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the general partner of Enterprise controls the enforcement of
obligations it owes to Enterprise and other affiliates of EPCO;
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the general partner of Enterprise decides whether to retain
separate counsel, accountants or others to perform services for
Enterprise; and
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Enterprise has significant business relationships with entities
controlled by the DDLLC voting trustees and the EPCO voting
trustees, including EPCO. For detailed information on these
relationships and related transactions with these entities,
please see Item 13 (Certain Relationships and Related
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Transactions, and Director Independence) of
Enterprises Annual Report on
Form 10-K
for the year ended December 31, 2010 and Note 12
(Related Party Transactions) to the Unaudited
Condensed Consolidated Financial Statements included in
Item 1 of Enterprises Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2011.
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The
general partner of Enterprise has a limited call right that may
require common unitholders to sell their common units at an
undesirable time or price.
If at any time the general partner of Enterprise and its
affiliates own 85% or more of Enterprise common units then
outstanding, the general partner of Enterprise will have the
right, but not the obligation, which it may assign to any of its
affiliates or to Enterprise, to acquire all, but not less than
all, of the remaining Enterprise common units held by
unaffiliated persons at a price not less than then current
market price. As a result, common unitholders may be required to
sell their Enterprise common units at an undesirable time or
price and may therefore not receive any return on their
investment. They may also incur a tax liability upon a sale of
their units.
Tax Risks
Related to the Merger
In addition to reading the following risk factors, you are urged
to read Material U.S. Federal Income Tax Consequences
of the Merger beginning on page 124 and
U.S. Federal Income Taxation of Ownership of
Enterprise Common Units beginning on page 128 for a
more complete discussion of the expected material
U.S. federal income tax consequences of the merger and
owning and disposing of Enterprise common units received in the
merger.
No
ruling has been obtained with respect to the U.S. federal income
tax consequences of the merger.
No ruling has been or will be requested from the IRS with
respect to the U.S. federal income tax consequences of the
merger. Instead, Enterprise and Duncan are relying on the
opinions of their respective counsel as to the U.S. federal
income tax consequences of the merger, and counsels
conclusions may not be sustained if challenged by the IRS.
The
intended U.S. federal income tax consequences of the merger are
dependent upon Enterprise being treated as a partnership for
U.S. federal income tax purposes.
The treatment of the merger as nontaxable to Duncan unitholders
is dependent upon Enterprise being treated as a partnership for
U.S. federal income tax purposes. If Enterprise were
treated as a corporation for U.S. federal income tax
purposes, the consequences of the merger would be materially
different and the merger would likely be a fully taxable
transaction to a Duncan unitholder.
Duncan
unitholders could recognize taxable income or gain for U.S.
federal income tax purposes as a result of the
merger.
As a result of the merger, Duncan unitholders who receive
Enterprise common units will become limited partners of
Enterprise and will be allocated a share of Enterprises
nonrecourse liabilities. Each Duncan unitholder will be treated
as receiving a deemed cash distribution equal to the excess, if
any, of such common unitholders share of nonrecourse
liabilities of Duncan immediately before the merger over such
common unitholders share of nonrecourse liabilities of
Enterprise immediately following the merger. If the amount of
any deemed cash distribution received by a Duncan unitholder
exceeds the common unitholders basis in his common units,
such common unitholder will recognize gain in an amount equal to
such excess. Enterprise and Duncan do not expect any Duncan
unitholders to recognize gain in this manner.
To the extent Duncan unitholders receive cash in lieu of
fractional Enterprise common units in the merger, such
unitholders will recognize gain or loss equal to the difference
between the cash received and the common unitholders
adjusted tax basis allocated to such fractional Enterprise
common units.
36
THE
SPECIAL UNITHOLDER MEETING
Time, Place and Date. The special meeting of
Duncan unitholders will be held on September 7, 2011 at
8:00 a.m., local time at 1100 Louisiana Street,
10th Floor, Houston, Texas 77002. The meeting may be
adjourned or postponed by Duncan GP to another date or place for
proper purposes, including for the purpose of soliciting
additional proxies.
Purposes. The purposes of the special meeting
are:
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to consider and vote on the approval of the merger agreement and
the merger; and
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to transact such other business as may properly be presented at
the meeting or any adjournment or postponement of the meeting.
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At this time, Duncan knows of no other matter that will be
presented for consideration at the meeting.
Quorum. A quorum requires the presence, in
person or by proxy, of holders of a majority of the outstanding
Duncan common units. Duncan common units will be counted as
present at the special meeting if the holder is present in
person at the meeting or has submitted a properly executed proxy
card or properly submits a proxy by telephone or Internet.
Proxies received but marked as abstentions will be counted as
units that are present and entitled to vote for purposes of
determining the presence of a quorum. If an executed proxy is
returned by a broker or other nominee holding units in
street name indicating that the broker does not have
discretionary authority as to certain units to vote on the
proposals, such units will be considered present at the meeting
for purposes of determining the presence of a quorum but will
not be considered entitled to vote.
Record Date. The Duncan unitholder record date
for the special meeting is the close of business on
July 25, 2011.
Units Entitled to Vote. Duncan unitholders may
vote at the special meeting if they owned Duncan common units at
the close of business on the record date. Duncan unitholders may
cast one vote for each Duncan common unit owned on the record
date.
Votes Required. Under the merger agreement,
the number of votes actually cast in favor of the proposal by
the Duncan unaffiliated unitholders must exceed the number of
votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. To our knowledge, as of the record date, affiliates of
Enterprise including GTM collectively owned 34,593,046 or
approximately 59.9% of the outstanding Duncan common units and
Duncan unaffiliated unitholders owned approximately 40.1% of the
outstanding Duncan common units.
In addition, pursuant to the Duncan partnership agreement, the
merger agreement and the merger must be approved by the
affirmative vote of the Duncan unitholders holding a majority of
the outstanding Duncan common units. Enterprise and GTM have
agreed to vote any Duncan common units owned by them or their
subsidiaries in favor of adoption of the merger agreement and
the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Common Units Outstanding. As of the record
date, there were 57,792,270 Duncan common units outstanding.
Voting
Procedures
Voting by Duncan Unitholders. Duncan
unitholders who hold units in their own name may vote using any
of the following methods:
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call the toll-free telephone number listed on your proxy card
and follow the recorded instructions;
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go to the internet website listed on your proxy card and follow
the instructions provided;
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complete, sign and mail your proxy card in the postage-paid
envelope; or
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attend the meeting and vote in person.
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If you have timely and properly submitted your proxy, clearly
indicated your vote and have not revoked your proxy, your units
will be voted as indicated. If you have timely and properly
submitted your proxy but have not clearly indicated your vote,
your units will be voted FOR approval of the merger agreement
and the merger.
If any other matters are properly presented for consideration at
the meeting or any adjournment or postponement thereof, the
persons named in your proxy will have the discretion to vote on
these matters. Duncans partnership agreement provides that
Duncan GP may adjourn the meeting for proper purposes and that,
in the absence of a quorum, any meeting of Duncan limited
partners may be adjourned from time to time by the affirmative
vote of a majority of the outstanding Duncan common units
represented either in person or by proxy.
Revocation. If you hold your Duncan common
units in your own name, you may revoke your proxy at any time
prior to its exercise by:
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giving written notice of revocation to the Secretary of Duncan
GP at or before the special meeting;
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appearing and voting in person at the special meeting; or
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properly completing and executing a later dated proxy and
delivering it to the Secretary of Duncan GP at or before the
special meeting.
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Your presence without voting at the meeting will not
automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken.
Validity. The inspectors of election will
determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of proxies. Their
determination will be final and binding. The Duncan Board has
the right to waive any irregularities or conditions as to the
manner of voting. Duncan may accept your proxy by any form of
communication permitted by Delaware law so long as Duncan is
reasonably assured that the communication is authorized by you.
Solicitation of Proxies. The accompanying
proxy is being solicited by Duncan GP on behalf of the Duncan
Board. The expenses of preparing, printing and mailing the proxy
and materials used in the solicitation will be borne by Duncan.
In addition to the mailing of this proxy statement/prospectus,
proxies may also be solicited from Duncan unitholders by
personal interview, telephone, fax or other electronic means by
directors and officers of Duncan GP and employees of EPCO and
its affiliates who provide services to Duncan, who will not
receive additional compensation for performing that service.
Arrangements also will be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of proxy
materials to the beneficial owners of Duncan common units held
by those persons, and Duncan will reimburse them for any
reasonable expenses that they incur.
Units Held in Street Name. If you hold Duncan
common units in the name of a bank, broker or other nominee, you
should follow the instructions provided by your bank, broker or
nominee when voting your Duncan common units or when granting or
revoking a proxy.
Absent specific instructions from you, your broker is not
empowered to vote your units with respect to the approval of the
merger agreement and the merger. If you do not provide voting
instructions, your units will not be voted on any proposal on
which your broker, bank or other nominee does not have
discretionary authority. This is often called a broker
non-vote.
The only proposal for consideration at the special meeting,
however, is a non-discretionary matter for which brokers, banks
and other nominees do not have discretionary authority to vote.
Failures to vote, abstentions and broker non-votes will result
in the absence of a vote for or against the merger for purposes
of the vote by the Duncan unaffiliated unitholders required
under the merger agreement. Failures to vote, abstentions and
broker non-votes will have the same effect as a vote against
approval of the merger proposal for purposes of the vote
required under the Duncan partnership agreement.
38
THE
MERGER
Background
of the Merger
Duncan was formed in 2006 to acquire, own and operate a
portfolio of midstream assets (The DEP I Midstream
Business) contributed by Enterprise and to support the
growth objectives of Enterprise. In connection with its initial
public offering in 2007, Duncan noted to investors that it
believed its relationship with Enterprise would provide Duncan
with access to an experienced management team and commercial
relationships, and may provide Duncan access to attractive
acquisition opportunities from Enterprise, while also cautioning
that Enterprise would not be restricted from competing with
Duncan and may generally acquire, construct or dispose of
midstream or other assets in the future without any obligation
to offer to Duncan the opportunity to purchase or construct
those assets or participate in such activities. At the time of
Duncans initial public offering, Duncan had a lower
long-term equity cost of capital than Enterprise due to
Enterprises capital structure, including incentive
distributions (IDRs) paid to its general partner
while Duncans did not. Enterprises IDRs entitled the
general partner of Enterprise to increasing percentages of cash
distributed by Enterprise in excess of certain distribution
levels per Enterprise common unit.
In December 2008, Enterprise contributed to Duncan controlling
equity interests in other entities owning additional midstream
assets (the DEP II Midstream Businesses), while also
retaining equity interests representing a minority voting or
limited partner interest in each of these entities and a
substantial portion of rights to distributions by the entities
above a stated priority return to Duncan. The DEP II Midstream
Businesses significantly increased both the asset base and cash
flows of Duncan. In Duncans June 2009 public equity
offering, Duncan noted that one of its principal advantages was
its relationship with Enterprise, and that it believed its
relationship with Enterprise provided Duncan with a benefit in
the identification and execution of potential future
acquisitions that were not otherwise taken by Enterprise or its
affiliates in accordance with their business opportunity
arrangements.
In connection with the November 2010 closing of the Holdings
Merger, the IDRs of Enterprise were eliminated. The elimination
of the Enterprise IDRs substantially reduced Enterprises
long-term equity cost of capital and resulted in
Enterprises long-term equity cost of capital becoming the
same as or lower than the
long-term
equity cost of capital for Duncan. This change eliminated one of
the principal reasons discussed above as to why drop down
transactions and third party acquisitions were expected to be
made available to Duncan.
Based on these changes in circumstances, as well as the other
reasons described below in The Merger
Enterprises Reasons for the Merger, Enterprise
management decided to analyze the potential effects of a
combination of Enterprise and Duncan.
On January 17, 2011, Michael A. Creel, the CEO of
Enterprise GP, discussed with Stephanie C. Hildebrandt, in her
capacity as the general counsel of Enterprise GP, and certain
other officers of Enterprise GP
and/or EPCO,
without discussing any timeline or terms, the process if
Enterprise were to consider and evaluate a transaction with
Duncan. Later that day, Mr. Creel requested that Christian
M. Nelly, acting in his capacity as the Director
Finance of Enterprise GP, prepare financial analyses regarding a
potential combination of Enterprise and Duncan.
On January 31, 2011, Mr. Creel held a brief call with
Charles E. McMahen, the Chairman of the Audit and Conflicts
Committee (formerly the Audit, Conflicts and Governance
Committee) of Enterprise GP (the Enterprise Audit
Committee), during which Mr. Creel indicated that
Enterprise management was looking at the economics of a
potential combination of Enterprise and Duncan.
On February 8, 2011, Mr. Creel contacted Barclays
Capital Inc. (Barclays Capital) and requested that
Barclays Capital commence an initial financial analysis of a
potential combination of Enterprise and Duncan.
On February 15, 2011, after a regularly scheduled meeting
of the Enterprise Audit Committee, Mr. Creel discussed the
possibility of a potential transaction with the full Enterprise
Audit Committee, consisting of Messrs. McMahen, E. William
Barnett and Rex C. Ross.
39
On February 18, 2011, Messrs. Creel and Nelly met with
representatives of Barclays Capital to review the initial
financial analysis prepared by Barclays Capital, including a
discussion of potential premiums and terms.
On February 20, 2011, Ms. Hildebrandt contacted
Andrews Kurth regarding a potential combination of Enterprise
and Duncan, the preparation of a draft proposal letter and
related preliminary discussion materials prepared by Barclays
Capital.
On February 21, 2011, Mr. Creel, Ms. Hildebrandt
and Mr. Nelly, along with a representative of Andrews Kurth
and representatives of Barclays Capital, held conference calls
and exchanged correspondence regarding a draft proposal letter
from Enterprise to Duncan. Ms. Hildebrandt and counsel at
Andrews Kurth also held a conference call with representatives
of Morris, Nichols, Arsht & Tunnell, Delaware counsel
to Enterprise.
On February 22, 2011, Mr. Creel met with Randa Duncan
Williams, Richard H. Bachmann and Dr. Ralph S. Cunningham,
who are directors of Enterprise GP and also the three voting
trustees of the EPCO Voting Trust, to briefly review the
proposed transaction. Later on February 22, 2011, after a
regularly scheduled meeting of the Enterprise Board,
Mr. Creel met at Enterprises offices with
Ms. Hildebrandt, Mr. Nelly, a representative of
Andrews Kurth, and representatives of Barclays Capital, and the
other directors of Enterprise GP (Messrs. McMahen, Barnett
and Ross, Charles Rampacek and A. James Teague, but excluding
Edwin E. Smith, who was informed of the potential transaction
after the meeting, and Ms. Williams, Mr. Bachmann and
Dr. Cunningham, who had been previously informed) to review
the Barclays draft presentation and a proposal letter to Duncan,
including the proposed premium and terms in the letter. After
that meeting, Enterprise management and counsel finalized the
proposal letter, which set forth a proposal to acquire all of
the outstanding Duncan common units held by unitholders other
than GTM in exchange for 0.9545 Enterprise common units for each
Duncan common unit (the proposal letter). The
proposal letter also stated that Enterprise would not entertain
an offer by third parties to acquire Duncan. Following the
completion of a regularly scheduled meeting of the Duncan Board
later on February 22, 2011, Mr. Creel,
Ms. Hildebrandt and a representative of Andrews Kurth met
briefly with the Duncan Board, including William A.
Bruckmann, III, Larry J. Casey and Richard S. Snell, the
three members of the Duncan ACG Committee, W. Randall Fowler,
who is also the President and CEO of Duncan GP, and Bryan F.
Bulawa, who is also the Senior Vice President, Treasurer and
Chief Financial Officer of Duncan GP, and presented the proposal
letter to Mr. Bruckmann as the Duncan ACG Committees
chairman.
After the delivery of the proposal letter on February 22,
2011, Enterprise and Duncan, along with representatives from
Andrews Kurth, prepared a joint press release and related SEC
filings regarding the proposal letter.
On February 23, 2011, prior to the opening of trading on
the NYSE, Enterprise and Duncan issued a joint press release
regarding the proposal letter from Enterprise. Also on
February 23, 2011, the Duncan ACG Committee engaged
Baker & Hostetler LLP (Baker Hostetler) as
its independent legal counsel.
On March 1, 2011, the Duncan ACG Committee and Baker
Hostetler met to discuss the terms and structure of the proposed
transaction, pertinent business and legal considerations, and
candidates to serve as the committees independent
financial advisor and the committees Delaware counsel.
On March 2, 2011, the Duncan ACG Committee and Baker
Hostetler met with three candidates for service as the
committees financial advisor and two candidates for
service as the committees Delaware counsel. The committee
discussed with each financial advisory firm potential conflicts
of interest, its familiarity with Duncans and
Enterprises businesses and current circumstances, its
industry expertise and experience in transactions similar to the
proposed transaction, and the analytical approach it would use
if it were engaged. The Duncan ACG Committee and representatives
of Baker Hostetler met again on March 3, 2011 for the
committees interview of a third candidate for service as
the committees Delaware counsel. The committee discussed
with each Delaware counsel candidate its advisory and litigation
background generally, its experience with Delaware master
limited partnership (MLP) special committee matters,
and certain legal issues that Baker Hostetler had advised might
arise in the course of the committees consideration of the
proposed transaction and of Duncans other alternatives.
Following deliberations by the committee, the committee
determined to engage Potter Anderson & Corroon, LLP
(Potter Anderson) as its Delaware counsel.
40
On March 3, 2011, the Duncan ACG Committee, Baker
Hostetler, Vinson & Elkins as counsel to Duncan, and
Messrs. Fowler and Bulawa in their capacities as executive
officers of Duncan, met to discuss matters pertaining to the
meeting participants respective roles, the availability of
information regarding Duncan and Enterprise, and timing
considerations, all with respect to the committees
analysis of the proposal and related activities.
On March 7, 2011, the Duncan ACG Committee and Baker
Hostetler met to discuss the committees financial advisory
candidates. Following a review of each candidates
strengths and weaknesses, the committee determined to engage
Morgan Stanley & Co. Incorporated (Morgan
Stanley) as the committees financial advisor in
connection with the committees assessment of the proposed
transaction and Duncans other alternatives. The meeting
participants also discussed due diligence and procedural
considerations, including the need for the committee and its
advisors to take the time necessary to understand fully the
financial and other implications of the proposed transaction,
and determined to schedule an organizational meeting for
March 9, 2011.
On March 9, 2011, the Duncan Board delegated formally to
the Duncan ACG Committee, consistent with the Duncan
Boards discussions on February 22, 2011, the power
and authority: to consider, analyze, review, evaluate, and
determine whether to pursue any proposed transaction, on behalf
of the Duncan unaffiliated unitholders and Duncan, and if a
determination to pursue any proposed transaction were made, to
negotiate, in consultation and with the assistance of the Duncan
ACG Committees advisors, the terms and conditions of any
proposed transaction and any related arrangements with
Enterprise; to determine whether any proposed transaction is
fair and reasonable to Duncan and the Duncan unaffiliated
unitholders; to determine whether or not to approve any proposed
transaction; to make a recommendation to the Duncan Board as to
what action, if any, should be taken by the Duncan Board with
respect to any proposed transaction; and to take any further
steps or actions that the Duncan ACG Committee considered
necessary or appropriate in connection with the approval,
consummation or rejection of any proposed transaction.
On March 9, 2011, the Duncan ACG Committee met with Morgan
Stanley, Baker Hostetler and Potter Anderson. The meeting
participants discussed, among other things, Enterprises
proposal, including Enterprise managements observation
that the proposals timing was attributable to the
reduction of Enterprises long-term equity cost of capital
in connection with the recent elimination of the IDRs held by
Enterprises former parent company, the rationale for the
proposal, the issues that the committee and its advisors would
need to consider in evaluating the proposal and Duncans
other alternatives, the financial information currently
available to the committee and its advisors, the availability of
Messrs. Fowler and Bulawa, in their capacities as Duncan
executive officers, as resources to the committee, the expected
increase in Duncans cash flow with the anticipated
September 2011 commencement of Haynesville Extension pipeline
operations, and Duncans long-term plans in the absence of
the proposed transaction. Morgan Stanley described briefly its
plan to perform financial diligence regarding Duncan, Enterprise
and the proposed transaction, and Potter Anderson and Baker
Hostetler briefed the committee on legal matters, including the
recent unitholder putative class actions filed in Delaware and
Texas with respect to the proposed transaction.
During the weeks of March 14 and March 21, 2011, the Duncan
ACG Committees advisors conducted substantial financial
and other due diligence with respect to Duncan and Enterprise,
focusing on, among other things, assets and business operations
owned jointly by Duncan and Enterprise and those owned
separately by Enterprise, and with respect to the proposed
transaction.
On the morning of March 28, 2011, in advance of management
due diligence presentations, the Duncan ACG Committee and Morgan
Stanley and Baker Hostetler discussed areas of focus for the
presentations. In addition, Morgan Stanley described certain
valuation approaches that it then anticipated using to evaluate
the proposed transaction, and provided an overview of current
market conditions and the relative unit trading price spreads
between Duncan and Enterprise and among other MLPs. The
committee and its advisors also discussed expectations regarding
Duncans cash flow from the Haynesville Extension, the
assets and distribution structures associated with the Duncan
drop down transaction of the DEP I Midstream Businesses in
connection with the 2007 initial public offering and the drop
down transaction of the DEP II Midstream Businesses in
2008, and the markets understanding and valuation of each
of Duncan and Enterprise.
Later on March 28, 2011, meetings were held at which Duncan
management and Enterprise management gave business diligence
presentations at EPCOs offices. In addition to Enterprise
and Duncan management,
41
attendees included Messrs. Bruckmann, Snell and Casey as
members of the Duncan ACG Committee; representatives of
financial and legal advisors to the Duncan ACG Committee from
Morgan Stanley and Baker Hostetler; representatives from
Vinson & Elkins as legal advisors to Duncan;
Messrs. Andress, Ross, Rampacek and Smith as Enterprise GP
directors; and representatives of financial and legal advisors
to Enterprise from Barclays Capital and Andrews Kurth,
respectively. Messrs. Fowler and Bulawa, along with other
operating officers, on behalf of Duncan management, presented in
a morning session, reviewing, among other things, a history of
asset drop downs, contributions of those assets to cash flows,
current operations, recent events (including the fire that
occurred at Duncans majority-owned Mont Belvieu facilities
on February 8, 2011), capital projects (including the
status of construction and contracts on the Haynesville
Extension) and the 2011 capital budget. A representative of
Barclays Capital provided a brief summary of the offer,
including the strategic rationale with regard to Duncan, a
financial overview of the offer and market reactions to the
proposal by research analysts and investors in Enterprise and
Duncan. Mr. Creel, along with Mr. Teague and other
operating officers, on behalf of Enterprise management,
presented during the afternoon. These presentations covered,
among other things, commercial overviews of Enterprises
business segments as well as financial and capital budgeting
matters.
