UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

September 24, 2013

Date of Report (Date of earliest event reported)

 

 

INERGY MIDSTREAM, L.P.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-35377   20-1647837
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer
Identification No.)

Two Brush Creek Boulevard, Suite 200

Kansas City, Missouri 64112

(Address of principal executive offices)

(816) 842-8181

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

x Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 8.01.    Other Events.

This Current Report on Form 8-K is being filed by Inergy Midstream, L.P., a Delaware limited partnership (“Inergy Midstream”) in connection with a Memorandum of Understanding (the “Memorandum of Understanding”) regarding the settlement of certain litigation relating to the previously announced Agreement and Plan of Merger, dated as of May 5, 2013, among Inergy Midstream, NRGM GP, LLC (“NRGM GP”), Intrepid Merger Sub, LLC (“Merger Sub”), Inergy, L.P. (“Inergy, L.P.”), Crestwood Midstream Partners LP (“Crestwood”), Crestwood Holdings LLC (“Crestwood Holdings”) and Crestwood Gas Services GP LLC (“CMLP GP”). The Merger Agreement provides for, among other things, the acquisition of Crestwood by Inergy Midstream through the merger (the “Merger”) of Merger Sub with and into Crestwood, with Crestwood surviving as a wholly owned subsidiary of Inergy Midstream at the effective time of the Merger.

Settlement of Certain Litigation

As previously reported by Inergy Midstream, most recently in the discussion beginning on page 79 of the definitive proxy statement/prospectus filed by Crestwood and Inergy Midstream with the U.S. Securities and Exchange Commission (the “SEC”) on September 5, 2013 (the “Proxy Statement/Prospectus”), five putative class action lawsuits challenging the Merger have been filed, four in federal court in the United States District Court for the Southern District of Texas: (i) Abraham Knoll v. Robert G. Phillips, et al. (Case No. 4:13-cv-01528); (ii) Greg Podell v. Crestwood Midstream Partners, LP, et al. (Case No. 4:13-cv-01599); (iii) Johnny Cooper v. Crestwood Midstream Partners LP, et al. (Case No. 4:13-cv-01660; Johnny Cooper was subsequently replaced as named plaintiff in this action by Linda Giaimo); and (iv) Steven Elliot LLC v. Robert G. Phillips, et al. (Case No. 4:13-cv 01763), and one in Delaware Chancery Court, Hawley v. Crestwood Midstream Partners LP, et al. (Case No. 8689-VCL). All the cases name Crestwood, CMLP GP, Crestwood Holdings, the current and former directors of CMLP GP, Inergy, L.P., Inergy Midstream, NRGM GP and Merger Sub as defendants. The plaintiff in the Hawley action in Delaware filed a motion for expedited proceedings but subsequently withdrew that motion and then filed a stipulation voluntarily dismissing the action without prejudice, which has been granted by the Court, such that the Hawley action has now been dismissed. The plaintiffs in the Knoll, Podell, Cooper, and Elliot actions filed an unopposed motion to consolidate these four cases, which the Court granted. The consolidated action is styled In re Crestwood Midstream Partners Unitholder Litigation (Lead Case No. 4:13-cv-01528) (the “Litigation”).

On September 24, 2013, the defendants and plaintiffs Knoll, Podell and Giaimo (the “Settling Parties”) entered into the Memorandum of Understanding providing for the settlement of the Litigation, subject to certain confirmatory discovery by the plaintiffs in the Litigation and subject to the approval of the United States District Court for the Southern District of Texas (the “Court”). Inergy Midstream and the other named defendants have vigorously denied, and continue vigorously to deny, that they have committed any violation of law or engaged in any of the wrongful acts that were alleged in the Litigation. The Memorandum of Understanding outlines the terms of the Settling Parties’ agreement in principle to settle and release all claims which were or could have been asserted in the Litigation.

The parties to the Memorandum of Understanding will seek to enter into a stipulation of settlement that will be presented to the Court for final approval. The stipulation of settlement will be subject to customary conditions, including approval by the Court, which will consider the fairness, reasonableness and adequacy of the settlement. The stipulation of settlement will provide for, among other things, the conditional certification of the Litigation as a non opt-out class action. The stipulation of settlement will provide for the release of any and all claims arising from the Merger, subject to approval by the Court. The release will not become effective until the stipulation of settlement is approved by the Court, and there can be no assurance that the Settling Parties will ultimately enter into a stipulation of settlement or that the Court will approve the settlement even if the Settling Parties were to enter into the stipulation. In such event, or if the Merger is not consummated for any reason, the proposed settlement will be null and void and of no force and effect. The settlement will not affect the consideration to be received by Crestwood’s unitholders in the Merger or the timing of the anticipated closing of the Merger.

Inergy Midstream believes that the lawsuits are without merit and that no further disclosure is required to supplement the Proxy Statement/Prospectus under applicable laws; however, to eliminate the burden, expense and uncertainties inherent in such litigation, and without admitting any liability or wrongdoing, Crestwood and Inergy Midstream have agreed, pursuant to the terms of the Memorandum of Understanding, to make certain supplemental disclosures to the Proxy Statement/Prospectus as set forth below. Nothing in these supplemental disclosures shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein.

The supplemental disclosures to the Proxy Statement/Prospectus set forth in this Current Report on Form 8-K should be read alongside the Proxy Statement/Prospectus, and to the extent that information in this Current Report on Form 8-K differs from or updates information contained in the Proxy Statement/Prospectus, this Current Report on Form 8-K is more current. Defined terms used but not otherwise defined herein have the meanings set forth in the Proxy Statement/Prospectus.

 

2


Supplements to the Proxy Statement/Prospectus

1.    The section of the Proxy Statement/Prospectus titled “Special Factors — Background of the Merger” is hereby supplemented as follows:

A.    The following disclosure supplements the fifth full paragraph on page 35 of the Proxy Statement/Prospectus by adding the following new sentence at the end of such paragraph:

After Mr. Phillips discussed the potential transactions with the members of the Crestwood Conflicts Committee for the first time, it was determined that, in light of the very preliminary stage and the belief that Inergy would likely pursue a competitive process that might involve Inergy engaging in discussions with multiple potential parties in addition to Crestwood, Mr. Phillips and the management team of Crestwood would continue to engage in discussions with Inergy to assess the feasibility of engaging in a transaction that would be mutually beneficial to Crestwood and Inergy.

B.    The following disclosure supplements the third full paragraph on page 37 of the Proxy Statement/Prospectus by adding the following new sentence at the end of such paragraph:

Crestwood believed that providing its unitholders with a one-time cash distribution in an amount sufficient to prevent such holders from experiencing any dilution with respect to forecasted distributions through calendar year 2015 would adequately protect such holders from dilution as a result of the merger. This belief was based on the fact that its forecasted distributions were difficult to predict years in advance, and that the risk of potential dilution was more than offset by the greater cash flow stability that a merger with Inergy Midstream would provide due to Inergy Midstream’s significant portfolio of long-term fee-based contracts with high-quality customers.

2.    The section of the Proxy Statement/Prospectus titled “Special Factors — Opinion of Evercore, Financial Advisor to the Crestwood Conflicts Committee” is hereby supplemented as follows:

A.    The following disclosure supplements the first full paragraph on page 50 of the Proxy Statement/Prospectus by adding the new sentence following the third sentence of such paragraph:