At the conclusion of the March 28, 2011 due diligence
presentations, the Duncan ACG Committee and its advisors
reconvened separately to review the presentations and discussed
additional information that would be necessary for the committee
and its advisors in their continuing analyses. During the course
of the week of March 28, 2011, Morgan Stanley requested,
received and reviewed supplemental financial due diligence
information from Enterprise and its financial advisor.
On April 4, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley, Baker Hostetler and Potter
Anderson to discuss Morgan Stanleys initial evaluation of
the proposal letter, including Enterprises proposed
exchange ratio of 0.9545 Enterprise common units for each
outstanding Duncan common unit. The Morgan Stanley
representatives observed that they had been given ready access
to information they had requested regarding Duncan and
Enterprise. The meeting participants reviewed Enterprises
proposal letter, discussed the analyses that would be used to
evaluate the proposed transaction, analyses pertaining to assets
owned jointly by Duncan and Enterprise, the relationship between
Duncans and Enterprises unit trading prices since
Duncans initial public offering, preliminary valuation
perspectives regarding Duncan and Enterprise based on management
projections and investment banking research analysts
projections, and Duncans possible alternatives to a
transaction with Enterprise, including the possible acquisition
of Duncan by a third party and Duncans continuing business
as a stand-alone entity focused on internal growth and future
drop down transactions from Enterprise. In discussing
Duncans alternatives, the participants also discussed
Enterprises statement in its proposal letter that it would
not support a sale of Duncan or its assets to a third party and
the proposal letters observation that Duncans
prospects for growth from future drop down transactions were
diminished because of the recent elimination of
Enterprises IDRs. Morgan Stanley noted that Duncans
common units were trading near a
12-month
high price when Enterprises initial offer was made, and
responded to the committees inquiries regarding, among
other things, multiples paid in comparable transactions, the
terminal growth rates used for Duncan and for Enterprise in
various analyses, and the growth prospects of each entity on
near-term and long-term bases.
The meeting participants also discussed ranges of exchange
ratios implied by various analyses, including unit trading price
ratios, research analysts price targets, comparable
partnership trading price analyses based on yield, discounted
equity value, discounted cash flow, and precedent MLP merger and
minority buy-in transactions, and discussed underlying
assumptions regarding, among other things, Duncans and
Enterprises growth prospects, distributable cash flows and
distributable cash flow coverage ratios. The committee requested
that Morgan Stanley provide supplemental information regarding
other MLPs distributable cash flow coverage, and the
effect of variations in Duncans distributable cash flow
coverage ratio, debt profile and other financial measures. The
committee and representatives of Baker Hostetler and Potter
Anderson also discussed considerations regarding whether the
Duncan ACG Committee should propose that the vote of a majority
of the Duncan common unitholders not affiliated with Enterprise
(i.e., a majority of the minority) be a condition to
consummation of any transaction with Enterprise.
42
On April 6, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley and Baker Hostetler to discuss
analyses prepared by Morgan Stanley in response to the
committees request at its April 4, 2011 meeting. The
meeting participants reviewed, among other things, distributable
cash flow coverage ratios and yields for midstream MLPs,
exchange ratios in precedent transactions, the effect on future
value of variations in Duncans debt levels, and EBITDA and
distribution growth projections for Duncan and Enterprise and
their effect on discounted cash flow analyses. Following this
review, the committee determined that its chairman,
Mr. Bruckmann, should convey to Mr. Creel, on behalf
of Enterprise, concerns that the committee had regarding the
0.9545x exchange ratio proposed by Enterprise.
On April 11, 2011, Mr. Creel met with
Mr. Bruckmann. At this meeting, Mr. Bruckmann
discussed the status and certain elements of the analysis by the
Duncan ACG Committee and Morgan Stanley, and proposed that
Mr. Creel and Enterprise management, along with
Enterprises financial advisor, Barclays Capital, meet with
Morgan Stanley to discuss in more detail the committees
and its advisors analyses and questions regarding certain
assumptions about Enterprise. Mr. Bruckmann also expressed
the committees desire for a majority of the minority vote
condition, but no other transaction terms were discussed.
Later on April 11, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley and Baker Hostetler to discuss
Mr. Bruckmanns meeting with Mr. Creel.
Mr. Bruckmann reported that he had expressed the
committees views about certain Enterprise analyses,
particularly those that were premised on market reaction to
Enterprises initial proposal, in light of Duncans
projected distributable cash flows by research analysts being
lower than those projected by Duncan management, and the
committees views arising from the valuation implications
of the committees focus on projected EBITDA, distributable
cash flows, Duncans and Enterprises distributable
cash flow coverage ratios, distribution policies and leverage,
and the dilution to Duncans unitholders in distributable
cash flow coverage based on Enterprises initial offer.
Mr. Bruckmann also reported that Mr. Creel was
receptive to the committees offer to have Morgan Stanley
meet with Enterprise management and Enterprises financial
advisor to review the committees views in more detail, and
that Mr. Bruckmann had conveyed the committees desire
to make a majority of the minority vote a condition to
consummation of any transaction.
The Duncan ACG Committee met with representatives of Morgan
Stanley and Baker Hostetler on April 12, 2011, to review
the information and analyses to be presented by Morgan Stanley
to Enterprise management in accordance with
Mr. Bruckmanns April 11, 2011 conversation with
Mr. Creel.
On April 13, 2011, Morgan Stanley met with Mr. Creel,
Ms. Hildebrandt and Mr. Nelly in their capacities as
representatives of Enterprise, along with representatives of
Barclays Capital, to discuss Morgan Stanleys financial
analysis of the proposed transaction. At this meeting, Morgan
Stanley presented certain analyses regarding potential future
distribution scenarios for Duncan, estimated future yields for
Duncan and the estimated resulting impact on Duncans
future unit price. Following the meeting, Mr. Creel
contacted Mr. Bruckmann to schedule a meeting with the
Duncan ACG Committee.
Later on April 13, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley, Baker Hostetler and Potter
Anderson. Following the Morgan Stanley representatives
report on their meeting earlier in the day with the Enterprise
representatives, the meeting participants reviewed the
implications of various financial metrics in assessing proposed
exchange ratios, and of the majority of the minority voting
condition, followed by the committee members requesting further
analysis by Morgan Stanley. The committee members determined to
meet the following day to formulate a counterproposal for
delivery to Enterprise.
On April 14, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley, Baker Hostetler and Potter
Anderson to review financial analyses supporting various
exchange ratios, Duncans alternatives and future business
expansion if it chose not to proceed with a transaction with
Enterprise (noting the obstacles to transactions with third
parties and to growth from future drop down transactions), and
issues pertaining to a majority of the minority voting
condition. At the conclusion of the meeting, the committee
determined to propose to Enterprise a 1.165x exchange ratio and
to reiterate the committees desire for a majority of the
minority voting condition.
43
On April 15, 2011, Messrs. Bruckmann, Casey and Snell,
as members of the Duncan ACG Committee, met with
Messrs. Creel and Nelly and Ms. Hildebrandt as
representatives of Enterprise, and Mr. Christopher S. Wade
as internal counsel representing Duncan also in attendance, at
Enterprises offices to respond to Enterprises
initial offer of an exchange ratio of 0.9545x.
Mr. Bruckmann indicated that based on the financial
analyses and other factors considered by the Duncan ACG
Committee, including the committees analyses of the ranges
of Duncan managements and research analysts
distributable cash flow and EBITDA projections, and
Duncans projected distributable cash flow coverage ratios,
the Duncan ACG Committee was willing to make a counteroffer of
an exchange ratio of 1.165x. In addition, Mr. Bruckmann
requested that the merger terms include a requirement for a
majority of the minority vote to approve the merger and the
merger agreement. Mr. Creel did not respond to the
proposals at this time, informed Mr. Bruckmann that
Enterprise would respond to the counterproposal at some point
the following week, and suggested a possible meeting date of
April 20, 2011.
On April 18, 2011, a meeting was held among the Enterprise
Board, Enterprises management, representatives of Barclays
Capital and representatives of Andrews Kurth, at
Enterprises offices in Houston, Texas. At this meeting,
Barclays Capital and Enterprise management reviewed for the
Enterprise Board the counterproposal made by the Duncan ACG
Committee, as well as updated financial analyses giving effect
to the Duncan counterproposal and developments since the initial
Enterprise proposal, including the potential impact of the Mont
Belvieu fire on Duncans majority-owned assets and
operations. The Enterprise Board and its advisors also discussed
the feasibility of a majority of the minority vote condition in
light of the difficulty in getting public retail unitholders to
affirmatively cast a vote either for or against a merger
proposal, and the express contractual standards for
Special Approval provided for this type of
transaction under the Duncan partnership agreement. After
numerous questions and deliberation, including expressions of
concern by members of the Enterprise Audit Committee about
unaffiliated Enterprise unitholder reactions to a significantly
higher premium if offered by Enterprise, the Enterprise Board
authorized Enterprise management to continue negotiations with
Duncan without any majority of the minority vote condition and
subject to the Enterprise Boards final approval.
On April 19, 2011, the Duncan ACG Committee and its
financial and legal advisors met to prepare for the
April 20, 2011 meeting to be held with Enterprise and its
advisors.
On April 20, 2011, a meeting was held among the Duncan ACG
Committee, representatives of Morgan Stanley, representatives of
Baker Hostetler, Potter Anderson and Vinson & Elkins,
Messrs. Fowler and Bulawa on behalf of Duncan management,
Messrs. Creel and Nelly and Ms. Hildebrandt on behalf
of Enterprise management, representatives of Barclays Capital,
and representatives of Andrews Kurth, at Andrews Kurths
offices in Houston, Texas. At this meeting, Barclays Capital and
Enterprise management reviewed developments since the date of
Enterprises initial proposal, including the potential
impact of the Mont Belvieu fire on Duncans majority-owned
assets and operations and Duncans expected first quarter
2011 performance compared to Enterprises expected
performance for the same period. Barclays Capital reviewed
commentary by research analysts for both Duncan and Enterprise
following the announcement of the initial proposal of a 0.9545x
exchange ratio, as well as the market reaction as reflected by
changes in price for the common units of Duncan and Enterprise.
Barclays Capital noted that this reviewed commentary generally
indicated a positive response with respect to the effect on
Duncan unitholders. Mr. Creel also noted some Enterprise
unitholder feedback was that the initial offer appeared fully
valued, and that Enterprise would have to respond to the same
unitholders with respect to any definitive transaction. Based on
these items, as well as other financial analysis, Enterprise
management declined the Duncan offer of a 1.165x exchange ratio
and made a counteroffer of a 0.9545x exchange ratio, the same as
Enterprises original offer. Mr. Creel and the legal
advisors for Enterprise also expressed the view that a majority
of the minority vote condition would be impracticable due to
Duncans large base of retail investors, and noted that
this condition would not be acceptable to Enterprise for this
transaction. Following a meeting recess during which the Duncan
ACG Committee and its financial and legal advisors discussed
Enterprises counteroffer and supporting analysis, at the
committees direction, Morgan Stanley communicated to
Barclays Capital that the committee believed that in order for
further discussions to be productive, Enterprise would need to
give greater attention to the committees views regarding
Duncans distribution growth potential and appropriate
assumptions for projected distributable cash flow coverage and
debt coverage ratios.
44
The Duncan ACG Committee and its advisors then met with
Messrs. Fowler and Bulawa to discuss Duncans first
quarter 2011 performance in light of Enterprises
commentary earlier in the meeting, following which the committee
and Morgan Stanley confirmed their views that the information
presented would not require revisions of Morgan Stanleys
and the committees financial assessments of the proposed
transaction. Mr. Bruckmann then left the committees
meeting to reiterate to Mr. Creel the committees
concerns regarding Enterprises counteroffer, and returned
to the meeting to report that Mr. Creel had suggested that
the parties meet to address those concerns the following day.
On April 21, 2011, a meeting was held among the Duncan ACG
Committee, representatives of Morgan Stanley, representatives of
Baker Hostetler, Potter Anderson and Vinson & Elkins,
Messrs. Fowler and Bulawa on behalf of Duncan management,
Messrs. Creel and Nelly and Ms. Hildebrandt on behalf
of Enterprise management, representatives of Barclays Capital
and representatives of Andrews Kurth, at the offices of
Vinson & Elkins in Houston, Texas. At this meeting,
based on the request of the Duncan ACG Committee,
representatives of Barclays Capital reviewed specific items in
follow-up
discussion materials in response to earlier analyses prepared by
Morgan Stanley, including various assumptions regarding
distribution coverage and distribution yields. In addition,
representatives from Barclays Capital noted that the rationale
for additional Enterprise drop downs of assets would no longer
exist, Duncan would be limited under existing agreements in
pursuing other competitive acquisitions, and expectations for
further development opportunities after 2013 were significantly
reduced. Representatives of Barclays Capital noted that it had
not addressed every assumption used by Morgan Stanley, and that
other assumptions being used by Morgan Stanley could also be
subject to debate. Mr. Creel then presented the Duncan ACG
Committee with an improved offered exchange ratio of 0.985x,
representing an approximate 31% premium in price (to
Duncans common unit closing price immediately before the
announcement of Enterprises initial offer) and a 29%
increase in distributions for Duncan unitholders based on the
announced first quarter 2011 distribution levels. Mr. Creel
reemphasized other expected benefits to Duncan unitholders of
receiving Enterprise common units, including the greater
liquidity for Enterprise common units, Enterprises growth
potential (both near- and long-term), the broader diversity of
Enterprises asset base and its more significant value
chain, as well as market reactions to the initial proposal and
potential market reactions to a revised offer or no transaction.
The Duncan ACG Committee and Morgan Stanley stated that they
would consider the revised information in the course of their
further analyses and would respond to Enterprise.
The Duncan ACG Committee, Morgan Stanley, Baker Hostetler and
Potter Anderson met on April 23, 2011 to review the
analyses presented by Barclays Capital on April 21, 2011
and additional analyses prepared subsequently by Morgan Stanley.
Morgan Stanley noted exceptions to certain of the Barclays
Capital yield and growth assumptions, and noted the significant
effect on the exchange ratio analysis that arises from varying
assumed distributable cash flow coverage ratios and varying
assumed growth prospects for Duncan and Enterprise. The meeting
participants also noted that Enterprises reduced cost of
capital and first right to consider expansion opportunities, as
referred to in earlier discussions among the parties, would
likely limit Duncans growth trajectory following
completion of the Haynesville Extension, and that the
committees counterproposals to date had been premised on
the high end of the range of Duncans growth possibilities.
Following further discussion of these considerations, the
committee agreed to present a proposal comprising a 1.0835x
exchange ratio and a majority of the minority vote condition.
On April 26, 2011, a meeting was held among the Duncan ACG
Committee, representatives of Morgan Stanley, representatives of
Baker Hostetler, Potter Anderson and Vinson & Elkins,
Mr. Bulawa on behalf of Duncan management,
Messrs. Creel and Nelly and Ms. Hildebrandt on behalf
of Enterprise management, representatives of Barclays Capital,
and representatives of Andrews Kurth, at the offices of Baker
Hostetler in Houston, Texas. At this meeting, Mr. Bruckmann
noted that the Duncan ACG Committee and Morgan Stanley had
evaluated further the information that was presented at the
parties April 21, 2011 meeting. A representative of
Morgan Stanley reviewed a Duncan total return analysis based on
an assumed yield, along with other analyses. Based on these
analyses, the Morgan Stanley representative stated that these
suggested a higher implied exchange ratio. The Morgan Stanley
representative also stated that based on the anticipated stable
nature of the Haynesville Extension cash flows due to long-term
contracts, Duncan could argue for a tighter distributable cash
flow coverage ratio than Enterprises ratio. Based on these
facts and Morgan
45
Stanleys analyses, the Duncan ACG Committee proposed an
exchange ratio of 1.0835x, again together with a majority of the
minority vote condition. Enterprise management and its advisors
then left to discuss this counteroffer.
After deliberation, Mr. Creel reconvened the meeting with
the Duncan ACG Committee and reviewed again Enterprises
reasons for, and certain of its financial perspectives on, the
proposed merger, including changes since the initial proposal.
Mr. Creel and Enterprise counsel reemphasized the risk of
not getting sufficient voter turnout by unaffiliated holders in
connection with a majority of the minority vote, and the express
contractual provisions under the Duncan partnership agreement
covering Special Approval. Based on these facts, Mr. Creel
made a counteroffer of an exchange ratio of 1.00x.
Mr. Creel further discussed that while a majority of the
minority vote condition would not be acceptable, Enterprise
would consider accommodating the Duncan ACG Committee with a
more practical heightened vote condition outside the vote
required under the Duncan partnership agreement, in the form of
a condition that the votes actually cast by Duncan unitholders
not affiliated with Enterprise for the merger proposal exceed
such votes cast against the merger proposal (a majority of
unaffiliated votes cast condition).
The Duncan ACG Committee and its advisors then met separately.
The Duncan ACG Committee and its advisors discussed the growth
prospects of Duncan and of Enterprise and the effect of a spread
between growth rates on the exchange ratio analysis, the effects
of Duncans very limited control over its growth
opportunities, the diversity of the asset bases of Duncan and
Enterprise, the value and distribution premiums implied by
Enterprises counterproposal, the range of acceptable
exchange ratios implied by Morgan Stanleys analyses, and
the majority of unaffiliated votes cast condition proposed by
Enterprise. The committee directed Mr. Bruckmann to advise
Mr. Creel that the committee was seeking an increased
offer. Following a brief recess in the committees
discussions, Mr. Bruckmann reported that he had so advised
Mr. Creel, with a focus in his discussion on Duncans
expected increased distributable cash flows in 2011, 2012 and
2013 and on the committees desire to minimize anticipated
distributable cash flow dilution to Duncans unitholders
arising from the proposed transaction.
The Duncan ACG Committee and Enterprise representatives and
their respective advisors then reconvened. Mr. Creel
expressed his concern with an increased exchange ratio from an
Enterprise perspective. Mr. Creel reemphasized the number
of pending Enterprise growth projects, and thus potential upside
for Enterprise common units, compared to the more limited growth
projects for Duncan. Mr. Creel then made a best and
final offer of an exchange ratio of 1.01x, together with a
majority of unaffiliated votes cast condition, subject to review
and consideration of other definitive terms of a merger
agreement and related documents and Enterprise Board approval.
The Duncan ACG Committee then met separately to discuss this
offer. After the committees further discussion with its
advisors of the matters discussed in the earlier meeting recess
and further deliberation, the Duncan and Enterprise groups
reconvened. Mr. Bruckmann expressed the Duncan ACG
Committees view that, on the basis of a 1.01x exchange
ratio and majority of unaffiliated votes cast condition, and
subject to confirmation that Morgan Stanley would be in a
position to render a fairness opinion with respect to that
exchange ratio, the committee was prepared to move forward with
negotiation of definitive transaction terms and documentation.
Between April 26 and April 28, 2011, counsel to Enterprise
and the Duncan ACG Committee and Duncan exchanged drafts and
revisions of and comments on a merger agreement and related
documents for the transaction. On April 27, 2011,
representatives of Andrews Kurth, Baker Hostetler, Potter
Anderson and Vinson & Elkins, together with internal
counsel on behalf of Enterprise and Duncan, also held a
conference call to negotiate open points in the merger
agreement, including representations and warranties, interim
covenants and closing conditions, and a voting agreement,
including termination provisions.
On April 28, 2011, the Enterprise Board met to consider the
form of merger agreement, with representatives of Barclays
Capital and Andrews Kurth in attendance. At that meeting,
representatives of Barclays Capital reviewed with the Enterprise
Board their financial analyses with respect to the proposed
merger and responded to numerous questions from the Enterprise
Board and Andrews Kurth. The Enterprise Board also discussed
legal and procedural matters in connection with its approval of
the proposed transactions.
46
After these discussions and deliberation, the Enterprise Board
unanimously approved the merger agreement and related documents
and the issuance of Enterprise common units in connection with
the proposed merger.
On April 28, 2011, the Duncan ACG Committee, Morgan
Stanley, Baker Hostetler and Potter Anderson met for the
committees consideration of the proposed transaction at an
exchange ratio of 1.01x, with a majority of unaffiliated votes
cast condition and other terms set forth in a form of merger
agreement. Prior to the meeting, the committee members had
received a financial analysis and draft of a fairness opinion
from Morgan Stanley, a meeting agenda, and current draft
versions and summaries of a merger agreement and related
documents for the proposed transaction. Morgan Stanley reviewed
its financial analyses with the committee and responded to the
committees questions. Morgan Stanley also reviewed with
the committee the draft of Morgan Stanleys fairness
opinion, following which it rendered its oral opinion to the
committee (which was confirmed in writing by delivery of Morgan
Stanleys written opinion dated April 28,
2011) to the effect that, as of April 28, 2011, and
based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
opinion, the exchange ratio pursuant to the merger agreement was
fair, from a financial point of view, to the Duncan unaffiliated
unitholders. Baker Hostetler then led the committee through a
discussion of the merger agreement and related documents and a
review of due diligence items relating to the first quarter of
2011. Potter Anderson reviewed with the committee the standards
for approval of the proposed transaction under Duncans
limited partnership agreement, and the majority of unaffiliated
votes cast condition, following which Baker Hostetler led the
committee through a discussion of the resolutions to be adopted
by the committee. The committee discussed whether it was
prepared to recommend that the Duncan Board approve the proposed
merger and the merger agreement, including in its discussion a
review of the factors and considerations set forth under the
heading Recommendation of the Duncan ACG Committee and the
Duncan Board and Reasons for the Merger. At the conclusion
of this discussion, the Duncan ACG Committee determined
unanimously that the merger was fair and reasonable, advisable
to and in the best interests of Duncan and its unaffiliated and
other unitholders, granted Special Approval under
the Duncan partnership agreement and voted unanimously to adopt
resolutions approving the merger and the merger agreement and
related documents and recommending that the Duncan Board approve
the merger and the merger agreement and related documents and
present the merger and the merger agreement to the Duncan
unitholders for their approval and adoption.
Immediately following the conclusion of the Duncan ACG
Committees meeting, the Duncan Board, with
Vinson & Elkins, Morgan Stanley, Baker Hostetler and
Potter Anderson in attendance, met to consider the proposed
transaction. Morgan Stanley reviewed with the Duncan Board its
financial analyses and the fairness opinion rendered to the
Duncan ACG Committee, and Vinson & Elkins reviewed the
terms of the merger and merger agreement and related documents
and procedural matters in connection with the Duncan
Boards approval of the transaction. Following this review
and discussion, the Duncan Board determined that the merger was
fair and reasonable, advisable to and in the best interests of
Duncan and its unitholders, and voted unanimously, with
Messrs. Fowler and Bulawa abstaining because of their
positions as executive officers of Enterprise GP, to adopt
resolutions approving the merger and the merger agreement and
related documents and recommending that the Duncan unitholders
approve and adopt the merger and the merger agreement.
On April 28, 2011, following the Enterprise Board, Duncan
ACG Committee and Duncan Board meetings, Enterprise and Duncan
management executed the definitive documents.
On April 29, 2011, Enterprise and Duncan issued a joint
press release announcing the merger agreement and the proposed
merger.
Recommendation
of the Duncan ACG Committee and the Duncan Board and Reasons for
the Merger
On April 28, 2011, the Duncan ACG Committee determined
unanimously that the merger agreement and the merger were fair
and reasonable, advisable to and in the best interests of Duncan
and the Duncan unaffiliated unitholders. Accordingly, the Duncan
ACG Committee recommended that the Duncan Board approve the
merger agreement and related documents and the merger. Based on
the Duncan ACG Committees determination and
recommendation, on April 28, 2011, the Duncan Board
approved and declared the advisability of the merger agreement
and related documents and the merger. Both the Duncan ACG
47
Committee and the Duncan Board recommend that the Duncan
unitholders vote in favor of the merger proposal.
The Duncan ACG Committee considered many factors in making its
determination and recommendation. The committee consulted with
its financial and legal advisors and viewed the following
factors as being generally positive or favorable in coming to
its determination and related recommendations:
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The exchange ratio of 1.01 Enterprise common units for each
Duncan common unit in the merger, which represented a
premium of:
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approximately 34% above the $32.56 closing price of Duncan
common units on February 22, 2011, based on the $43.32
closing price of Enterprise common units on April 27, 2011
(the day before the merger agreement was approved and
executed); and
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approximately 36% above the ratio of closing prices of Duncan
common units to Enterprise common units of 0.7451 on
February 22, 2011.
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The pro forma increase of approximately 32% and 36% in quarterly
cash distributions expected to be received by Duncan unitholders
in 2011 and 2012, respectively, based upon the 1.01x exchange
ratio and quarterly cash distribution rates paid by Duncan and
Enterprise in May 2011.
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In the merger, Duncan unitholders will receive common units
representing limited partner interests in Enterprise, which have
substantially more liquidity than Duncan common units because of
the Enterprise common units significantly larger average
daily trading volume, as well as Enterprise having a broader
investor base and a larger public float.
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The current and prospective environment and growth prospects for
Duncan if it continues as a stand-alone entity, as compared to
the asset base, financial condition and growth prospects of the
combined entity, including the likelihood that future asset drop
downs to Duncan from Enterprise would diminish because of the
reduction in Enterprises cost of equity capital in
connection with Enterprises November 2010 acquisition of
Holdings.
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Enterprises stronger balance sheet and credit profile
relative to Duncans.
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That the merger provides Duncan unitholders with an opportunity
to benefit from unit price appreciation and increased
distributions through ownership of Enterprise common units,
which should benefit from Enterprises much larger and more
diversified asset and cash flow base and lower dependence on
individual capital projects, and Enterprises greater
ability to compete for future acquisitions and finance organic
growth projects.
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The Duncan unaffiliated unitholders have an opportunity to
determine whether the merger will be approved, because the
merger agreement provides that the unitholder voting conditions
(including the majority of votes cast by Duncan unaffiliated
unitholders condition) may not be waived.
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The opinion of Morgan Stanley rendered to the Duncan ACG
Committee on April 28, 2011 to the effect that, as of that
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Duncan unaffiliated unitholders.
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The committees belief that the merger and the exchange
ratio present the best opportunity to maximize value for
Duncans unitholders and achieve the highest value
obtainable for Duncans unitholders.
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The terms of the merger agreement permit the Duncan ACG
Committee to change its recommendation of the merger if the
committee has concluded in good faith, after consultation with
its outside legal and financial advisors, that the failure to
make such a change in recommendation would be inconsistent with
its duties under the Duncan partnership agreement and applicable
law, and no termination fee is payable by Duncan upon any such
change of recommendation.
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The ability of Duncan to enter into discussions with another
party, without payment of a termination fee or other penalty, in
response to an unsolicited written offer if the Duncan ACG
Committee, after
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48
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consultation with its outside legal and financial advisors,
determines in good faith (a) that the unsolicited written
offer constitutes or is likely to result in a superior proposal
and (b) that the failure to take that action would be
inconsistent with its duties under the Duncan partnership
agreement and applicable law; notwithstanding that Enterprise
informed the Duncan ACG Committee that Enterprise would not
entertain an acquisition proposal relating to Duncan from a
third party, the committee considered it possible that a
subsequent offer could affect the viewpoint of Enterprise
regarding the merger or a third party transaction.
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The Duncan ACG Committees understanding of and
managements and the committees advisors review
of overall market conditions, and the committees
determination that, in light of these factors, the timing of the
potential transaction is favorable to Duncan.
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The review by the Duncan ACG Committee with its financial and
legal advisors of the financial and other terms of the merger
agreement and related documents, including the conditions to
their respective obligations and the termination provisions.
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The Duncan ACG Committees familiarity with, and
understanding of, the businesses, assets, liabilities, results
of operations, financial conditions and competitive positions
and prospects of Duncan and Enterprise.
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That the merger will eliminate potential conflicts of interest
between the unaffiliated unitholders of Duncan and Enterprise,
and for persons holding executive positions with both Duncan and
Enterprise.
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The Duncan ACG Committee considered the following factors to be
generally negative or unfavorable in making its determination
and recommendations:
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That the exchange ratio is fixed and there is a possibility that
the Enterprise common unit price could decline relative to the
Duncan common unit price prior to closing, reducing the premium
available to Duncan unitholders.
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The risk that potential benefits sought in the merger might not
be fully realized.
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That pro forma, the merger is expected to be dilutive to Duncan
unitholders distributable cash flow on a per unit basis.
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The risk that the merger might not be completed in a timely
manner, or that the merger might not be consummated as a result
of a failure to satisfy the conditions contained in the merger
agreement, and that a failure to complete the merger could
negatively affect the trading price of the Duncan common units.
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The limitations on Duncan considering unsolicited offers from
third parties not affiliated with Duncan GP.
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That certain members of management of Duncan GP and the Duncan
Board may have interests that are different from those of the
Duncan unaffiliated unitholders.
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The foregoing discussion of the information and factors
considered by the Duncan ACG Committee is not intended to be
exhaustive, but includes the material factors the committee
considered. In view of the variety of factors considered in
connection with its evaluation of the merger, the committee did
not find it practicable to, and did not, quantify or otherwise
assign specific weights to the factors considered in reaching
its determination and recommendation. In addition, each of the
members of the committee may have given differing weights to
different factors. Overall, the committee believed that the
advantages of the merger outweighed the negative factors it
considered.
The Duncan ACG Committee also reviewed procedural factors
relating to the merger, including, without limitation, the
following:
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The terms and conditions of the merger were determined through
arms-length negotiations between Enterprise and the Duncan
ACG Committee and their respective representatives and advisors;
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49
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The Duncan ACG Committee retained independent financial and
legal advisors with knowledge and experience with respect to
public company merger and acquisition transactions,
Enterprises and Duncans industry generally, and
Enterprise and Duncan particularly, as well as substantial
experience advising publicly traded limited partnerships and
other companies with respect to transactions similar to the
proposed transaction; and
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The Duncan ACG Committee received the written opinion of Morgan
Stanley on April 28, 2011 to the effect that, as of that
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Duncan unaffiliated unitholders.
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Enterprises
Reasons for the Merger
The Enterprise Board consulted with management and
Enterprises legal and financial advisors and considered
many factors in approving the merger, including the following:
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the merger is expected to be immediately accretive to
distributable cash flow per Enterprise common unit (after giving
effect to retained distributable cash flow attributable to the
public unitholders of Duncan);
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the merger will simplify Enterprises commercial and
organizational structure, resulting from Enterprises
ownership of 100 percent of the equity interests in certain
affiliates that are now jointly owned with Duncan;
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the merger will streamline Enterprises partnership
structure, which reduces complexity, enhances transparency for
debt and equity investors and reduces the overall cost of
financing;
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the merger will maintain Enterprises financial flexibility
as the
unit-for-unit
exchange will finance approximately 77 percent of the
$3.3 billion purchase (including Duncans indebtedness
which is already consolidated on Enterprises balance
sheet); and
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the merger will reduce general and administrative costs by an
estimated $2 million per year, primarily from eliminating
public company expenses associated with Duncan.
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Unaudited
Financial Projections of Enterprise and Duncan
Neither Enterprise nor Duncan routinely publishes projections as
to long-term future performance or earnings. However, in
connection with the proposed merger, management of Enterprise GP
prepared projections that included future financial performance
of Enterprise (including performance of Duncan and its
majority-owned subsidiaries in which Enterprise has a direct
economic interest) with respect to 2011, 2012 and 2013, and
management of Duncan GP prepared projections that included
future financial performance of Duncan with respect to 2011,
2012 and 2013. These projections were based on projections used
for regular internal planning purposes.
The non-public projections for each of Enterprise and Duncan
were provided to Morgan Stanley for use and consideration in its
financial analysis and in preparation of its opinion to the
Duncan ACG Committee. The projections were also presented to the
Duncan Board and the Enterprise Board. A summary of these
projections is included below to give Duncan unitholders access
to certain non-public unaudited projections that were made
available to Morgan Stanley, the Duncan ACG Committee, and the
Duncan Board and the Enterprise Board in connection with the
proposed merger.
Enterprise and Duncan each caution you that uncertainties
are inherent in projections of any kind. None of Enterprise,
Duncan or any of their affiliates, advisors, officers, directors
or representatives has made or makes any representation or can
give any assurance to any Duncan unitholder or any other person
regarding the ultimate performance of Enterprise or Duncan
compared to the summarized information set forth below or that
any projected results will be achieved.
50
The summary projections set forth below summarize the most
recent projections provided to Morgan Stanley, the Duncan ACG
Committee and members of the Duncan Board and the Enterprise
Board prior to the execution of the merger agreement. The
inclusion of the following summary projections in this proxy
statement/prospectus should not be regarded as an indication
that Enterprise, Duncan or their representatives considered or
consider the projections to be a reliable or accurate prediction
of future performance or events, and the summary projections set
forth below should not be relied upon as such.
The accompanying projections were not prepared with a view
toward public disclosure or toward compliance with GAAP, the
published guidelines of the SEC, or the guidelines established
by the American Institute of Certified Public Accountants, but,
in the view of the management of Enterprise GP and Duncan GP,
were prepared on a reasonable basis, reflected the best
currently available estimates and judgments, and presented, to
the best of Enterprise GP managements and Duncan GP
managements knowledge and belief, the expected course of
action and the expected future financial performance of
Enterprise and Duncan, at the time of execution of the merger
agreement.
Neither Deloitte & Touche LLP nor any other
independent registered public accounting firm has compiled,
examined or performed any procedures with respect to the
projections, nor has it expressed any opinion or any other form
of assurance on such information or its achievability, and
assumes no responsibility for, and disclaims any association
with, the projections. The Deloitte & Touche LLP
reports incorporated by reference into this proxy
statement/prospectus relate to historical financial information
of Enterprise and Duncan. Such reports do not extend to the
projections included below and should not be read to do so.
In developing the projections, managements of each of Enterprise
GP and Duncan GP made numerous material assumptions with respect
to Enterprise and Duncan, as applicable, for the period 2011 to
2013, including:
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With respect to Enterprises projections: Current expected
capital spending in 2011 of an estimated $3.4 billion for
growth capital and $262 million of sustaining capital; and
annualized distribution increases by Enterprise consistent with
historical increases.
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With respect to Duncans projections: Duncans
estimated $536 million share of Haynesville Extension
capital expenditures in 2011; three additional growth projects
to be funded jointly by Duncan and Enterprise ($11 million
net to Duncan in 2011); $57 million of sustaining capital
by Duncan in 2011; no issuances of equity required by Duncan; an
assumed refinancing of Duncans term loan due in December
2011; annualized distribution increases by Duncan to a $1.86
equivalent by year-end 2011; and commodity price assumptions
consistent with Enterprises 2011 profit plan.
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Additional assumptions were made with respect to the size,
availability, timing and anticipated results of, and cash flows
from, growth capital investments. All of these assumptions
involve variables making them difficult to predict, and most are
beyond the control of Enterprise and Duncan. Although management
of Enterprise GP and Duncan GP believe that there was a
reasonable basis for their projections and underlying
assumptions, any assumptions for near-term projected cases
remain uncertain, and the risk of inaccuracy increases with the
length of the forecasted period.
Enterprise
The following table sets forth projected financial information
for Enterprise for 2011, 2012 and 2013.
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2011E
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2012E
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2013E
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(Dollars in millions, other than per unit data)
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Adjusted EBITDA(1)
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$
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3,469
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$
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3,884
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$
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4,230
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Distributable cash flow(2)
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$
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2,441
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$
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2,704
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$
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2,984
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51
Duncan
The following table sets forth projected financial information
for Duncan for 2011, 2012 and 2013.
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2011E
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2012E
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2013E
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(Dollars in millions, other than per unit data)
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Adjusted EBITDA(3)
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$
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227
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$
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309
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$
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330
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Distributable cash flow(4)
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$
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180
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$
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228
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$
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251
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(1) |
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Projected Adjusted EBITDA of Enterprise represents net income
less equity earnings from unconsolidated affiliates, plus
distributions received from unconsolidated affiliates, and less
interest expense, provision for income taxes and depreciation,
amortization and accretion expense. |
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Distributable cash flow to Enterprise is defined as net income
or loss attributable to Enterprise adjusted for: (i) the
addition of depreciation, amortization and accretion expense;
(ii) the addition of operating lease expenses for which
Enterprise does not have the payment obligation; (iii) the
addition of cash distributions received from unconsolidated
affiliates less equity earnings from unconsolidated affiliates;
(iv) the subtraction of sustaining capital expenditures and
cash payments to settle asset retirement obligations;
(v) the addition of losses or subtraction of gains from
asset sales and related transactions; (vi) the addition of
cash proceeds from asset sales or related transactions;
(vii) the return of an investment in an unconsolidated
affiliate (if any); (viii) the addition of losses or
subtraction of gains on the monetization of financial
instruments recorded in accumulated other comprehensive income
(loss), if any, less related amortization of such amounts to
earnings; (ix) the addition of net income attributable to
the noncontrolling interest associated with the public
unitholders of Duncan, less related cash distributions to be
paid to such unitholders with respect to the period of
calculation; and (x) the addition or subtraction of other
miscellaneous non-cash amounts (as applicable) that affect net
income or loss for the period. |
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Projected Adjusted EBITDA of Duncan represents net income less
equity earnings from unconsolidated affiliates, plus
distributions received from unconsolidated affiliates, and less
interest expense, provision for income taxes and depreciation,
amortization and accretion expense. The subtotal of the
preceding adjustments to net income is further adjusted to
subtract EPOs share of the Adjusted EBITDA of the
DEP I Midstream Businesses and its share of the Adjusted
EBITDA of the DEP II Midstream Businesses. |
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Adjusted EBITDA for the DEP I Midstream Businesses represents
the sum of (i) 34% of the net income of such businesses
(exclusive of operational measurement gains or losses allocated
to Enterprise) less related shares of equity earnings from
unconsolidated affiliates plus distributions received from
unconsolidated affiliates, and less interest expense, provision
for income taxes and depreciation, amortization and accretion
expense and (ii) 100% of the operational measurement gains
or losses allocated to Enterprise through Duncans
majority-owned Mont Belvieu, Texas storage operations. |
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Adjusted EBITDA for the DEP II Midstream Businesses is
determined by subtracting Enterprises pro rata share of
the sustaining capital expenditures of each DEP II Midstream
Business (based on legal ownership percentages) from the
aggregate cash distribution paid by the DEP II Midstream
Businesses to Enterprise with respect to each period. |
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(4) |
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Distributable cash flow to Duncan is defined as the sum of its
share of the distributable cash flow of the DEP I and DEP II
Midstream Businesses, less any standalone expenses of Duncan
such as interest expense and general and administrative costs
(net of non-cash items). In general, Duncan defines the
distributable cash flow of its operating subsidiaries as their
net income or loss adjusted for (i) the addition of
depreciation, amortization and accretion expense; (ii) the
addition of cash distributions received from Evangeline Gas
Pipeline Company, L.P. and Evangeline Gas Corp. (collectively,
Evangeline), if any, less equity earnings;
(iii) the subtraction of sustaining capital expenditures
and cash payments to settle asset retirement obligations;
(iv) the addition of losses or subtraction of gains
relating to asset sales and related transactions; (v) the
addition of cash proceeds from asset sales and related
transactions; (vi) the addition of losses or subtraction of
gains from the monetization of derivative instruments recorded
in accumulated other comprehensive income (loss), if any, less
related amortization |
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of such amounts to earnings; and (vii) the addition or
subtraction of other miscellaneous non-cash amounts (as
applicable) that affect net income or loss for the period. |
Adjusted EBITDA is not a financial measure prepared in
accordance with GAAP and should not be considered a substitute
for net income (loss) or cash flow data prepared in accordance
with GAAP.
Distributable cash flow is not a financial measure prepared in
accordance with GAAP and should not be considered a substitute
for net income (loss) or cash flow data prepared in accordance
with GAAP.
NEITHER ENTERPRISE NOR DUNCAN INTENDS TO UPDATE OR OTHERWISE
REVISE THE ABOVE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING
AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE
EVENTS, EVEN IF ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH
PROJECTIONS ARE NO LONGER APPROPRIATE.
Opinion
of the Duncan ACG Committees Financial Advisor
The Duncan ACG Committee retained Morgan Stanley to act as its
financial advisor in connection with the transaction in early
March 2011 (with a formal engagement letter executed on
March 25, 2011). The Duncan ACG Committee selected Morgan
Stanley to act as its financial advisor based on Morgan
Stanleys qualifications, expertise and reputation and its
knowledge of the business and affairs of Duncan. At the meeting
of the Duncan ACG Committee on April 28, 2011, Morgan
Stanley rendered to the Duncan ACG Committee its oral opinion,
subsequently confirmed in writing, that, as of such date and
based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the Duncan
unaffiliated unitholders.
The full text of the written opinion of Morgan Stanley, dated
April 28, 2011, is attached as Annex B to this proxy
statement/prospectus and is incorporated by reference in its
entirety into this proxy statement/prospectus. The opinion sets
forth, among other things, the assumptions made, specified work
performed, procedures followed, matters considered and
qualifications and limitations on the scope of the review
undertaken by Morgan Stanley in rendering its opinion. You
should read the opinion carefully and in its entirety. Morgan
Stanleys opinion is directed to the Duncan ACG Committee
and addresses only the fairness from a financial point of view
of the exchange ratio pursuant to the merger agreement to the
Duncan unaffiliated unitholders as of the date of the opinion.
It does not address any other aspect of the merger or related
transactions and does not constitute a recommendation to any
unitholder of Duncan as to how to vote or act on any matter with
respect to the merger or related transactions. In addition, the
opinion does not in any manner address the prices at which the
Duncan common units or the Enterprise common units will trade at
any time. The summary of the opinion of Morgan Stanley set forth
in this proxy statement/prospectus is qualified in its entirety
by reference to the full text of the opinion.
In arriving at its opinion, Morgan Stanley, among other things:
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reviewed certain publicly available financial statements and
other business and financial information of Duncan and
Enterprise, respectively;
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reviewed certain internal financial statements and other
financial and operating data concerning Duncan and Enterprise,
respectively;
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reviewed certain financial projections prepared by the
management of Enterprise with respect to the future performance
of Enterprise;
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reviewed certain financial projections prepared by the
management of Duncan with respect to the future performance of
Duncan;
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discussed the past and current operations and financial
condition and the prospects of Enterprise with senior executives
of Enterprise;
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discussed the past and current operations and financial
condition and the prospects of Duncan with senior executives of
Duncan;
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reviewed the pro forma impact of the merger on Enterprises
cash flow, consolidated capitalization and financial ratios;
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reviewed the reported prices and trading activity for the Duncan
common units and the Enterprise common units;
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compared the financial performance of Duncan and Enterprise and
the prices and trading activity of the Duncan common units and
the Enterprise common units with that of certain other
publicly-traded master limited partnerships comparable to Duncan
and Enterprise, respectively, and their securities;
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reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
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participated in certain discussions and negotiations among
representatives of Duncan, Enterprise and certain of their
respective affiliates and their financial and legal advisors;
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reviewed the merger agreement and certain related
documents; and
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performed such other analyses, reviewed such other information
and considered such other factors as Morgan Stanley deemed
appropriate.
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In arriving at its opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and
completeness of the information that was publicly available or
supplied or otherwise made available to it by Duncan and
Enterprise, and which formed a substantial basis for its
opinion. With respect to the financial projections, including
information relating to certain strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the
management of Enterprise and of Duncan of the future financial
performance of Enterprise and Duncan, respectively. In addition,
Morgan Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the merger agreement
without any material waiver, amendment or delay of any terms or
conditions thereof. Morgan Stanley assumed that in connection
with the receipt of all necessary governmental, regulatory or
other approvals and consents required for the proposed merger,
no delays, limitations, conditions or restrictions will be
imposed that would have a material adverse effect on the
contemplated benefits expected to be derived from the proposed
merger.
In its opinion, Morgan Stanley noted that it is not a legal, tax
or regulatory advisor, that it is a financial advisor only and
that it relied upon, without independent verification, the
assessments of Enterprise and Duncan and their legal, tax or
regulatory advisors with respect to legal, tax or regulatory
matters. Morgan Stanley expressed no opinion with respect to the
fairness of the amount or nature of the compensation to any of
Duncans officers, directors or employees, or any class of
such persons, relative to the consideration to be received by
the holders of the Duncan common units in the transaction.
Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of Duncan or Enterprise,
nor was it furnished with any such appraisals. Morgan
Stanleys opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to it as of, the date of the opinion.
Events occurring after the date of the opinion may affect Morgan
Stanleys opinion and the assumptions used in preparing it,
and Morgan Stanley did not assume any obligation to update,
revise or reaffirm its opinion.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with
respect to the acquisition, business combination or other
extraordinary transaction, involving Duncan, nor did it
negotiate with any party other than Enterprise regarding the
possible acquisition of Duncan or certain of its constituent
businesses. Morgan Stanleys opinion did not address the
relative merits of the merger as compared to any other
alternative business transaction, or other alternatives, whether
or not such alternatives could be achieved or are available, nor
did it address the underlying business decision by Enterprise
and the Duncan ACG Committee to enter into the merger. Morgan
Stanley understood that Enterprise specifically notified the
Duncan ACG Committee that it would not support any alternative
transaction at this time.
The following is a brief summary of the material analyses
performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion dated April 28,
2011. In connection with arriving at its opinion, Morgan Stanley
considered all of its analyses as a whole and did not attribute
any
54
particular weight to any analysis described below. Considering
any portion of such analyses and factors considered, without
considering all analyses and factors, could create a misleading
or incomplete view of the process underlying Morgan
Stanleys opinion. This summary of financial analyses
includes information presented in tabular format. In order to
fully understand the financial analyses used by Morgan Stanley,
the tables must be read together with the accompanying text. The
tables alone do not constitute a complete description of the
financial analyses.
Historical
Trading Performance and Exchange Ratio Analyses
Morgan Stanley reviewed the unit price performance of each of
Duncan and Enterprise during the last twelve-month period ending
on February 22, 2011 for Duncan (the last trading date
prior to Enterprises initial offer) and ending on
April 27, 2011 for Enterprise.
Morgan Stanley noted that the range of low and high closing
prices of the Duncan common units during the twelve-month period
ending on February 22, 2011 was $22.27 to $33.39 per Duncan
common unit. Morgan Stanley then noted that the range of low and
high closing prices of Enterprise common units during the
twelve-month period ending on April 27, 2011 was $27.85 to
$44.35 per Enterprise common unit.
Morgan Stanley calculated the historical exchange ratios implied
by dividing the low and high closing prices of Duncan common
units by those of Enterprise common units for the last
twelve-month period. The following table indicates the implied
exchange ratio for this period, compared to an exchange ratio of
1.01x for the merger:
|
|
|
|
|
Implied
|
|
|
Exchange
|
Time Period
|
|
Ratio Range
|
|
Last Twelve Months
|
|
0.7529x - 0.7996x
|
Equity
Research Analyst Price Targets Analysis
Morgan Stanley reviewed and analyzed the public market trading
price targets for Duncan common units prepared and most recently
published by equity research analysts during the period prior to
Enterprises initial offer (October 27, 2010 through
February 18, 2011). These targets reflect each
analysts estimate of the future public trading price
of the Duncan common units as of their respective dates. Morgan
Stanley noted that such analyst price targets for Duncan common
units ranged from $31.00 to $38.00 per Duncan common unit. Also,
Morgan Stanley discounted these price targets back twelve months
at a 10.0% cost of equity, creating a discounted price target
valuation range of $28.18 to $34.55 per Duncan common unit.
Morgan Stanley also reviewed and analyzed the public market
trading price targets for Enterprise common units prepared and
most recently published by equity research analysts during the
period prior to Enterprises initial offer (July 19,
2010 through February 22, 2011). These targets reflect each
analysts estimate of the future public trading price of
Enterprise common units as of their respective dates.
Morgan Stanley noted that such analyst price targets for
Enterprise common units ranged from $41.00 to $49.00 per
Enterprise common unit. Also, Morgan Stanley discounted these
price targets back twelve months at a 10.0% cost of equity,
creating a discounted price target valuation range of $40.91 to
$44.55 per Enterprise common unit.
Morgan Stanley calculated the exchange ratios implied by the
analyst price targets for Duncan and Enterprise (only with
respect to such analysts that published price targets for both
Duncan and Enterprise) by dividing the Duncan price target by
Enterprise price target provided by the same analyst. This
analysis implied a range of exchange ratios of 0.6458x to
0.7917x based on price targets published during the period from
October 27, 2010 through February 22, 2011. The
implied exchange ratio based on the discounted price targets
ranged from 0.6458x to 0.7917x. These ranges compared to an
exchange ratio of 1.01x for the merger.
The public market trading price targets published by equity
research analysts do not necessarily reflect current market
trading prices for Duncan common units or Enterprise common
units and these estimates are subject to uncertainties,
including the future financial performance of Duncan and
Enterprise and future financial market conditions.
55
Comparable
Partnership Trading Analysis
Morgan Stanley performed a comparable partnership trading
analysis, which is designed to provide an implied value of a
partnership by comparing it to similar partnerships. In
performing this analysis, Morgan Stanley reviewed and compared
certain financial information of Duncan and Enterprise,
respectively, with publicly available information for selected
master limited partnerships (MLPs) with publicly
traded equity securities.
The selected companies were chosen because they are MLPs with
publicly traded equity securities and were deemed to be similar
to Duncan and Enterprise, respectively, in one or more respects
including the nature of their business, size, diversification,
financial performance and geographic concentration. No specific
numeric or other similar criteria were used to choose the
selected companies and all criteria were evaluated in their
entirety without application of definitive qualifications or
limitations to individual criteria. As a result, a significantly
larger or smaller partnership with substantially similar lines
of businesses and business focus may have been included while a
similarly sized partnership with less similar lines of business
and greater diversification may have been excluded. Morgan
Stanley identified and included a sufficient number of
partnerships for the purposes of its analysis but may not have
included all partnerships that might be deemed comparable to
Duncan and Enterprise, respectively.
The selected MLPs with publicly traded equity securities for the
comparable partnership trading analysis for Duncan and
Enterprise were:
|
|
|
|
|
Enbridge Energy Partners, L.P.
|
|
|
|
Energy Transfer Partners, L.P.
|
|
|
|
Kinder Morgan Energy Partners, L.P.
|
|
|
|
ONEOK Partners, L.P.
|
|
|
|
Regency Energy Partners LP
|
|
|
|
Williams Partners L.P.
|
The financial data for comparable partnerships were obtained
from FactSet, partnership filings, and available Wall Street
research.
The financial data reviewed included:
|
|
|
|
|
Yield (calculated as most recent annualized distribution divided
by unit price); and
|
|
|
|
Ratio of price to distributable cash flow estimates from
management estimates as well as from available Wall Street
research estimates for calendar years 2011 and 2012.
|
The comparable partnership analysis indicated the following
high, low and mean multiples for the selected MLPs and for
Enterprise as of April 27, 2011, and for Duncan as of
February 22, 2011:
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Yield and
|
|
|
Yield and
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiples for
|
|
|
Multiples for
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Based
|
|
|
Enterprise Based
|
|
|
|
|
|
|
|
|
|
|
|
|
on Closing Price
|
|
|
on Closing Price
|
|
Multiple Description
|
|
High
|
|
|
Low
|
|
|
Mean
|
|
|
on 2/22/2011
|
|
|
on 4/27/2011
|
|
|
Yield
|
|
|
6.6
|
%
|
|
|
5.2
|
%
|
|
|
5.9
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
Price/Distributable Cash Flow for CY 2011
|
|
|
17.6
|
x
|
|
|
13.9
|
x
|
|
|
15.2
|
x
|
|
|
11.7
|
x
|
|
|
15.3
|
x
|
Price/Distributable Cash Flow for CY 2012
|
|
|
16.6
|
x
|
|
|
12.6
|
x
|
|
|
14.4
|
x
|
|
|
10.2
|
x
|
|
|
14.0
|
x
|
Morgan Stanley applied multiple ranges based on the comparable
partnership analysis to corresponding financial data for Duncan
and Enterprise, based on management forecasts of Duncan and
Enterprise, respectively, as well as based on the median of
available Wall Street research estimates of 2011 and 2012
distributable cash flow for Duncan and Enterprise, respectively,
to calculate an implied exchange ratio reference range. The
comparable partnership analysis indicated an implied exchange
ratio of 0.7615x based on yield analysis. In addition, the
comparable partnership analysis indicated an implied exchange
ratio range of 0.8528x to 0.8747x for 2011 distributable cash
flow and 0.9925x to 1.0217x for 2012 distributable cash flow
based on management
56
projections, as compared to an exchange ratio of 1.01x for the
merger. Also, the analysis indicated an implied exchange ratio
range of 0.7953x to 0.8157x for 2011 distributable cash flow and
0.8232x to 0.8474x for 2012 distributable cash flow based on the
median of available Wall Street estimates for Duncan and
Enterprise distributable cash flow in 2011 and 2012, as compared
to an exchange ratio of 1.01x for the merger.
No company utilized in the comparable partnership analysis is
identical to either Duncan or Enterprise. In evaluating the
comparable partnerships, Morgan Stanley made judgments and
assumptions with regard to industry performance, general
business, economic, market and financial conditions and other
matters, which are beyond the control of Duncan and Enterprise,
such as the impact of competition on the businesses of Duncan,
Enterprise or the industry generally, industry growth and the
absence of any adverse material change in the financial
condition of Duncan, Enterprise or the industry or in the
financial markets in general, which could affect the public
trading value of the partnerships. Mathematical analysis (such
as determining the mean, median, high or low) is not in itself a
meaningful method of using comparable partnership data.
Discounted
Equity Value Analysis
Morgan Stanley calculated a range of equity values per unit for
each of Duncan and Enterprise based on a discounted equity value
analysis, which is designed to provide insight into the future
price of a partnerships common equity as a function of its
current distribution yield and the partnerships future
distributions per unit. Morgan Stanleys future equity
price estimates were based on management estimates of Duncan and
Enterprise distributions for calendar years 2011 through 2013.
Morgan Stanley also projected common equity prices per unit for
calendar years 2014 and 2015 derived from estimates of future
distributions per unit in those years for Duncan and Enterprise
which resulted from applying long-term per unit distribution
growth rates consistent with 2013 estimated growth rates
indicated by Duncan and Enterprise management (the
distribution growth estimates). Additionally, Morgan
Stanley calculated a range of equity values per unit for each of
Duncan and Enterprise based on IBES Consensus distribution
estimates for calendar years 2011 through 2013 (the final year
for which detailed equity research analyst estimates were
available at the date of the relevant analyses).
In arriving at the estimated equity values per Duncan common
unit, Morgan Stanley applied a 5.6% to 6.0% yield range to 2011
through 2015 distributions per common unit (such yield range was
applied to calendar years 2011 through 2013 for Duncan
management and IBES Consensus estimates, and a 6% yield was
applied to Duncan distribution growth estimates for 2014 and
2015) and discounted those equity values and the future
distributions paid each year using a range of cost of equity
from 9.0% to 11.0%. Based on management estimates of Duncan
distributions per unit, this analysis implied price ranges for
Duncan common units of $33.51 to $33.66 and $29.99 to $31.16 per
unit for 2011 and 2013, respectively. Based on distribution
growth estimates of Duncan distributions per unit, this analysis
implied a range of $28.77 to $30.80 per Duncan common unit for
2015. Based on IBES Consensus estimates, this analysis implied a
price range for Duncan common units of $33.96 to $34.11 and
$31.68 to $32.92 per Duncan common unit for 2011 and 2013,
respectively. Additionally, Morgan Stanley made theoretical
adjustments to Duncan management estimates and Duncan
distribution growth estimates, assuming Duncan distribution
coverage of 1.23x consistent with the average of midstream MLP
coverage ratios, in contrast to the Duncan management forecasted
coverage of 1.68x to 2.24x. This analysis implied ranges for
Duncan common units of $45.44 to $45.65, $51.87 to $53.92 and
$49.29 to $52.80 per Duncan common unit for 2011, 2013 and 2015,
respectively.
In arriving at the estimated equity values per Enterprise common
unit, Morgan Stanley applied a 5.5% yield to 2011 through 2015
distributions per common unit (such yield range was applied to
calendar years 2011 through 2013 for Enterprise management and
IBES Consensus estimates, and to Enterprise distribution growth
estimates for 2014 and 2015), and discounted those values and
the future distributions paid each year using a range of cost of
equity from 9.0% to 11.0%. Based on management estimates of
Enterprise distributions per unit, this analysis implied price
ranges of $44.79 to $45.00 and $44.61 to $46.37 per Enterprise
common unit for 2011 and 2013, respectively. Based on
distribution growth estimates of Enterprise distributions per
unit, this analysis implied a price range of $44.49 to $47.68
per Enterprise common unit for 2015. Based on IBES Consensus
estimates, this analysis implied a price range of $44.87 to
$45.07 and $45.32 to $47.10 per Enterprise common unit for 2011
and 2013, respectively.
57
Morgan Stanley noted that the discounted equity value analysis
of each of Duncan and Enterprise indicated the following ranges
of implied exchange ratios, compared to an exchange ratio of
1.01x for the merger:
|
|
|
|
|
|
|
Implied
|
|
|
|
Exchange
|
|
Discounted Equity Value Method
|
|
Ratio Range
|
|
|
2011 Duncan and Enterprise Management Estimates
|
|
|
0.7480x
|
|
2013 Duncan and Enterprise Management Estimates
|
|
|
0.6721x - 0.6723x
|
|
2015 Distribution Growth Estimates(1)
|
|
|
0.6460x - 0.6467x
|
|
2011 IBES Consensus Estimates
|
|
|
0.7568x
|
|
2013 IBES Consensus Estimates
|
|
|
0.6989x - 0.6990x
|
|
2011 Adjusted Duncan and Enterprise Management Estimates
|
|
|
1.0145x
|
|
2013 Adjusted Duncan and Enterprise Management Estimates
|
|
|
1.1628x - 1.1629x
|
|
2015 Adjusted Distribution Growth Estimates(1)
|
|
|
1.1075x - 1.1080x
|
|
|
|
|
(1) |
|
Based on distribution growth estimates of 2015 performance
derived from applying long-term per unit distribution growth
rates consistent with 2013 estimated growth rates indicated by
Duncan and Enterprise management. |
Discounted
Cash Flow Analysis
Morgan Stanley performed a discounted cash flow analysis, which
is designed to provide the implied value of a partnership by
calculating the present value of the estimated future cash flows
and terminal value of the partnership. Morgan Stanley calculated
ranges of implied equity values per unit for each of Duncan and
Enterprise, based on 2011 through 2013 distribution forecasts
contained in Enterprise management estimates and implied by
theoretical adjustments made to Duncan management estimates,
assuming Duncan distribution coverage of 1.23x consistent with
the average of midstream MLP coverage ratios, in contrast to
Duncan management forecasted coverage of 1.68x to 2.24x. Morgan
Stanleys estimates of the terminal value included all
distributions after 2013.
In arriving at the estimated equity values per Duncan common
unit, Morgan Stanley noted the estimated distributions for each
projected calendar year and then calculated the terminal value
by applying a perpetuity growth formula to the 2013 estimated
distribution per unit assuming growth rates of 1.0% to 5.0%
annually beyond 2013. The distributions and the terminal value
were then discounted to present values using a range of cost of
equity from 9.0% to 11.0%. Based on the calculations described
above, this analysis implied a range for Duncan common units of
$34.19 to $42.51 per Duncan common unit calculated at 1.0%
terminal growth rate, $41.59 to $55.13 per Duncan common unit
calculated at 3.0% terminal growth rate and $53.93 to $80.38 per
Duncan common unit calculated at 5.0% terminal growth rate.
In arriving at the estimated equity values per Enterprise common
unit, Morgan Stanley noted the estimated distributions for each
projected calendar year and then calculated the terminal value
by applying a perpetuity growth formula to the 2013 estimated
distribution per unit assuming growth rates of 2.0% to 5.0%
annually beyond 2013. The distributions and the terminal value
were then discounted to present values using a range of cost of
equity from 9.0% to 11.0%. Based on the calculations set forth
above, this analysis implied a range for Enterprise common units
of $30.20 to $38.51 per Enterprise common unit calculated at
2.0% terminal growth rate and a range for Enterprise common
units of $43.29 to $64.33 per Enterprise common unit calculated
at 5.0% terminal growth rate.
Morgan Stanley noted that the discounted cash flow analysis of
each of Duncan and Enterprise indicated a range of implied
exchange ratios of 1.0545x to 1.1197x, 0.9166x to 1.0214x and
0.8132x to 0.9073x when the Duncan terminal growth rate is 1.0%,
2.0% and 3.0% lower than Enterprises (assuming terminal
growth range of 2.0% to 5.0% for Enterprise and non-negative
terminal growth for Duncan), respectively, compared to an
exchange ratio of 1.01x for the merger.
58
Precedent
Transactions Analysis
Morgan Stanley calculated various multiples of transaction value
to certain financial data based on the purchase prices paid in
selected publicly announced merger transactions that it deemed
relevant.
The selected merger transactions were chosen because the mergers
were deemed to be similar to the merger of Duncan and Enterprise
in one or more respects including the nature of their business,
size, diversification, financial performance and geographic
concentration. No specific numeric or other similar criteria
were used to choose the selected transactions and all criteria
were evaluated in their entirety without application of
definitive qualifications or limitations to individual criteria.
As a result, a transaction involving the acquisition of a
significantly larger or smaller company with substantially
similar lines of businesses and business focus may have been
included while a transaction involving the acquisition of a
similarly sized company with less similar lines of business and
greater diversification may have been excluded. Morgan Stanley
identified a sufficient number of transactions for purposes of
its analysis, but may not have included all transactions that
might be deemed comparable to the proposed transaction. The
selected merger transactions were:
|
|
|
|
|
GulfTerra Energy Partners, L.P./Enterprise Products Partners L.P.
|
|
|
|
Kaneb Pipe Line Partners L.P./Valero L.P.
|
|
|
|
Pacific Energy Partners, L.P./Plains All American Pipeline, L.P.
|
|
|
|
TEPPCO Partners, L.P./Enterprise Products Partners L.P.
|
Morgan Stanley calculated the premium to historical trading
relationship in the selected transactions and for the proposed
merger based on the offered exchange ratio relative to the
unaffected trading exchange ratio for each respective
transaction
one-day
prior to the announcement of the transaction and on
February 22, 2011 with respect to the proposed merger. In
addition, for the selected transactions and the proposed merger,
Morgan Stanley calculated multiples of aggregate value (as of
one day prior to announcement for the selected transactions,
February 22, 2011 for Duncan and April 27, 2011 for
Enterprise) to EBITDA as earned during two defined time periods
relative to the transaction announcement (February 22, 2011
for the proposed merger): last twelve-month (LTM)
EBITDA was calculated as EBITDA for the four most recently
reported fiscal quarters prior to transaction announcement, and
forward-year (FY1) EBITDA was calculated as
projected EBITDA for next annual calendar period following the
transaction announcement. These analyses indicated the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium for
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
Premium to Relative Trading
|
|
High
|
|
|
Low
|
|
|
Mean
|
|
|
Consideration
|
|
|
One Day Prior
|
|
|
13.3
|
%
|
|
|
2.2
|
%
|
|
|
8.8
|
%
|
|
|
35.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiples for
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
Multiple Description
|
|
High
|
|
|
Low
|
|
|
Mean
|
|
|
Consideration
|
|
|
Aggregate Value to EBITDA for LTM
|
|
|
16.5x
|
|
|
|
9.9x
|
|
|
|
13.4x
|
|
|
|
17.0x
|
|
Aggregate Value to EBITDA for FY1
|
|
|
15.0x
|
|
|
|
9.5x
|
|
|
|
12.8x
|
|
|
|
12.6x
|
|
Morgan Stanley applied premia and multiple reference ranges
based on the selected transactions analysis to corresponding
financial data from Duncan management forecasts to calculate
implied price ranges per Duncan unit. This range was $32.56 to
$37.44 based on premia to one day relative trading, $20.48 to
$37.22 based on aggregate value to LTM EBITDA multiples and
$29.69 to $52.16 based on aggregate value to FY1 EBITDA
multiples. Morgan Stanley then used Enterprises unit price
as of February 22, 2011 to calculate an implied exchange
ratio range. The selected transactions analyses indicated an
implied exchange ratio range of 0.7451x to 0.8568x based on
premia to one day relative trading and indicated implied
exchange ratio ranges of
59
0.4686x to 0.8516x and 0.6794x to 1.1935x for the aggregate
value multiples of LTM EBITDA and FY1 EBITDA, respectively,
compared to an exchange ratio of 1.01x for the merger.
Morgan Stanley also reviewed and analyzed selected minority
buy-in transactions involving companies acquiring remaining
minority stakes in targets in which they already held a majority
interest (transaction values over one billion dollars since
January 2005). The selected minority buy-in transactions were
chosen because the selected transactions were deemed to be
similar to the buy-in of Enterprise in Duncan. The selected
transactions were:
|
|
|
|
|
Odyssey Re Holdings Corp./Fairfax Financial Holdings Limited
|
|
|
|
UnionBanCal Corp./Mitsubishi UFJ Financial Group, Inc.
|
|
|
|
Genetech, Inc./Roche Holding AG
|
|
|
|
Nationwide Financial Services Inc./Nationwide Mutual Insurance
Company
|
|
|
|
TD Banknorth Inc./Toronto-Dominion Bank
|
|
|
|
Lafarge NA/Lafarge SA
|
|
|
|
7-Eleven, Inc./IYG Holding Company
|
|
|
|
UnitedGlobalCom Inc./Liberty Media International, Inc.
|
|
|
|
Fox Entertainment Group Inc./News Corp.
|
Morgan Stanley calculated the premia to the historical trading
relationship in the selected minority buy-in transactions and
for the proposed merger based on the final offered exchange
ratio for each transaction relative to the unaffected exchange
ratio one day prior to announcement for each selected minority
buy-in transaction and relative to the exchange ratio on
February 22, 2011 with respect to the proposed merger. The
selected minority buy-in transactions analysis indicated the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium for
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
Final Offer Premium
|
|
High
|
|
|
Low
|
|
|
Mean
|
|
|
Consideration
|
|
|
One Day Prior
|
|
|
37.8
|
%
|
|
|
(2.0
|
)%
|
|
|
21.7
|
%
|
|
|
34.4
|
%
|
Morgan Stanley applied premia reference ranges based on the
selected minority buy-in transactions to corresponding financial
data from Duncan management forecasts to calculate implied price
ranges per Duncan unit. This range was $37.44 to $43.96 based on
premia to one day relative trading. Morgan Stanley then used
Enterprises unit price as of February 22, 2011 to
calculate an implied exchange ratio range. The selected minority
buy-in transactions analysis indicated an implied exchange ratio
range of 0.8568x to 1.0059x for the one day prior premium
compared to an exchange ratio of 1.01x for the merger.
No company or transaction utilized in the precedent transactions
analysis is identical to Duncan, Enterprise, or the merger. In
evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to general business,
market and financial conditions and other matters, which are
beyond the control of Duncan and Enterprise, such as the impact
of competition on the business of Duncan, Enterprise or the
industry generally, industry growth and the absence of any
adverse material change in the financial condition of Duncan,
Enterprise or the industry or in the financial markets in
general, which could affect the public trading value of the
companies and the aggregate value of the transactions to which
they are being compared.
Pro
Forma Accretion/Dilution Analysis
Using financial projections provided by the management of Duncan
and Enterprise for 2011 through 2013, and using distribution
growth estimates for 2014 and 2015, Morgan Stanley calculated
the accretion/dilution of the estimated distributable cash flow
and distributions to the existing unitholders of Duncan and
Enterprise, respectively, on a per unit basis. For each of the
years ended December 31, 2011 through December 31,
2015, Morgan Stanley compared the distributable cash flow and
distributions per unit of the pro
60
forma entity (after accounting for the 1.01x exchange ratio
offered to Duncan unitholders) to the distributable cash flow
and distributions per unit of Duncan and Enterprise,
respectively, as stand-alone entities. The analysis indicated
that the merger would be dilutive to Duncans distributable
cash flow per unit and accretive to distributions per unit in
each year for calendar years 2011 through 2015. In addition, the
analysis indicated that the merger would be dilutive to
Enterprises distributable cash flow and distributions per
unit in each year for calendar years 2011 through 2015.
Also, using financial projections of standalone distributable
cash flow and distributions per unit from available Wall Street
research for 2011 through 2013, Morgan Stanley calculated the
accretion/dilution of the implied pro forma distributable cash
flow and distributions to the existing unitholders of Duncan and
Enterprise, respectively, on a per unit basis. The analysis
indicated that the merger would be accretive to Duncans
distributable cash flow per unit in calendar years 2011 and 2013
and dilutive in calendar year 2012, and accretive to
distributions per unit in each year for calendar years 2011
through 2013. In addition, the analysis indicated that the
merger would be dilutive to Enterprises distributable cash
flow and distributions per unit in each year for calendar years
2011 through 2013.
General
In connection with the review of the merger by the Duncan ACG
Committee, Morgan Stanley performed a variety of financial and
comparative analyses and reviewed such underlying data as Morgan
Stanley deemed relevant for purposes of rendering its opinion.
The preparation of a financial opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor it
considered. Furthermore, Morgan Stanley believes that the
summary provided and the analyses described above must be
considered as a whole and that selecting any portion of the
analyses, without considering all of the analyses as a whole,
would create an incomplete view of the process underlying Morgan
Stanleys analyses and opinion. In addition, Morgan Stanley
may have given various analyses and factors more or less weight
than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions. As a
result, the ranges of valuations resulting from any particular
analysis or combination of analyses described above should not
be taken to be the view of Morgan Stanley with respect to the
actual value of Duncan or Enterprise. In performing its
analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business, regulatory, economic,
market and financial conditions and other matters. Many of these
assumptions are beyond the control of Duncan and Enterprise. Any
estimates contained in Morgan Stanleys analyses are not
necessarily indicative of future results or actual values, which
may be significantly more or less favorable than those suggested
by such estimates.
Morgan Stanley conducted the analyses described above solely as
part of its analysis of the fairness of the exchange ratio
pursuant to the merger agreement from a financial point of view
to the Duncan unaffiliated unitholders and in connection with
the delivery of its opinion to the Duncan ACG Committee. These
analyses do not purport to be appraisals or to reflect the
prices at which the Duncan common units or Enterprise common
units might actually trade.
Morgan Stanleys opinion and its presentation to the Duncan
ACG Committee was one of many factors taken into consideration
by the Duncan ACG Committee in deciding to approve and recommend
that the Duncan Board authorize the execution of the merger
agreement and the related documents and the transactions
contemplated thereby. Consequently, the analyses as described
above should not be viewed as determinative of the opinion of
the Duncan ACG Committee with respect to the exchange ratio or
of whether the Duncan ACG Committee would have been willing to
agree to a different exchange ratio. The exchange ratio was
determined through arms-length negotiations between the
Duncan ACG Committee and Enterprise. Morgan Stanley provided
advice to the Duncan ACG Committee during these negotiations.
Morgan Stanley did not, however, recommend any specific exchange
ratio to the Duncan ACG Committee or that any specific exchange
ratio constituted the only appropriate exchange ratio for the
merger.
Morgan Stanleys opinion was approved by a committee of
Morgan Stanley investment banking and other professionals in
accordance with its customary practice.
61
Morgan Stanley is a global financial services firm engaged in
the securities, investment management and individual wealth
management businesses. Its securities business is engaged in
securities underwriting, trading and brokerage activities,
foreign exchange, commodities and derivatives trading, prime
brokerage, as well as providing investment banking, financing
and financial advisory services. Morgan Stanley, its affiliates,
directors and officers may at any time invest on a principal
basis or manage funds that invest, hold long or short positions,
finance positions, and may trade or otherwise structure and
effect transactions, for their own account or the accounts of
its customers, in debt or equity securities or loans of
Enterprise, Duncan, or any other company, or any currency or
commodity, that may be involved in this transaction, or any
related derivative instrument. In the two years prior to the
date of Morgan Stanleys opinion, Morgan Stanley received
aggregate fees of (1) $11 million for financial
advisory services provided to the independent directors of the
general partner of Enterprise GP Holdings L.P., a former
affiliate of Duncan and Enterprise, in connection with two
separate merger transactions in which Enterprise was a
counterparty, (2) $8.0 million for serving as part of
the underwriting syndicate for six separate debt and equity
offerings by Enterprise, and (3) $0.8 million as part
of the underwriting syndicate for one equity offering by Duncan.
Additionally, Morgan Stanley received aggregate fees of
$0.5 million during this period as a lender under the
revolving credit facilities of Duncan, Enterprise and EPCO.
Morgan Stanley may also seek to provide such services to
Enterprise and Duncan in the future and expects to receive fees
for the rendering of these services.
Under the terms of its engagement letter with the Duncan ACG
Committee, Morgan Stanley provided the Duncan ACG Committee with
financial advisory services in connection with the merger for
which the Duncan ACG Committee has agreed to pay Morgan Stanley
a transaction fee of $5 million, which is contingent upon,
and will become payable upon, closing of the merger. The Duncan
ACG Committee has also agreed to reimburse Morgan Stanley for
its expenses incurred in performing its services. In addition,
the Duncan ACG Committee has agreed to indemnify Morgan Stanley
and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal
securities laws, related to or arising out of Morgan
Stanleys engagement.
No
Appraisal Rights
Duncan unitholders do not have appraisal rights under
Duncans partnership agreement, the merger agreement or
applicable Delaware law.
Antitrust
and Regulatory Matters
Due to rules applicable to partnerships and the common control
of Duncan and Enterprise, no filing is required under the HSR
Act and the rules promulgated thereunder by the FTC. However, at
any time before or after completion of the merger, the DOJ, the
FTC, or any state could take such action under the antitrust
laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the completion of the merger, to
rescind the merger or to seek divestiture of particular assets
of Enterprise or Duncan. Private parties also may seek to take
legal action under the antitrust laws under certain
circumstances. In addition,
non-U.S. governmental
and regulatory authorities may seek to take action under
applicable antitrust laws. A challenge to the merger on
antitrust grounds may be made and, if such a challenge is made,
it is possible that Enterprise and Duncan will not prevail.
Listing
of Common Units to be Issued in the Merger
Enterprise expects to obtain approval to list on the NYSE the
Enterprise common units to be issued pursuant to the merger
agreement, which approval is a condition to closing the merger.
Accounting
Treatment
The merger will be accounted for in accordance with Financial
Accounting Standards Board Accounting Standards Codification
810, Consolidations Overall Changes
in Parents Ownership Interest in a Subsidiary, which
is referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be
62
accounted for as an equity transaction and no gain or loss will
be recognized as a result of the merger for financial reporting
purposes.
Pending
Litigation
Litigation
Related to the Merger
On March 8, 2011, Michael Crowley, a purported unitholder
of Duncan, filed a complaint in the Court of Chancery of the
State of Delaware, as a putative class action on behalf of the
public unitholders of Duncan, captioned Michael
Crowley v. Duncan Energy Partners L.P., DEP Holdings, LLC,
W. Randall Fowler, Bryan F. Bulawa, William A.
Bruckmann, III, Larry J. Casey, Richard S. Snell,
Enterprise Products Partners L.P., Enterprise Products Holdings
LLC, and Enterprise Products Operating LLC, Civil Action
No. 6252-VCN.
The Crowley Complaint alleges, among other things, that the
named directors of Duncan GP have breached fiduciary duties in
connection with Enterprises initial proposal to acquire
Duncans outstanding publicly held common units, that
Duncan and Duncan GP aided and abetted in these alleged breaches
of fiduciary duties and that Enterprise, as the majority and
controlling unitholder, along with EPO, has breached fiduciary
duties by not acting in the minority unitholders best
interest to ensure the transaction resulting from
Enterprises proposal is entirely fair.
On March 11, 2011, Sanjay Israni, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Sanjay Israni v. Duncan
Energy Partners, L.P., DEP Holdings, LLC, Enterprise Products
Partners L.P., Enterprise Product Holdings LLC, Enterprise
Production Operating LLC, W. Randall Fowler, Bryan F. Bulawa,
William A. Bruckmann, III, Larry J. Casey, and Richard S.
Snell, Civil Action
No. 6270-VCN.
The Israni Complaint alleges, among other things, that the named
directors of Duncan GP have breached fiduciary duties in
connection with Enterprises initial proposal to acquire
Duncans outstanding publicly held common units and that
Duncan along with all of the other named defendants aided and
abetted in these alleged breaches of fiduciary duties.
On March 28, 2011, Michael Rubin, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Michael Rubin v. Duncan
Energy Partners L.P., DEP Holdings, LLC, W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
Richard S. Snell, Enterprise Products Partners L.P., Enterprise
Products Holdings LLC, and Enterprise Products Operating
LLC, Civil Action
No. 6320-VCS.
The Rubin Complaint alleges, among other things, that the named
directors of Duncan GP have breached fiduciary duties in
connection with Enterprises initial proposal to acquire
Duncans outstanding publicly held common units, that
Duncan and Duncan GP aided and abetted in these alleged breaches
of fiduciary duties and that Enterprise, as the majority and
controlling unitholder, along with EPO, has breached fiduciary
duties by not acting in the best interests of the minority
unitholders to ensure the transaction resulting from
Enterprises proposal is entirely fair.
On April 5, 2011, the plaintiffs in the Crowley Complaint,
the Israni Complaint and the Rubin Complaint filed a Proposed
Order of Consolidation and Appointment of Lead Counsel in the
Court of Chancery of the State of Delaware. The Court granted
that Order on the same day consolidating the three actions into
a single consolidated action captioned In re Duncan Energy
Partners L.P. Unitholders Litigation, Consolidated Civil
Action
No. 6252-VCN.
On June 3, 2011 the Delaware plaintiffs filed a
consolidated amended complaint which alleges, among other
things, breach of express and implied contractual duties
contained in the Duncan limited partnership agreement by Duncan
GP and the named directors of Duncan GP and that all defendants
have aided and abetted these alleged breaches. The consolidated
amended complaint also alleges that the defendants failed to
provide full and fair disclosures regarding the proposed
transaction.
On March 7, 2011, Merle Davis, a purported unitholder of
Duncan, filed a petition in the 269th District Court of
Harris County, Texas, as a putative class action on behalf of
the unitholders of Duncan, captioned Merle Davis, on Behalf
of Himself and All Others Similarly Situated v. Duncan
Energy Partners L.P., W. Randall Fowler, Bryan F. Bulawa,
William A. Bruckmann, III, Larry J. Casey, Richard S.
Snell, DEP Holdings, LLC, and Enterprise Products Partners L.P.
The Davis Petition alleged, among other things, that
Enterprise and the named directors of Duncan GP breached
fiduciary duties in connection with Enterprises initial
63
proposal to acquire Duncans outstanding publicly held
common units and that Duncan and Enterprise aided and abetted in
these alleged breaches of fiduciary duties.
On March 9, 2011, Donald Weilersbacher, a purported
unitholder of Duncan, filed a petition in the
334th District Court of Harris County, Texas, as a putative
class action on behalf of the unitholders of Duncan, captioned
Donald Weilersbacher, on Behalf of Himself and All Others
Similarly Situated v. Duncan Energy Partners L.P.,
Enterprise Products Partners L.P., DEP Holdings, LLC, W. Randall
Fowler, Bryan F. Bulawa, William A. Bruckmann, III, Larry
J. Casey, and Richard S. Snell. The Weilersbacher Petition
alleged, among other things, that the named directors of Duncan
GP breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units and that Enterprise aided
and abetted in these alleged breaches of fiduciary duties.
On March 17, 2011, the plaintiffs in the Davis Petition and
the Weilersbacher Petition filed a motion and proposed Order for
Consolidation of Related Actions, Appointment of Interim Co-Lead
Counsel, and Order Compelling Limited Expedited Discovery.
Plaintiffs and defendants subsequently agreed to postpone
discovery until after the plaintiffs file a consolidated
petition. On March 28, 2011, the plaintiffs filed an
amended motion and proposed Order for Consolidation of Related
Actions and Appointment of Interim Co-Lead Counsel. On
May 4, 2011, the court entered an order consolidating the
cases and appointing interim lead counsel. On May 11, 2011,
plaintiffs filed their consolidated petition. On June 23, 2011,
plaintiffs filed a Notice of Nonsuit Without Prejudice, which
was granted by the court, thereby dismissing the suits without
prejudice.
On July 5, 2011, Merle Davis and Donald Weilersbacher,
purported unitholders of Duncan, filed a complaint in the United
States District Court of the Southern District of Texas, Houston
Division, as a putative class action on behalf of the
unitholders of Duncan, captioned Merle Davis and Donald
Weilersbacher, on Behalf of Themselves and All Others Similarly
Situated vs. Duncan Energy Partners, L.P., W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
Richard Snell, DEP Holdings, LLC, and Enterprise Products
Partners L.P. (Case
No. 4:11-cv-02486)(the
Davis/Weilersbacher Federal Complaint). The
Davis/Weilersbacher Federal Complaint alleged, among other
things, that Duncan, Duncan GP and the named directors of Duncan
GP breached implied and express duties under the Duncan limited
partnership agreement in connection with Enterprises
proposal to acquire Duncans outstanding publicly held
common units, that all defendants aided and abetted these
alleged breaches, and that Duncan and Enterprise violated
Section 14(a) and Section 20(a) of the Exchange Act.
Enterprise and Duncan cannot predict the outcome of these or any
other lawsuits that might be filed subsequent to the date of the
filing of this proxy statement/prospectus, nor can Enterprise
and Duncan predict the amount of time and expense that will be
required to resolve these lawsuits. Enterprise, Duncan and the
other defendants named in the lawsuits intend to defend
vigorously against these and any other actions.
Other
Transactions Related to the Merger
Voting
Agreement
In connection with the merger agreement, Duncan, Enterprise and
GTM entered into the voting agreement, pursuant to which
Enterprise and GTM have agreed to vote any Duncan common units
owned by them or their subsidiaries in favor of adoption of the
merger agreement and the merger, including the 33,783,587 Duncan
common units currently directly owned by GTM (representing
approximately 58.5% of the outstanding Duncan common units), at
any meeting of Duncan unitholders. The voting agreement will
terminate upon the termination of the merger agreement.
64
THE
MERGER AGREEMENT
The following is a summary of the material terms of the merger
agreement and the related transactions. The provisions of the
merger agreement are extensive and not easily summarized. This
summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached to this proxy
statement/prospectus as Annex A and is incorporated into
this proxy statement/prospectus by reference. You should read
the merger agreement because it, and not this proxy
statement/prospectus, is the legal document that governs the
terms of the merger.
The merger agreement contains representations and warranties by
each of the parties to the merger agreement. The assertions
embodied in those representations and warranties are qualified
by information in confidential disclosure schedules that the
parties have exchanged in connection with signing the merger
agreement. The disclosure schedules contain information that
modifies, qualifies and creates exceptions to the
representations and warranties set forth in the attached merger
agreement. Accordingly, you should keep in mind that the
representations and warranties are modified in part by the
underlying disclosure schedules. The disclosure schedules
contain information that has been included in Duncans and
Enterprises general prior public disclosures, as well as
additional information, some of which is non-public. Information
concerning the subject matter of the representations and
warranties may have also changed since the date of the merger
agreement, and all of this information may or may not be fully
reflected in the companies public disclosures. Enterprise
and Duncan will provide additional disclosure in their public
reports to the extent needed to provide Duncan unitholders with
a materially complete understanding of the matters addressed in
the merger agreement. To the extent there are any conflicts
between any representations and warranties in the merger
agreement and the additional information included or
incorporated by reference in the proxy statement/prospectus, the
information included or incorporated by reference herein shall
control. Accordingly, the representations, warranties and
covenants in the merger agreement and the description of them in
this proxy statement/prospectus should not be read alone but
instead should be read in conjunction with the other information
contained in the reports, statements and filings of Enterprise
and Duncan filed with the SEC.
In the following summary of the material terms of the merger
agreement, all references to the subsidiaries of Enterprise or
Enterprise GP do not include Duncan GP or its subsidiaries
(including Duncan), unless explicitly stated.
Structure
of the Merger and Related Transactions
Pursuant to the merger agreement, MergerCo will merge with and
into Duncan, with Duncan surviving the merger as a wholly owned
subsidiary of Enterprise, and all common units representing
limited partner interests in Duncan outstanding at the effective
time of the merger will be cancelled and converted into the
right to receive Enterprise common units based on an exchange
ratio of 1.01 Enterprise common units per Duncan common unit. No
fractional Enterprise common units will be issued in the merger,
and Duncan unitholders will, instead, receive cash in lieu of
fractional Enterprise common units, if any.
Immediately following the effective time of the merger, the
consideration that GTM is entitled to receive in the merger will
be exchanged pursuant to the merger agreement and the Exchange
and Contribution Agreement for the assignment by Enterprise of a
limited partner interest in Duncan equal to the limited partner
interest represented by the Duncan common units owned by GTM
immediately prior to the effective time of the merger.
Accordingly, no Enterprise common units will be issued as
consideration to GTM for its 33,783,587 Duncan common units,
which represent approximately 58.5% of the outstanding Duncan
common units.
The limited liability company agreement of Duncan GP will be
amended and restated in substantially the form attached as
Annex A to the merger agreement effective upon the
consummation of the merger. In addition, the limited partnership
agreement of Duncan will be amended and restated (i) in
substantially the form attached as
Annex B-1
(the Duncan Second Amended and Restated Partnership
Agreement) to the merger agreement whereby, effective upon
the consummation of the merger, Enterprise is admitted as the
sole limited partner of Duncan and (ii) in substantially
the form attached as
Annex B-2
(the Duncan Third Amended and Restated Partnership
Agreement) to the merger agreement whereby, effective
immediately following the consummation of the merger and upon
the consummation of the Exchange and Contribution
65
Agreement, GTM and another subsidiary of Enterprise, OLPGP, are
substituted as the only limited partners of Duncan. The Exchange
and Contribution Agreement will be executed upon the closing of
the merger in substantially the form attached as Annex C to
the merger agreement.
When the
Merger Becomes Effective
The closing of the merger will take place on either (i) the
business day after the date on which the last of the conditions
set forth in the merger agreement (other than those conditions
that by their nature cannot be satisfied until the closing date)
have been satisfied or waived in accordance with the terms of
the merger agreement, or (ii) such other date to which the
parties may agree in writing. Please read
Conditions to the Merger beginning on
page 73 for a more complete description of the conditions
that must be satisfied or waived prior to closing. The date on
which the closing occurs is referred to as the closing
date.
The merger will become effective at the effective time, which
will occur upon Duncan filing a certificate of merger with the
Secretary of State of the State of Delaware or at such later
date and time as may be set forth in the certificate of merger.
The Duncan certificate of limited partnership will be the
certificate of limited partnership of the surviving entity,
until duly amended in accordance with its terms and applicable
law.
Effect of
Merger on Outstanding Duncan Common Units and Other
Interests
At the effective time, by virtue of the merger and without any
further action on the part of any holder of Duncan common units,
the following will occur:
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All of the limited liability company interests in MergerCo
outstanding immediately prior to the effective time will be
cancelled.
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The general partner interest in Duncan issued and outstanding
immediately prior to the effective time shall remain outstanding
in the surviving entity, and Duncan GP, as the holder of such
general partner interests, shall continue as the sole general
partner of the surviving entity as set forth in the Duncan
Second Amended and Restated Partnership Agreement.
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Each Duncan common unit issued and outstanding immediately prior
to the effective time (other than Duncan common units held by
Duncan or its subsidiaries) will be converted into the right to
receive 1.01 Enterprise common units.
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Notwithstanding anything to the contrary in the merger
agreement, all Duncan common units owned by Duncan or its
subsidiaries (if any) will automatically be cancelled and no
consideration will be received with respect to such units.
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Pursuant to the Exchange and Contribution Agreement, GTM will
agree to exchange its rights to merger consideration for a
retained limited partner interest in Duncan immediately
following the effective time of the merger. Accordingly, no
Enterprise common units will be issued as consideration to GTM
for its 33,783,587 Duncan common units.
All Duncan common units (other than those held by Duncan or its
subsidiaries, which shall be cancelled as of the effective time
in accordance with the merger agreement), when converted in
connection with receiving the merger consideration, will cease
to be outstanding and will automatically be cancelled and cease
to exist. At the effective time, each holder of a certificate
representing common units and each holder of non-certificated
Duncan common units represented by book-entry will cease to be a
unitholder of Duncan and cease to have any rights as a
unitholder of Duncan, except the right to receive (i) 1.01
Enterprise common units for each outstanding Duncan common unit,
and the right to be admitted as an additional limited partner of
Enterprise, (ii) any cash to be paid in lieu of any
fractional new Enterprise common unit in accordance with the
merger agreement and (iii) any distributions in accordance
with the merger agreement, in each case, to be issued or paid,
without interest, in accordance with the merger agreement. In
addition, to the extent applicable, holders of Duncan common
units as of the effective time will have continued rights to any
distribution, without interest, with respect to such Duncan
common units with a record date occurring prior to the effective
time that may have been declared or made by Duncan with respect
to such Duncan common units in accordance with the terms of the
merger agreement and which remains unpaid as of the effective
time. The
66
unit transfer books of Duncan will be closed at the effective
time and there will be no further registration of transfers on
the unit transfer books of Duncan with respect to Duncan common
units.
For a description of the Enterprise common units, please read
Description of Enterprise Common Units, and for a
description of the comparative rights of the holders of
Enterprise common units and Duncan common units, please read
Comparison of the Rights of Enterprise and Duncan
Unitholders.
Exchange
of Certificates; Fractional Units
Exchange
Agent
In connection with the merger, Enterprise has appointed Wells
Fargo Shareowner Services to act as exchange agent
for the issuance of Enterprise common units and for cash
payments for fractional units. Promptly after the effective
time, Enterprise will deposit or will cause to be deposited with
the exchange agent for the benefit of the holders of Duncan
common units, for exchange through the exchange agent, new
Enterprise common units and cash as required by the merger
agreement. Enterprise has agreed to make available to the
exchange agent, from time to time as needed, cash sufficient to
pay any distributions pursuant to the merger agreement and to
make payments in lieu of any fractional new Enterprise common
units pursuant to the merger agreement, in each case without
interest. Any cash and new Enterprise common units deposited
with the exchange agent (including as payment for any fractional
new Enterprise common units and any distributions with respect
to such fractional new Enterprise common units) are referred to
as the exchange fund. The exchange agent will
deliver the merger consideration contemplated to be paid for
Duncan common units pursuant to the merger agreement out of the
exchange fund. Except as contemplated by the merger agreement,
the exchange fund will not be used for any other purpose.
Exchange
of Units
Promptly after the effective time of the merger, Enterprise will
instruct the exchange agent to mail to each applicable holder of
a Duncan common unit a letter of transmittal and instructions
explaining how to surrender Duncan common units to the exchange
agent. This letter will contain instructions on how to surrender
certificates or book-entry units formerly representing Duncan
common units in exchange for the merger consideration the holder
is entitled to receive under the merger agreement.
Duncan common unit certificates should NOT be returned with
the enclosed proxy card. Duncan unitholders who
deliver a properly completed and signed letter of transmittal
and any other documents required by the instructions to the
transmittal letter, together with their Duncan common unit
certificates, if any, will be entitled to receive:
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new Enterprise common units representing, in the aggregate, the
whole number of new Enterprise common units that the holder has
the right to receive pursuant to the terms of the merger
agreement and as described above under Effect
of Merger on Outstanding Duncan Common Units and Other
Interests, and
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a check in an amount equal to the aggregate amount of cash that
the holder has the right to receive pursuant to the merger
agreement, including cash payable in lieu of any fractional new
Enterprise common units and distributions pursuant to the terms
of the merger agreement. No interest will be paid or accrued on
any merger consideration, any cash payment in lieu of fractional
new Enterprise common units, or on any unpaid distributions
payable to holders of certificated or book-entry Duncan common
units.
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In the event of a transfer of ownership of Duncan common units
that is not registered in the transfer records of Duncan, the
merger consideration payable in respect of those Duncan common
units may be paid to a transferee, if the certificate
representing those Duncan common units or evidence of ownership
of the book-entry Duncan common units is presented to the
exchange agent, and in the case of both certificated and
book-entry Duncan common units, accompanied by all documents
required to evidence and effect the transfer and the person
requesting the exchange will pay to the exchange agent in
advance any transfer or other taxes required by reason of the
delivery of the merger consideration in any name other than that
of the record holder of those Duncan common units, or will
establish to the satisfaction of the exchange agent that any
transfer or
67
other taxes have been paid or are not payable. Until the
required documentation has been delivered and certificates, if
any, have been surrendered, as contemplated by the merger
agreement, each certificate or book-entry Duncan common unit
will be deemed at any time after the effective time to represent
only the right to receive, upon the delivery and surrender of
the Duncan common units, the merger consideration payable in
respect of Duncan common units and any cash or distributions to
which the holder is entitled pursuant to the terms of the merger
agreement.
All new Enterprise common units to be issued in the merger will
be issued in book-entry form, without physical certificates.
Upon the issuance of new Enterprise common units to the holders
of Duncan common units in accordance with the merger agreement
and the compliance by such holders with the requirements of
Section 10.4 of Enterprises partnership agreement,
which requirements may be satisfied by each holder of Duncan
common units by the execution and delivery by such holder of a
completed and executed letter of transmittal, the general
partner will be deemed to have automatically consented to the
admission of such holders as limited partners of Enterprise and
will reflect such admission on the books and records of
Enterprise.
The exchange agent will deliver to Enterprise any Enterprise
common units to be issued in the merger, cash in lieu of
fractional units to be paid in connection with the merger and
any distributions paid on Enterprise common units, in each case
without interest, to be issued in the merger that are not
claimed by former Duncan unitholders within 180 days after
the effective time of the merger. Thereafter, Enterprise will
act as the exchange agent and former Duncan unitholders may look
only to Enterprise for their new Enterprise common units, cash
in lieu of fractional units and unpaid distributions, in each
case without interest. The merger consideration issued upon
conversion of a Duncan common unit in accordance with the terms
of the merger agreement is deemed issued in full satisfaction of
all rights pertaining to such unit.
Distributions
No distributions declared or made with respect to Enterprise
common units with a record date after the effective time will be
paid to the holder of any Duncan common units with respect to
new Enterprise common units that such holder would be entitled
to receive in accordance with the merger agreement and no cash
payment in lieu of fractional new Enterprise common units will
be paid to any Duncan unitholder until the holder has delivered
the required documentation and surrendered any certificates or
book-entry units as contemplated by the merger agreement.
Subject to applicable law, following compliance with the
requirements of the merger agreement, the following will be paid
to a holder of new Enterprise common units, without interest,
(i) promptly after the time of compliance with the merger
agreements procedures, the amount of any cash payable in
lieu of fractional new Enterprise common units to which the
holder is entitled pursuant to the merger agreement and the
amount of distributions with a record date after the effective
time that had already been paid with respect to new Enterprise
common units and payable with respect to such new Enterprise
common units, and (ii) at the appropriate payment date, the
amount of distributions with a record date after the effective
time but prior to such delivery and surrender and a payment date
subsequent to such compliance payable with respect to such new
Enterprise common units.
Fractional
Units
No fractional Enterprise common units will be issued upon the
surrender of Duncan common units outstanding immediately prior
to the effective time. In lieu of any fractional Enterprise
common unit, each Duncan unitholder who would otherwise be
entitled to a fraction of a new Enterprise common unit will be
paid in cash (without interest rounded up to the nearest whole
cent) an amount equal to the product of (i) the average
closing price of Enterprise common units for the ten consecutive
NYSE full trading days ending at the close of trading on the
last NYSE full trading day immediately preceding the closing
date and (ii) the fraction of a new Enterprise common unit
that the holder would otherwise be entitled to receive pursuant
to the merger agreement. Any fractional Enterprise common unit
interest will not entitle its owner to vote or to have any
rights as an Enterprise unitholder with regard to such interest.
To the extent applicable, each holder of Duncan common units is
deemed to have consented pursuant to the merger agreement for
U.S. federal income tax purposes to report the cash
received for fractional Enterprise common units in the merger as
a sale of a portion of that holders Duncan common units to
Enterprise.
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No
Liability
To the fullest extent permitted by law, none of Duncan GP,
Enterprise, Duncan or the surviving entity will be liable to any
holder of Duncan common units for any Enterprise common units
(or distributions with respect thereto) or cash from the
exchange fund delivered to a public official pursuant to any
abandoned property, escheat or similar law.
Lost,
Stolen or Destroyed Certificates
If any certificate representing Duncan common units has been
lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such certificate to be lost,
stolen or destroyed and, if required by Enterprise, the posting
by such person of a bond, in a reasonable amount that Enterprise
may require, as indemnity against any claim that may be made
against it with respect to such certificate, the exchange agent
will pay in exchange for the lost, stolen or destroyed
certificate the merger consideration payable in respect of
Duncan common units represented by the certificate and any
distributions to which the holders thereof are entitled pursuant
to the terms of the merger agreement.
Withholding
Rights
Each of Enterprise, the surviving entity and the exchange agent
will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the merger agreement to any holder
of Duncan common units any amount that Enterprise, the surviving
entity or the exchange agent is required to deduct and withhold
under any provision of federal, state, local, or foreign tax law
with respect to the making of such payment. Enterprise, the
surviving entity or the exchange agent, as the case may be, will
provide reasonable notice to the applicable holders of Duncan
common units prior to withholding any amounts pursuant to the
merger agreement. To the extent that amounts are deducted and
withheld by Enterprise, the surviving entity or the exchange
agent as described in this paragraph, the deducted and withheld
amounts will be treated for all purposes of the merger agreement
as having been paid to the holder of Duncan common units in
respect of whom such deduction and withholding was made by
Enterprise, the surviving entity or the exchange agent, as the
case may be.
Investment
of the Exchange Fund
Enterprise will cause the exchange agent to invest any cash
included in the exchange fund as directed by Enterprise on a
daily basis. The investment of the exchange fund will be limited
to direct short-term obligations of, or short-term obligations
fully guaranteed as to principal and interest by, the
U.S. government and no investment or loss thereon will
affect the amounts payable or the timing of the amounts payable
to Duncan unitholders pursuant to the merger agreement. Any
interest and other income resulting from the investments
described in this paragraph will be paid to Enterprise.
Anti-dilution
Provisions
In the event of any subdivision, reclassification,
recapitalization, split, unit distribution, combination or
exchange of units with respect to, or rights in respect of,
Duncan common units or Enterprise common units (in each case, as
permitted pursuant to the merger agreement), the number of new
Enterprise common units to be issued in the merger and the
average closing price of Enterprise common units will be
correspondingly adjusted to provide to the holders of Duncan
common units the same economic effect as contemplated by the
merger agreement prior to such event.
Treatment
of Duncan Equity-Based Awards; Duncan Unit Purchase
Plan
As of the date of the merger agreement, there were no
outstanding unvested restricted Duncan common units, and there
were no outstanding unit appreciation rights or options or other
awards issued under the 2010 Duncan Long-Term Incentive Plan.
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With respect to the DEP Unit Purchase Plan, the amount of money
credited to the account of each participant under such plan,
after reduction for any required withholding, and held
(immediately prior to the effective time) for the purchase of
Duncan common units (including, but not limited to, each
participants accumulated payroll deductions for the period
in which payroll deductions are accumulated under the DEP Unit
Purchase Plan pending the purchase of Duncan common units, as
established pursuant to the provisions of such plan (the
DUPP Purchase Period), during which the effective
time occurs plus the applicable Employee Discount Amount, as
defined in and determined under the DEP Unit Purchase Plan, with
respect thereto) shall be used to purchase Duncan common units
immediately prior to the effective time in accordance with the
terms of the DEP Unit Purchase Plan. At the effective time,
automatically and without any action on the part of any
participant in the DEP Unit Purchase Plan, each whole Duncan
common unit then credited to the account of each participant,
whether purchased under the DEP Unit Purchase Plan for a DUPP
Purchase Period ended prior to the effective time or purchased
in accordance with the merger agreement or otherwise, will be
cancelled and converted into the right to receive the merger
consideration pursuant to the merger agreement. Any fractional
Duncan common unit credited to the account of a participant and
not converted to the right to receive merger consideration in
accordance with the foregoing will be converted into the right
to receive cash in accordance with the applicable provisions of
the Duncan Unit Purchase Plan and the merger agreement. The
conversion of the Duncan common units pursuant to the merger
agreement will be in full satisfaction of the obligations of
Duncan under the Duncan Unit Purchase Plan with respect to the
DUPP Purchase Period in which the effective time falls and with
respect to all prior DUPP Purchase Periods. Duncan will cause
the DEP Unit Purchase Plan to be suspended as of the effective
time, and no further purchase rights will be granted or
exercised under the DEP Unit Purchase Plan unless and until such
suspension is lifted in accordance with the terms of such plan
and the merger agreement.
As soon as practicable following the suspension of the DEP Unit
Purchase Plan in accordance with the merger agreement, if
permitted under the NYSE corporate governance rules with respect
to shareholder approval of equity compensation plans and
amendments thereto and any other applicable law without seeking
approval of the holders of the Enterprise common units or the
Duncan common units or the imposition of any other condition
(other than compliance with applicable Securities Act
requirements), (i) the Duncan Unit Purchase Plan shall be
continued by EPCO and all Duncan obligations assumed by
Enterprise and such plan shall continue in effect, subject to
amendment, termination
and/or
suspension in accordance with its terms, notwithstanding the
occurrence of the merger, (ii) from and after the effective
time all references to Duncan common units in the Duncan Unit
Purchase Plan shall be substituted with references to Enterprise
common units, (iii) the number of Enterprise common units
that will be available for delivery under the Duncan Unit
Purchase Plan from and after the effective time shall equal the
number of Duncan common units that were available for delivery
under the Duncan Unit Purchase Plan immediately prior to the
effective time (but after effecting the purchases described in
the merger agreement multiplied by the Exchange Ratio (rounded
down to the nearest whole number of Enterprise common units) and
(iv) no participant in the Duncan Unit Purchase Plan shall
have any right to acquire Duncan common units under such plan
from and after the effective time.
If the continuation of the DEP Unit Purchase Plan in accordance
with the provisions of the merger agreement is not permitted,
Duncan shall cause the DEP Unit Purchase Plan to terminate as of
the effective time, and no further purchase rights shall be
granted or exercised under the DEP Unit Purchase Plan at or
after the effective time.
Actions
Pending the Merger
Each of (i) Enterprise and Enterprise GP have agreed that,
without the prior written consent of the Duncan ACG Committee
and the Duncan Board, and (ii) Duncan and Duncan GP have
agreed that, without the prior written consent of the Enterprise
Board, which consents, in either case, will not be unreasonably
withheld, delayed or conditioned, it will not, and will cause
its subsidiaries not to, during the period from the date of the
merger agreement until the effective time of the merger or the
date, if any, on which the merger agreement is terminated,
except as expressly contemplated or permitted by the merger
agreement:
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conduct its business and the business of its subsidiaries other
than in the ordinary and usual course;
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fail to use commercially reasonable best efforts to preserve
intact its business organizations, goodwill and assets and
maintain its rights, franchises and existing relations with
customers, suppliers, employees or business associates;
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take any action that would have a material adverse effect
(please read Representations and
Warranties for a summary of the definition of
material adverse effect in the merger agreement);
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in the case of Duncan and its subsidiaries (i) issue, sell
or otherwise permit to become outstanding, or authorize the
creation of, any additional equity or any additional rights or
enter into any agreement to do such things or (ii) permit
any additional equity interests to become subject to new grants
of employee unit options, unit appreciation rights or similar
equity-based employee rights in each case other than issuances
and sales of Duncan common units after the date of the merger
agreement under the Duncan Unit Purchase Plan in accordance with
the merger agreement or under the Duncan Energy Partners L.P.
Dividend Reinvestment Plan; and in the case of Enterprise and
its subsidiaries, take any action described in (i) and
(ii) above, which would materially adversely affect
Enterprises ability to consummate the transactions
contemplated by the merger agreement;
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split, combine or reclassify any of its equity interests or
issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for its
equity interests, or in the case of Duncan and its subsidiaries,
repurchase, redeem or otherwise acquire, or permit any of its
subsidiaries to purchase, redeem or otherwise acquire any
partnership or other equity interests or rights, except for net
unit settlements made in connection with the vesting of
restricted units or as required by the terms of its securities
outstanding on the date of the merger agreement or as
contemplated by any existing compensation and benefit plan on
the date of the merger agreement;
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in the case of Duncan and its subsidiaries, (i) sell,
lease, dispose of or discontinue all or any portion of its
assets, business or properties other than in the ordinary course
of business, including distributions permitted under the merger
agreement, (ii) acquire, by merger or otherwise, or lease
any assets or all or any portion of the business or property of
any other entity other than in the ordinary course of business
consistent with past practice, (iii) merge, consolidate or
enter into any other business combination transaction with any
person, or (iv) convert from a limited partnership or
limited liability company, as the case may be, to any other
business entity; and in the case of Enterprise, merge,
consolidate or enter into any other business combination
transaction with any person or make any acquisition or
disposition that would be likely to have a material adverse
effect;
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make or declare dividends or distributions to the holders of
Duncan common units or Enterprise common units, as applicable,
that are special or extraordinary distributions or that are in a
cash amount in excess of the most recently declared
distribution, other than regular quarterly cash distributions or
increases made pursuant to applicable Duncan Board or Enterprise
Board approvals in accordance with past practices;
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amend its partnership agreement other than in accordance with
the merger agreement;
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in the case of Duncan and its subsidiaries, enter into any
material contract or modify, amend, terminate or assign, or
waive or assign any rights under any material contract in any
material respect in a manner which is adverse to Enterprise and
its subsidiaries, taken as a whole, or which could prevent or
materially delay the consummation of the merger or the other
transactions contemplated by the merger agreement past the
October 31, 2011 termination date, or any extension of the
termination date, and in the case of Enterprise and its
subsidiaries, enter into any material contract, or modify,
amend, terminate or assign, or waive or assign any rights under
any material contract, in a manner that would reasonably be
expected to result in a material adverse effect on Enterprise or
on Duncan;
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in the case of Duncan and its subsidiaries, waive, release,
assign, settle or compromise any claim, action or proceeding,
including any state or federal regulatory proceeding seeking
damages or injunction or other equitable relief, that is
material to it; and in the case of Enterprise and its
subsidiaries, waive, release, assign, settle or compromise any
claim, action or proceeding, including any
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state or federal regulatory proceeding seeking damages or
injunction or other equitable relief, that would reasonably be
expected to result in a material adverse effect on Enterprise or
on Duncan;
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implement or adopt any material change in its accounting
principles, practices or methods, other than as may be required
by law or U.S. GAAP;
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fail to use commercially reasonable best efforts to maintain
with financially responsible insurance companies, insurance in
such amounts and against such risks and losses as has been
customarily maintained by it in the past;
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change in any material respect any of its express or deemed
elections relating to taxes, including elections for any and all
joint ventures, partnerships, limited liability companies or
other investments where it has the capacity to make such binding
election;
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settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes;
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change in any material respect any of its methods of reporting
income or deductions for U.S. federal income tax purposes
from those employed in the preparation of its U.S. federal
income tax return for the most recent taxable year for which a
return has been filed, except as may be required by applicable
law;
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in the case of Duncan and its subsidiaries, (i) adopt,
enter into, amend or otherwise increase, or accelerate the
payment or vesting of the amounts, benefits or rights payable or
accrued or to become payable or accrued under, any compensation
and benefit plan, (ii) grant any severance or termination
pay to any officer or director of Duncan or any of its
subsidiaries or (iii) establish, adopt, enter into or amend
any plan, policy, program or arrangement for the benefit of any
current or former directors or officers of Duncan or any of its
subsidiaries or any of their beneficiaries;
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in the case of Duncan and its subsidiaries other than in the
ordinary course of business consistent with past practices,
(i) incur, assume, guarantee or otherwise become liable for
any indebtedness (directly, contingently or otherwise), other
than borrowings under existing revolving credit facilities,
(ii) enter into any material lease (whether operating or
capital), (iii) create any lien on its property or the
property of its subsidiaries in connection with any pre-existing
indebtedness, new indebtedness or lease, or (iv) make or
commit to make any material capital expenditures unrelated to
Duncans joint investments with Enterprise other than such
capital expenditures as are (A) contemplated in the 2011
capital budget as disclosed in the Duncans SEC documents
or (B) required on an emergency basis or for the safety of
persons or the environment; and in the case of Enterprise, take
any action described in clauses (i), (ii), (iii) or
(iv) above which would materially adversely affect
Enterprises ability to consummate the transactions
contemplated by the merger agreement;
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authorize, recommend, propose or announce an intention to adopt
a plan of complete or partial dissolution or liquidation;
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except as permitted by the merger agreement, knowingly take any
action that is intended or is reasonably likely to result in
(i) any of its representations and warranties in the merger
agreement being or becoming untrue in any material respect at
the closing date, (ii) any of the conditions to closing not
being satisfied, (iii) any material delay or prevention of
the consummation of the merger or (iv) a material violation
of any provision of the merger agreement except, in each case,
as may be required by applicable law; or
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agree or commit to do any of the prohibited actions described
above.
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Conditions
to the Merger
Conditions
of Each Party
The respective obligations of the parties to effect the merger
are subject to the satisfaction or, if applicable, waiver, on or
prior to the closing date of the merger, of each of the
following conditions:
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the merger agreement and the merger will have been approved by
the affirmative vote or consent of holders (as of the record
date for the Duncan meeting) of (i) a majority of the
outstanding Duncan common units and (ii) a majority of the
outstanding Duncan common units held by the Duncan unaffiliated
unitholders that actually vote for or against the proposal to
approve the merger and the merger agreement (i.e., the votes
cast by Duncan unaffiliated unitholders in favor of the proposal
must exceed the votes cast by Duncan unaffiliated unitholders
against the proposal);
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all filings required to be made prior to the effective time
with, and all other consents, approvals, permits and
authorizations required to be obtained prior to the effective
time from, any governmental authority in connection with the
execution and delivery of the merger agreement and the
consummation of the transactions contemplated thereby by the
parties to the merger agreement or their affiliates will have
been made or obtained, except where the failure to obtain such
consents, approvals, permits and authorizations would not be
reasonably likely to result in a material adverse effect on
Enterprise or Duncan;
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no order, decree or injunction of any court or agency of
competent jurisdiction will be in effect, and no law will have
been enacted or adopted, that enjoins, prohibits or makes
illegal the consummation of any of the transactions contemplated
by the merger agreement, and no action, proceeding or
investigation by any governmental authority with respect to the
merger or the other transactions contemplated by the merger
agreement will be pending that seeks to restrain, enjoin,
prohibit or delay the consummation of the merger or such other
transaction or to impose any material restrictions or
requirements thereon or on Enterprise or Duncan with respect to
the merger or the other transactions contemplated by the merger
agreement; provided, however, that prior to invoking this
condition, the invoking party must have used its commercially
reasonable best efforts in good faith to consummate the merger
as required under the merger agreement;
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the registration statement of which this proxy
statement/prospectus is a part will have become effective under
the Securities Act and no stop order suspending the
effectiveness of the registration statement will have been
issued and no proceedings for that purpose will have been
initiated or threatened by the SEC; and
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the new Enterprise common units to be issued in the merger will
have been approved for listing on the NYSE, subject to official
notice of issuance.
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The merger agreement provides that the unitholder voting
conditions (including the majority of votes cast by Duncan
unaffiliated unitholders condition) may not be waived. Each of
Enterprise and Duncan (with the consent of the Duncan ACG
Committee and the Duncan Board) may choose to complete the
merger even though any condition to its obligation has not been
satisfied if the necessary unitholder approval under the Duncan
partnership agreement has been obtained and the law allows it to
do so.
Additional
Conditions to the Obligations of Duncan
The obligations of Duncan to effect the merger are further
subject to the satisfaction or waiver by Duncan, on or prior to
the closing date of the merger, of each of the following
conditions:
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each of the representations and warranties contained in the
merger agreement of Enterprise and Enterprise GP are true and
correct in all material respects as of the date of the merger
agreement and on the closing date, except for any
representations and warranties made as of a specified date,
which are true and correct as of that date in all material
respects;
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each and all of the agreements and covenants of Enterprise,
Enterprise GP and MergerCo to be performed and complied with
pursuant to the merger agreement on or prior to the closing date
must have been duly performed and complied with in all material
respects;
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Duncan will have received a certificate signed by the chief
executive officer of Enterprise GP, dated the closing date, to
the effect that the conditions set forth in the first two bullet
points immediately above have been satisfied;
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Duncan will have received an opinion from Vinson &
Elkins, counsel to Duncan, to the effect that:
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no gain or loss should be recognized for U.S. Federal
income tax purposes by Duncan unitholders to the extent that
Enterprise common units are received in exchange therefor as a
result of the merger (other than gain resulting from either
(i) any decrease in partnership liabilities pursuant to
Section 752 of the Internal Revenue Code or (ii) any
cash received in lieu of any fractional Enterprise common
units); and
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this registration statement accurately sets forth the material
U.S. federal income tax consequences to the Duncan
unitholders of the merger and the transactions contemplated by
the merger agreement; and
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there has not occurred a material adverse effect with respect to
Enterprise between the date of the merger agreement and the
closing date.
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Additional
Conditions to the Obligations of Enterprise
The obligations of Enterprise to effect the merger are further
subject to the satisfaction or waiver by Enterprise, on or prior
to the closing date of the merger, of each of the following
conditions:
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each of the representations and warranties contained in the
merger agreement of Duncan and Duncan GP are true and correct in
all material respects as of the date of the merger agreement and
on the closing date, except for any representations and
warranties made as of a specified date, which are true and
correct as of such date in all material respects;
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each and all of the agreements and covenants of Duncan and
Duncan GP to be performed and complied with pursuant to the
merger agreement on or prior to the closing date must have been
duly performed and complied with in all material respects;
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Enterprise will have received a certificate signed by the chief
executive officer of Duncan GP, dated the closing date, to the
effect that the conditions set forth in the first two bullet
points immediately above have been satisfied;
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Enterprise will have received an opinion from Andrews Kurth,
counsel to Enterprise, to the effect that:
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the merger and the transactions contemplated by the merger
agreement will not result in the loss of limited liability of
any limited partner of Enterprise;
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the merger and the transactions contemplated by the merger
agreement will not cause Enterprise or any Operating Partnership
(as defined in the Enterprise partnership agreement) to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes;
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at least 90% of the current gross income of Enterprise
constitutes qualifying income within the meaning of
Section 7704(d) of the Internal Revenue Code;
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this registration statement accurately sets forth the material
U.S. federal income tax consequences to Enterprise
unaffiliated unitholders of the merger and the transactions
contemplated by the merger agreement; and
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no gain or loss should be recognized for U.S. Federal
income tax purposes by existing Enterprise unaffiliated
unitholders as a result of the merger (other than gain resulting
from any decrease in partnership liabilities pursuant to
Section 752 of the Internal Revenue Code); and
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there has not occurred a material adverse effect with respect to
Duncan between the date of the merger agreement and the closing
date.
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Representations
and Warranties
The merger agreement contains representations and warranties of
the parties to the merger agreement, many of which provide that
the representations and warranties do not extend to matters
where the failure of the representation and warranty to be
accurate would not result in a material adverse effect on the
party making the representation and warranty. These
representations and warranties concern, among other things:
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legal organization, existence, general authority and good
standing;
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capitalization;
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the absence of Duncans ownership of any equity interests
other than in its subsidiaries;
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power and authorization to enter into and carry out the
obligations of the merger agreement, and enforceability of the
merger agreement;
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required board and committee consents and approvals;
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the absence of required governmental consents and approvals,
other than those noted therein;
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the accuracy of financial statements and reports filed with the
SEC;
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the absence of certain undisclosed liabilities;
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compliance with laws;
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the absence of undisclosed material contracts and the validity
of existing material contracts;
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the absence of defaults, breaches and other conflicts caused by
entering into the merger agreement and completing the merger;
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the absence of brokers other than those noted therein;
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tax matters;
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the absence of undisclosed compensation and employee benefit
plans;
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title to properties and rights of way;
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operations of MergerCo;
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fairness opinions; and
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the absence of any material adverse effects.
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For purposes of the merger agreement, material adverse
effect, when used with respect to Duncan or Enterprise,
means any effect that:
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is or could reasonably be expected to be material and adverse to
the financial position, results of operations, business, assets
or prospects of such party and its subsidiaries taken as a
whole, respectively; or
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materially impairs or delays, or could reasonably be expected to
materially impair or delay, the ability of such party to perform
its obligations under the merger agreement or otherwise
materially threaten or materially impede the consummation of the
merger and the other transactions contemplated by the merger
agreement.
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A material adverse effect does not include any of the following
or the impact thereof (so long as, in the case of the first
through fourth bullet points immediately below, the impact on
Duncan or Enterprise is not disproportionately adverse as
compared to others in the petroleum product transportation,
terminalling, storage and distribution industry generally):
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circumstances affecting the petroleum product transportation,
terminalling, storage and distribution industry generally
(including the price of petroleum products and the costs
associated with the transportation, terminalling, storage and
distribution thereof), or in any region in which Enterprise or
Duncan operates;
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any general market, economic, financial or political conditions,
or outbreak or hostilities or war, in the United States of
America or elsewhere;
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changes in law;
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earthquakes, hurricanes, floods, or other natural disasters;
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any failure of Enterprise or Duncan to meet any internal or
external projections, forecasts or estimates of revenue or
earnings for any period;
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changes in the market price or trading volume of Duncan common
units or Enterprise common units (but not any effect underlying
any decrease that would otherwise constitute a material adverse
effect); or
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the announcement or pendency of the merger agreement or the
matters contemplated by the merger agreement or the compliance
by either party with the provisions of the merger agreement.
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Covenants
Duncan and Enterprise made the covenants described below:
Best
Efforts
Subject to the terms and conditions of the merger agreement,
each of Duncan and Enterprise will use its commercially
reasonable best efforts in good faith to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
necessary, proper, desirable or advisable under applicable laws,
in order to permit consummation of the merger promptly and
otherwise enable consummation of the transactions contemplated
by the merger agreement, including obtaining (and cooperating
with the other parties to obtain) any third-party approval that
is required to be obtained by Enterprise or Duncan or any of
their respective subsidiaries in connection with the merger and
the other transactions contemplated by the merger agreement,
using commercially reasonable best efforts to lift or rescind
any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the
transactions contemplated by the merger agreement, and using
commercially reasonable best efforts to defend any litigation
seeking to enjoin, prevent or delay the consummation of the
transactions contemplated by the merger agreement or seeking
material damages, and it will cooperate fully with the other
parties to the merger agreement to that end, and will furnish to
the other party copies of all correspondence, filings and
communications between it and its affiliates and any
governmental authority with respect to the transactions
contemplated under the merger agreement.
Duncan
Unitholder Approval
Subject to the terms and conditions of the merger agreement,
Duncan will take, in accordance with applicable law, applicable
stock exchange rules and the Duncan partnership agreement, all
action necessary to call, hold and convene the Duncan special
meeting to consider and vote upon the approval of the merger
agreement and the merger, and any other matters required to be
approved by Duncan unitholders for consummation of the merger
and other transactions contemplated by the merger agreement,
promptly after the date of the merger agreement. Subject to the
provisions of the merger agreement permitting a change in
recommendation, the Duncan ACG Committee and the Duncan Board
will recommend approval of the merger agreement and the merger
to the Duncan unitholders, and Duncan will take all reasonable
lawful action to
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solicit such approval by the Duncan unitholders. In any event,
however, if there occurs a Duncan change in recommendation (as
described under Acquisition Proposals; Change
in Recommendation) in accordance with the merger
agreement, Duncan will not be required to call, hold or convene
the Duncan special meeting.
Registration
Statement
Each of Enterprise and Duncan agrees to cooperate in the
preparation of the registration statement (including this proxy
statement/prospectus) to be filed by Enterprise with the SEC in
connection with the issuance of new Enterprise common units in
the merger as contemplated by the merger agreement. Each of
Duncan and Enterprise agrees to use all commercially reasonable
best efforts to cause the registration statement to be declared
effective under the Securities Act as promptly as practicable
after filing of the registration statement. Enterprise also
agrees to use commercially reasonable best efforts to obtain all
necessary state securities law or Blue Sky permits
and approvals required to carry out the transactions
contemplated by the merger agreement. Each of Enterprise and
Duncan agrees to furnish to the other party all information
concerning Enterprise, Enterprise GP and its subsidiaries or
Duncan, Duncan GP and its subsidiaries, as applicable, and the
officers, directors and unitholders of Enterprise and Duncan and
any applicable affiliates, as applicable, and to take such other
action as may be reasonably requested in connection with the
foregoing.
Each of Duncan and Enterprise agrees, as to itself and its
subsidiaries, that (i) none of the information supplied or
to be supplied by it for inclusion or incorporation by reference
in this registration statement will, at the time this
registration statement and each amendment or supplement to this
registration statement, if any, becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated in this
registration statement or any amendment or supplement or
necessary to make the statements in this registration statement
or any amendment or supplement, in light of the circumstances
under which they were made, not misleading, and (ii) the
proxy statement/prospectus and any amendment or supplement to
this proxy statement/prospectus will, at the date of mailing to
the holders of Duncan common units and at the time of the Duncan
special meeting, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated in
this proxy statement/prospectus or any amendment or supplement
or necessary to make the statements in this proxy
statement/prospectus or any amendment or supplement, in light of
the circumstances under which they were made, not misleading.
Each of Duncan and Enterprise further agrees that if it becomes
aware prior to the closing date of any information that would
cause any of the statements in this registration statement or
any amendment or supplement to be false or misleading with
respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not false or
misleading, it will promptly inform the other party of such
information and take the necessary steps to correct such
information in an amendment or supplement to this registration
statement.
Enterprise will advise Duncan, promptly after Enterprise
receives notice of any of the following, of (i) the time
when this registration statement has become effective or any
supplement or amendment has been filed, (ii) the issuance
of any stop order or the suspension of the qualification of new
Enterprise common units for offering or sale in any
jurisdiction, (iii) the initiation or threat of any
proceeding for any such purpose, or (iv) any request by the
SEC for the amendment or supplement of this registration
statement or for additional information.
Duncan will use its commercially reasonable best efforts to
cause this proxy statement/prospectus to be mailed to its
unitholders as soon as practicable after the effective date of
this registration statement.
Press
Releases
Prior to any Duncan change in recommendation, if any, each of
Duncan and Enterprise will not, without the prior approval of
the Duncan Board in the case of Enterprise and the Enterprise
Board in the case of Duncan, issue any press release or written
statement for general circulation relating to the transactions
contemplated by the merger agreement, except as otherwise
required by applicable law or the rules of the
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NYSE, in which case it will consult with the other party before
issuing any such press release or written statement.
Access;
Information
Upon reasonable notice and subject to applicable laws relating
to the exchange of information, each party will, and will cause
its subsidiaries to, afford the other parties and their
representatives, access, during normal business hours throughout
the period prior to the effective time, to all of its
properties, books, contracts, commitments and records, and to
its representatives, and, during such period, it and its
subsidiaries will furnish promptly to such person and its
representatives (i) a copy of each material report,
schedule and other document filed by it pursuant to the
requirements of federal or state securities law (other than
reports or documents that Enterprise or Duncan or their
respective subsidiaries, as the case may be, are not permitted
to disclose under applicable law) and (ii) all other
information concerning its business, properties and personnel as
the other parties may reasonably request. Neither Duncan nor
Enterprise nor any of their respective subsidiaries will be
required to provide access to or to disclose information where
such access or disclosure would jeopardize the attorney-client
privilege of the institution in possession or control of such
information or contravene any law, fiduciary duty or binding
agreement entered into prior to the date of the merger
agreement. The parties to the merger agreement will make
appropriate substitute disclosure arrangements under the
circumstances in which the restrictions described in the
immediately preceding sentence apply.
Enterprise and Duncan, respectively, will not use any
information obtained pursuant to the merger agreement (to which
it was not entitled under law or any agreement other than the
merger agreement) for any purpose unrelated to (i) the
consummation of the transactions contemplated by the merger
agreement or (ii) the matters contemplated by the
provisions of the merger agreement concerning acquisition
proposals and a Duncan change in recommendation in accordance
with the terms of the merger agreement, and will hold all
information and documents obtained pursuant to the merger
agreement in confidence. No investigation by either party of the
business and affairs of the other will affect or be deemed to
modify or waive any representation, warranty, covenant or
agreement in the merger agreement, or the conditions to either
partys obligation to consummate the transactions
contemplated by the merger agreement.
Acquisition
Proposals; Change in Recommendation
Neither Duncan GP nor Duncan will, and they will use their
commercially reasonable best efforts to cause their
representatives not to, directly or indirectly,
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initiate, solicit, knowingly encourage or facilitate any
inquiries or the making or submission of any proposal that
constitutes, or may reasonably be expected to lead to, an
acquisition proposal; or
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participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect
to, any acquisition proposal.
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As defined in the merger agreement, acquisition
proposal means any proposal or offer from or by any person
other than Enterprise, Enterprise GP, and MergerCo relating to:
(i) any direct or indirect acquisition of (a) more
than 20% of the assets of Duncan and its subsidiaries, taken as
a whole, (b) more than 20% of the outstanding equity
securities of Duncan or (c) a business or businesses that
constitute more than 20% of the cash flow, net revenues, net
income or assets of Duncan and its subsidiaries, taken as a
whole; (ii) any tender offer or exchange offer, as defined
under the Exchange Act, that, if consummated, would result in
any person beneficially owning more than 20% of the outstanding
equity securities of Duncan; or (iii) any merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving
Duncan, other than the merger. As defined in the merger
agreement, superior proposal means any bona fide
acquisition proposal (except that references to 20% within the
definition of acquisition proposal will be replaced
by 50%) made by a third party on terms that the
Duncan ACG Committee determines, in its good faith judgment and
after consulting with its or Duncans financial advisors
and outside legal counsel, and taking into account the
financial, legal, regulatory and other aspects of the
acquisition proposal (including any conditions to and the
expected timing of consummation and any risks of
non-consummation), to be more favorable to Duncan unitholders,
from a financial point of view than the merger (taking into
account the
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transactions contemplated by the merger agreement and any
revised proposal by the Enterprise Audit Committee to amend the
terms of the merger agreement).
Notwithstanding the prohibitions described above, nothing
contained in the merger agreement will prohibit Duncan or any of
its representatives from furnishing any information or data
pertaining to Duncan, or entering into or participating in
discussions or negotiations with, any person that makes an
unsolicited written acquisition proposal that did not result
from a knowing and intentional breach of the provisions of the
merger agreement summarized under this section
Acquisition Proposals; Change in
Recommendation (a Receiving Party), if
(i) the Duncan ACG Committee after consultation with its
outside legal counsel and financial advisors, determines in good
faith (a) that such acquisition proposal constitutes or is
likely to result in a superior proposal, and (b) that
failure to take such action would be inconsistent with its
duties under the existing Duncan partnership agreement and
applicable law and (ii) prior to furnishing any non-public
information to such Receiving Party (including any information
pertaining to a Duncan subsidiary in which Enterprise has an
equity interest or to which Enterprise is a party), Duncan
receives from such Receiving Party an executed confidentiality
agreement.
Except as otherwise provided in the merger agreement, neither
the Duncan ACG Committee nor the Duncan Board will:
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(i) withdraw, modify or qualify in any manner adverse to
Enterprise its recommendation of the merger agreement and the
merger or (ii) publicly approve or recommend, or publicly
propose to approve or recommend, any acquisition proposal (any
action described in this clause being referred to as a
Duncan change in recommendation); or
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approve, adopt or recommend, or publicly propose to approve,
adopt or recommend, or allow Duncan or any of its subsidiaries
to execute or enter into, any letter of intent, memorandum of
understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement, joint venture
agreement, partnership agreement, or other similar contract or
any tender or exchange offer providing for, with respect to, or
in connection with, any acquisition proposal.
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Notwithstanding the limitations described in the immediately
preceding paragraph, at any time prior to obtaining the Duncan
unitholder approval, the Duncan ACG Committee may make a Duncan
change in recommendation if it has concluded in good faith,
after consultation with its outside legal counsel and financial
advisors, that failure to make a Duncan change in recommendation
would be inconsistent with its duties under the Duncan
partnership agreement and applicable law; provided, however,
that (i) the Duncan ACG Committee will not be entitled to
exercise its right to make a Duncan change in recommendation
pursuant to this sentence unless Duncan and Duncan GP have:
(a) complied in all material respects with the provisions
of the merger agreement summarized under this section
Acquisition Proposals; Change in
Recommendation, (b) provided to Enterprise and the
Enterprise Audit Committee three business days prior written
notice advising Enterprise that the Duncan ACG Committee intends
to make a Duncan change in recommendation and specifying the
reasons for the change in reasonable detail, including, if
applicable, the terms and conditions of any superior proposal
that is the basis of the proposed action and the identity of the
person making the proposal (it being understood and agreed that
any amendment to the terms of any such superior proposal will
require a new notice of the proposed recommendation change and
an additional three business day period), and (c) if
applicable, provided to Enterprise all materials and information
delivered or made available to the person or group of persons
making any superior proposal in connection with such superior
proposal (to the extent not previously provided), and
(ii) the Duncan ACG Committee will not be entitled to make
a Duncan change in recommendation in response to an acquisition
proposal unless such acquisition proposal constitutes a superior
proposal. Any Duncan change in recommendation will not
invalidate the approval of the merger agreement or any other
approval of the Duncan ACG Committee, including in any respect
that would have the effect of causing any state (including
Delaware) corporate takeover statute or other similar statute to
be applicable to the transactions contemplated by the merger
agreement or any such law, including the merger. Notwithstanding
any provision in the merger agreement to the contrary,
Enterprise and Enterprise GP will maintain, and cause their
representatives to maintain, the confidentiality of all
information received from Duncan pursuant to the provisions of
the merger agreement
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summarized under this section Acquisition
Proposals; Change in Recommendation, subject to the
exceptions contained in the confidentiality agreement.
In addition to the obligations of Duncan set forth in the
provisions of the merger agreement summarized under this section
Acquisition Proposals; Change in
Recommendation, Duncan will as promptly as practicable
(and in any event within 24 hours after receipt) advise
Enterprise orally and in writing of any acquisition proposal or
any matter giving rise to a Duncan change in recommendation and
the material terms and conditions of any such acquisition
proposal or any matter giving rise to a Duncan change in
recommendation (including any changes thereto) and the identity
of the person making such acquisition proposal. Duncan will keep
Enterprise informed on a reasonably current basis of material
developments with respect to any such acquisition proposal or
any matter giving rise to a Duncan change in recommendation.
Nothing contained in the merger agreement will prevent Duncan or
the Duncan ACG Committee from taking and disclosing to the
holders of Duncan common units a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act (or any similar communication
to limited partners of Duncan) or from making any legally
required disclosure to holders of Duncan common units. Any
stop-look-and-listen communication by Duncan or the
Duncan Board to the limited partners of Duncan pursuant to
Rule 14d-9(f)
promulgated under the Exchange Act (or any similar communication
to the limited partners of Duncan) will not be considered a
failure to make, or a withdrawal, modification or change in any
manner adverse to Enterprise of, all or a portion of the
recommendation of the merger agreement and the merger by the
Duncan ACG Committee and the Duncan Board.
Affiliate
Arrangements
Not later than the 15th day after the mailing of this proxy
statement/prospectus, Duncan will deliver to Enterprise a
schedule listing each person that, to the best of its knowledge,
is or is reasonably likely to be, as of the date of the Duncan
special meeting, deemed to be an affiliate of Duncan
as that term is used in Rule 145 under the Securities Act.
Duncan will use its commercially reasonable best efforts to
cause such affiliates not to sell any securities received
pursuant to the merger in violation of the registration
requirements of the Securities Act, including Rule 145
thereunder.
Takeover
Laws
Neither Duncan nor Enterprise will take any action that would
cause the transactions contemplated by the merger agreement to
be subject to requirements imposed by any takeover laws, and
each of them will take all necessary steps within its control to
exempt (or ensure the continued exemption of) the transactions
contemplated by the merger agreement from, or if necessary
challenge the validity or applicability of, any rights plan
adopted by such party or any applicable takeover law, as in
effect on the date of the merger agreement or thereafter,
including takeover laws of any state that purport to apply to
the merger agreement or the transactions contemplated by the
merger agreement.
No
Rights Triggered
Each of Duncan and Enterprise will take all steps necessary to
ensure that the entering into of the merger agreement and the
consummation of the transactions contemplated by the merger
agreement and any other action or combination of actions, or any
other transactions contemplated by the merger agreement, do not
and will not result in the grant of any rights to any person
(i) in the case of Duncan, under the existing Duncan
partnership agreement, and, in the case of Enterprise, under
Enterprises partnership agreement or (ii) under any
material agreement to which it or any of its subsidiaries is a
party.
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New
Common Units Listed
Enterprise will use its commercially reasonable best efforts to
list, prior to the closing, on the NYSE, upon official notice of
issuance, the new Enterprise common units to be issued as merger
consideration in connection with the merger.
Third
Party Approvals
Enterprise and Duncan and their respective subsidiaries will
cooperate and use their respective commercially reasonable best
efforts to prepare all documentation, to effect all filings, to
obtain all permits, consents, approvals and authorizations of
all governmental authorities and third parties necessary to
consummate the transactions contemplated by the merger agreement
and to comply with the terms and conditions of such permits,
consents, approvals and authorizations and to cause the merger
to be consummated as expeditiously as practicable. Each of
Enterprise and Duncan will have the right to review in advance,
and to the extent practicable each will consult with the other,
in each case subject to applicable laws relating to the exchange
of information, with respect to, all material written
information submitted to any third party or any governmental
authorities in connection with the transactions contemplated by
the merger agreement. In exercising the foregoing right, each of
the parties to the merger agreement agrees to act reasonably and
promptly. Each party to the merger agreement agrees that it will
consult with the other parties with respect to the obtaining of
all material permits, consents, approvals and authorizations of
all third parties and governmental authorities necessary or
advisable to consummate the transactions contemplated by the
merger agreement, and each party will keep the other parties
apprised of the status of material matters relating to
completion of the transactions contemplated by the merger
agreement.
Each of Enterprise and Duncan agrees, upon request, to furnish
the other party with all information concerning itself, its
subsidiaries, directors, officers and unitholders and such other
matters as may be reasonably necessary or advisable in
connection with the registration statement, this proxy
statement/prospectus or any filing, notice or application made
by or on behalf of such other party or any of such other
partys subsidiaries to any governmental authority in
connection with the transactions contemplated by the merger
agreement.
Indemnification;
Directors and Officers Insurance
Without limiting any additional rights that any director,
officer, trustee, employee, agent, or fiduciary may have under
any employment or indemnification agreement or under the
existing Duncan partnership agreement, the existing limited
liability company agreement of Duncan GP or the merger agreement
or, if applicable, similar organizational documents or
agreements of any of Duncans subsidiaries, from and after
the effective time, Enterprise GP, Enterprise and the surviving
entity, jointly and severally, will: (i) indemnify and hold
harmless each person who is at the date of the merger agreement
or during the period from the date of the merger agreement
through the date of the effective time serving as a director or
officer of Duncan GP or Enterprise GP or of any of their
respective subsidiaries or as a trustee of (or in a similar
capacity with) any compensation and benefit plan of any thereof
(collectively, the Indemnified Parties) to the
fullest extent authorized or permitted by applicable law, as in
effect at or after the time of the merger agreement, in
connection with any claim arising from his or her service in
such capacity and any losses, claims, damages, liabilities,
costs, indemnification expenses, judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in
respect of any thereof) resulting therefrom; and
(ii) promptly pay on behalf of or, within 10 days
after any request for advancement, advance to each of the
Indemnified Parties, any indemnification expenses incurred in
defending, serving as a witness with respect to or otherwise
participating with respect to any such claim in advance of the
final disposition of such claim, including payment on behalf of
or advancement to the Indemnified Party of any indemnification
expenses incurred by such Indemnified Party in connection with
enforcing any rights with respect to such indemnification
and/or
advancement, in each case without the requirement of any bond or
other security. The indemnification and advancement obligations
of Enterprise GP, Enterprise and the surviving entity pursuant
to the merger agreement will extend to acts or omissions
occurring at or before the effective time and any claim relating
thereto (including with respect to any acts or omissions
occurring in
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connection with the approval of the merger agreement and the
consummation of the merger and the transactions contemplated by
the merger agreement, including the consideration and approval
thereof and the process undertaken in connection therewith and
any claim relating thereto), and all rights to indemnification
and advancement conferred under the merger agreement will
continue as to any Indemnified Party who has ceased to be a
director or officer of Duncan GP or Enterprise GP after the date
of the merger agreement and will inure to the benefit of such
persons heirs, executors and personal and legal
representatives. Neither Enterprise GP nor Enterprise or
MergerCo will settle, compromise or consent to the entry of any
judgment in any actual or threatened action in respect of which
indemnification has been or could be sought by such Indemnified
Party under the merger agreement unless the settlement,
compromise or judgment includes an unconditional release of that
Indemnified Party from all liability arising out of that action
without admission or finding of wrongdoing, or that Indemnified
Party otherwise consents to such settlement, compromise or
judgment.
Without limiting the foregoing, Enterprise and MergerCo agree
that all rights to indemnification, advancement of expenses and
exculpation from liabilities for acts or omissions occurring at
or prior to the effective time existing as of the time of the
merger agreement in favor of the indemnitees as provided in the
Duncan partnership agreement (or, as applicable, the charter,
bylaws, partnership agreement, limited liability company
agreement, or other organizational documents of any of
Duncans subsidiaries) and indemnification agreements of
Duncan or any of its subsidiaries will be assumed by the
surviving entity, Enterprise and Enterprise GP, without further
action, at the effective time and will survive the merger and
will continue in full force and effect in accordance with their
terms.
For a period of six years from the effective time, Duncans
partnership agreement will contain provisions no less favorable
with respect to indemnification, advancement of expenses and
limitations on liability of directors and officers than are set
forth in the existing Duncan partnership agreement, which
provisions will not be amended, repealed or otherwise modified
for a period of six years from the effective time in any manner
that would affect adversely the rights under Enterprises
partnership agreement of individuals who, at or prior to the
effective time, were Indemnified Parties, unless such
modification is required by law and then only to the minimum
extent required by law.
For a period of six years from the effective time, Enterprise
will, or will cause EPCO to, maintain in effect the current
directors and officers liability insurance policies
covering the Indemnified Parties maintained by EPCO (but may
substitute therefor other policies of at least the same coverage
and amounts containing terms and conditions that are no less
advantageous to the Indemnified Parties so long as that
substitution does not result in gaps or lapses in coverage) with
respect to matters occurring on or before the effective time,
but neither Enterprise nor EPCO will be required to pay annual
premiums in excess of 300% of the last annual premiums paid for
the insurance policies prior to the date of the merger agreement
and will purchase as much coverage as is reasonably practicable
for that amount if the coverage described in the merger
agreement would cost in excess of that amount.
If Enterprise, Enterprise GP, the surviving entity or any of
their respective successors or assigns (i) consolidates
with or merges with or into any other person and will not be the
continuing or surviving corporation, partnership or other entity
of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will
be made so that the successors and assigns of Enterprise,
Enterprise GP following the merger or the surviving entity
assume the obligations set forth in the provisions of the merger
agreement summarized under this section
Indemnification; Directors and
Officers Insurance. Enterprise and Enterprise GP
following the merger will cause the surviving entity to perform
all of the obligations of the surviving entity under these
provisions of the merger agreement. These provisions will
survive the consummation of the merger and are intended to be
for the benefit of, and will be enforceable by, the Indemnified
Parties and the indemnitees and their respective heirs and
personal representatives, and will be binding on Enterprise,
Enterprise GP following the merger, the surviving entity and
their respective successors and assigns.
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Notification
of Certain Matters
Each of Duncan and Enterprise will give prompt notice to the
other of (i) any fact, event or circumstance known to it
that (a) is reasonably likely, individually or taken
together with all other facts, events and circumstances known to
it, to result in any material adverse effect with respect to it
or (b) would cause or constitute a material breach of any
of its representations, warranties, covenants or agreements
contained in the merger agreement, and (ii) (a) any change
in its condition (financial or otherwise) or business or
(b) any litigation or governmental complaint, investigation
or hearing, in each case to the extent such change, litigation,
complaint, investigation or hearing results in, or would
reasonably be expected to result in, a material adverse effect.
Rule 16b-3
Prior to the effective time, each of Enterprise and Duncan will
take any steps that are reasonably requested by any party to the
merger agreement to cause dispositions of Duncan or Enterprise
equity securities (including derivative securities), as
applicable, pursuant to the transactions contemplated by the
merger agreement by each individual who is a director or officer
of Duncan or Enterprise, as applicable, to be exempt under
Rule 16b-3
promulgated under the Exchange Act in accordance with the
No-Action Letter dated January 12, 1999 issued by the SEC
regarding such matters.
Duncan
Second Amended and Restated Partnership Agreement; Exchange and
Contribution Agreement; Duncan Third Amended and Restated
Partnership Agreement
Effective as of the effective time, Duncan GP and Enterprise
will execute and make effective the Duncan Second Amended and
Restated Partnership Agreement in substantially the form
attached as
Annex B-1
to the merger agreement. Effective immediately after the
effective time, Duncan, Duncan GP and Enterprise agree
(i) to make and cause to be made the exchange of merger
consideration by GTM pursuant to and in accordance with the
Exchange and Contribution Agreement and (ii) to enter into
the Duncan Third Amended and Restated Partnership Agreement in
substantially the form attached as
Annex B-2
to the merger agreement. Please also read
Structure of the Merger and Related
Transactions for additional information.
Duncan
Board Membership
The members of the Duncan Board immediately prior to the
effective time will continue to serve as members of the Duncan
Board following the effective time unless otherwise determined
or removed effective at such time or thereafter by the sole
member of Duncan GP in accordance with the limited liability
company agreement of Duncan GP.
Distributions
Each of Duncan GP and Enterprise GP will consult with the other
regarding the declaration and payment of distributions in
respect of the Duncan common units and the Enterprise common
units and the record and payment dates relating to any such
distributions, so that no Duncan unitholder will receive two
distributions, or fail to receive one distribution, for any
single calendar quarter with respect to its applicable Duncan
common units or any Enterprise common units any such Duncan
unitholder receives in exchange for his Duncan common units
pursuant to the merger.
Duncan
GP Amended and Restated Limited Liability Company
Agreement
As of the effective time, the existing limited liability company
agreement of Duncan GP will be amended and restated in
substantially the form attached as Annex A to the merger
agreement.
Duncan
Unit Purchase Plan
The Duncan common units credited to the accounts of participants
under the Duncan Unit Purchase Plan as of the effective time
will be converted pursuant to the merger agreement into the
right to receive merger
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consideration. As soon as administratively feasible after the
effective time, Enterprise will use its commercially reasonable
efforts to cause such merger consideration resulting from such
conversion to be transferred to the custodian of the Duncan Unit
Purchase Plan for crediting in the appropriate amount to the
account of each participant in the Duncan Unit Purchase Plan
entitled to merger consideration pursuant to the merger
agreement. If the Duncan Unit Purchase Plan is continued
pursuant to the merger agreement, it will remain suspended
unless and until such time as such suspension is lifted by EPCO
in accordance with the provisions of such plan. If the Duncan
Unit Purchase Plan is terminated in accordance with the merger
agreement, no further purchase rights will be granted or may be
exercised under the Duncan Unit Purchase Plan at or after the
effective time, and the procedures described in
Section 8(b) of the Duncan Unit Purchase Plan, or such
other procedures as are established in accordance with the
provisions of the Duncan Unit Purchase Plan, will be utilized in
connection with the distribution of any cash and Enterprise
common units in participants accounts in the Duncan Unit
Purchase Plan to the participants in connection with the
termination of such plan.
To the extent notice is required, Duncan will cause notice of
the suspension of the Duncan Unit Purchase Plan in accordance
with the merger agreement, the continuation of the Duncan Unit
Purchase Plan, as adjusted to apply to Enterprise common units,
in accordance with the merger agreement, or the termination of
the Duncan Unit Purchase Plan in accordance with the merger
agreement to be given in accordance with the terms of such plan.
Termination
The merger agreement may be terminated at any time prior to the
effective time of the merger in any of the following ways:
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by mutual written consent of Duncan and Enterprise;
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by either Duncan or Enterprise upon written notice to the
other if:
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the merger is not completed on or before October 31, 2011;
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any governmental authority has issued a final and nonappealable
statute, rule, order, decree or regulation or taken any other
action that permanently restrains, enjoins or prohibits the
consummation of the merger, or makes the merger illegal, so long
as the terminating party is not then in breach of its obligation
to use commercially reasonable best efforts to complete the
merger promptly;
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Duncan (i) determines not to, or otherwise fails to, hold
the Duncan special meeting in accordance with the provisions
summarized under Covenants Duncan
Unitholder Approval or (ii) does not obtain the
Duncan unitholder approval at the Duncan special meeting.
Duncans right to terminate the merger agreement as
described in this bullet point will not, however, be available
to Duncan if the failure to obtain the Duncan unitholder
approval was caused by the action or failure to act of Duncan
and such action or failure to act constitutes a material breach
by Duncan of the merger agreement;
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there has been a material breach of or any material inaccuracy
in any of the representations or warranties set forth in the
merger agreement on the part of any of the other parties
(treating Enterprise, Enterprise GP and MergerCo as one party,
and Duncan and Duncan GP as one party, for the purposes of the
provision summarized in this bullet point), which breach is not
cured within 30 days following receipt by the breaching
party of written notice of its breach from the terminating
party, or which breach, by its nature, cannot be cured prior to
October 31, 2011 (provided in any such case that the
terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained
in the merger agreement). No party will have the right, however,
to terminate the merger agreement pursuant to the provision
summarized in this bullet point unless the breach of a
representation or warranty, together with all other such
breaches, would entitle the party receiving such representation
not to consummate the transactions contemplated by the merger
agreement because the closing conditions described in the first
bullet point under Conditions to the
Merger Additional Conditions to the Obligations of
Duncan or
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84
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Conditions to the Merger
Additional Conditions to the Obligations of Enterprise, as
applicable, have not been met; or
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there has been a material breach of any of the covenants or
agreements set forth in the merger agreement on the part of any
of the other parties to the merger agreement, and the breach has
not been cured within 30 days following receipt by the
breaching party of written notice of such breach from the
terminating party, or which breach, by its nature, cannot be
cured prior to the termination date (so long as the terminating
party itself is not then in material breach of any
representation, warranty, covenant or other agreement contained
in the merger agreement). In no event, however, will any party
have the right to terminate the merger agreement pursuant to the
provision summarized in this bullet point unless the breach of
covenants or agreements, together with all other such breaches,
would entitle the party receiving the benefit of such covenants
or agreements not to consummate the transactions contemplated by
the merger agreement because the closing conditions described in
the first bullet point under Conditions to the
Merger Additional Conditions to the Obligations of
Duncan or Conditions to the
Merger Additional Conditions to the Obligations of
Enterprise, as applicable, have not been met.
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By Enterprise, upon written notice to Duncan, in the event that
a Duncan change in recommendation has occurred; and
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By Duncan, upon written notice to Enterprise, in the event that,
at any time after the date of the merger agreement and prior to
obtaining the Duncan unitholder approval, Duncan receives an
acquisition proposal and the Duncan ACG Committee has concluded
in good faith that such acquisition proposal constitutes a
superior proposal, the Duncan ACG Committee has made a Duncan
change in recommendation pursuant to the merger agreement with
respect to such superior proposal, Duncan has not knowingly and
intentionally breached the provisions of the merger agreement
summarized above under Covenants
Acquisition Proposals; Change in Recommendation, and the
Duncan ACG Committee concurrently approves, and Duncan
concurrently enters into, a definitive agreement with respect to
such superior proposal.
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Effect
of Termination
In the event of the termination of the merger agreement, written
notice of the termination will be given by the terminating party
to the other parties specifying the provision of the merger
agreement pursuant to which the termination is made, and except
as provided in the provision summarized in this paragraph (other
than certain provisions with regard to payment of fees and
expenses, governing law, jurisdiction, remedies and other
matters), the merger agreement will become null and void after
the expiration of any applicable period following such notice.
In the event of such termination, there will be no liability on
the part of any party to the merger agreement, except with
respect to (i) fees and expenses summarized below under
Fees and Expenses and (ii) the
requirement to comply with the confidentiality agreement.
Nothing in the merger agreement, however, will relieve any party
from any liability or obligation with respect to any fraud or
intentional breach of the merger agreement.
Fees and
Expenses
Whether or not the merger is consummated, all costs and expenses
incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid
by the party incurring such costs and expenses.
Waiver
and Amendment
Subject to compliance with applicable law, prior to the closing,
any provision of the merger agreement except the requirement of
Duncan unaffiliated unitholder approval (see
Conditions of the Merger Conditions of Each Party)
may be waived in writing by the party benefited by the
provision, or amended or modified at any time, whether before or
after the Duncan unitholder approval, by an agreement in writing
between the parties to the merger agreement, as long as
(i) after the Duncan unitholder approval, no
85
amendment will be made to the nature or amount of the merger
consideration or that results in a material adverse effect on
the Duncan unaffiliated unitholders without the required Duncan
unitholder approval (Duncan GP being authorized to approve any
other amendment on behalf of Duncan without any other approval
of the Duncan unitholders); and (ii) in addition to any
other approvals required by the parties constituent
documents or under the merger agreement, any of the waivers,
amendments or modifications as described above are approved by
the Enterprise Audit Committee in the case of Enterprise and by
the Duncan Board and the Duncan ACG Committee in the case of
Duncan.
Unless otherwise expressly set forth in the merger agreement,
whenever Duncan or Duncan GP approval or consent is required
pursuant to the merger agreement, such approval or consent shall
require the approval or consent of each of the Duncan Board and
the Duncan ACG Committee, and shall not require any approval of
the Duncan unitholders.
Governing
Law
The merger agreement is governed by and interpreted under
Delaware law.
86
SELECTED
FINANCIAL DATA AND PRO FORMA INFORMATION
OF ENTERPRISE AND DUNCAN
The following tables set forth, for the periods and at the dates
indicated, selected historical and pro forma financial
information for Enterprise and selected historical financial
information for Duncan. The selected historical financial data
for Enterprise and Duncan as of and for each of the years ended
December 31, 2006, 2007, 2008, 2009 and 2010 are derived
from and should be read in conjunction with the audited
financial statements and accompanying footnotes for such
periods. The selected historical financial data as of and for
the three-month periods ended March 31, 2010 and 2011 are
derived from and should be read in conjunction with the
unaudited financial statements and accompanying footnotes for
such periods. Enterprises and Duncans consolidated
balance sheets as of December 31, 2009 and 2010 and as of
March 31, 2011, and the related statements of consolidated
operations, comprehensive income, cash flows and equity for each
of the three years in the period ended December 31, 2010
and the three months ended March 31, 2010 and 2011 are
incorporated by reference into this proxy statement/prospectus
from Enterprises and Duncans respective annual
reports on
Form 10-K
for the year ended December 31, 2010, and quarterly reports
on
Form 10-Q
for the three months ended March 31, 2011.
The selected unaudited pro forma condensed consolidated
financial statements of Enterprise show the pro forma effect of
Enterprises proposed merger with Duncan. In addition to
the proposed merger, the historical condensed consolidated
statement of operations for the year ended December 31,
2010 has been adjusted to give effect to the Holdings Merger.
For a complete discussion of the pro forma adjustments
underlying the amounts in the table below, please read
Unaudited Pro Forma Condensed Consolidated Financial
Statements beginning on
page F-2
of this document.
Duncan is a consolidated subsidiary of Enterprise for financial
accounting and reporting purposes. The proposed merger will be
accounted for in accordance with Financial Accounting Standards
Board Accounting Standards Codification 810,
Consolidations Overall Changes in
Parents Ownership Interest in a Subsidiary, which is
referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger.
The unaudited pro forma condensed consolidated financial
statements have been prepared to assist in the analysis of
financial effects of the proposed merger between Enterprise and
Duncan. The unaudited pro forma condensed statements of
consolidated operations for the year ended December 31,
2010 and the three months ended March 31, 2011 assume the
proposed merger-related transactions occurred on January 1,
2010. The unaudited pro forma condensed consolidated balance
sheet assumes the proposed merger-related transactions occurred
on March 31, 2011. The unaudited pro forma condensed
consolidated financial statements are based upon assumptions
that Enterprise and Duncan believe are reasonable under the
circumstances, and are intended for informational purposes only.
They are not necessarily indicative of the financial results
that would have occurred if the transactions described herein
had taken place on the dates indicated, nor are they indicative
of the future consolidated results of the combined entity.
For information regarding the effect of the merger on pro forma
distributions to Duncan unitholders, please read
Comparative Per Unit Information.
87
Selected
Historical and Pro Forma Financial Information of
Enterprise
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Enterprise Pro Forma
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Enterprise Consolidated Historical
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For The Year
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For the Three
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For the Three Months
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Ended
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Months
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For The Year Ended December 31,
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Ended March 31,
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December 31,
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Ended March 31,
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2006
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2007
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2008
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2009
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2010
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2010
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2011
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2010
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2011
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(Dollars in millions, except per unit amounts)
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(Unaudited)
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(Unaudited)
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Income statement data:
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Revenues
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$
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23,612.2
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$
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26,713.8
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$
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35,469.6
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$
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25,510.9
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$
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33,739.3
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$
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8,544.5
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$
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10,183.7
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$
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33,739.3
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$
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10,183.7
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Net income
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772.4
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762.0
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1,145.1
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1,140.3
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1,383.7
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392.4
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434.5
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1,383.7
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434.5
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Net income attributable to noncontrolling interest
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(638.4
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(653.0
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(981.1
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(936.2
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(1,062.9
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(322.5
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(13.8
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(25.5
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(5.9
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Net income attributable to the partners
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$
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134.0
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$
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109.0
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$
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164.0
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$
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204.1
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$
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320.8
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$
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69.9
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$
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420.7
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$
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1,358.2
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$
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428.6
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Earnings per unit from continuing operations:
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Basic earnings per unit
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$
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0.87
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$
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0.65
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$
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0.89
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$
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0.99
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$
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1.17
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$
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0.33
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$
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0.52
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$
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1.67
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$
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0.51
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Diluted earnings per unit
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$
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0.87
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$
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0.65
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$
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0.89
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$
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0.99
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$
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1.15
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$
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0.33
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$
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0.49
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$
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1.59
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$
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0.49
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Distributions to limited partners:
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Per common unit(1)
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$
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1.8250
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$
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1.9475
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$
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2.0750
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$
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2.1950
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$
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2.3150
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$
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0.5675
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$
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0.5975
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$
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2.3150
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$
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0.5975
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Balance sheet data (at period end):
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Total assets
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$
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19,120.1
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$
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24,084.4
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$
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25,780.4
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$
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27,686.3
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$
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31,360.8
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$
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28,025.1
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$
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31,821.2
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n/a
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$
|
31,807.1
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Total long-term and current maturities of debt
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7,053.9
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9,861.2
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12,714.9
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12,427.9
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13,563.5
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12,183.9
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14,055.9
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n/a
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14,055.9
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Total equity
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8,968.7
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9,530.0
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9,759.4
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10,473.1
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11,900.8
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10,822.1
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11,800.0
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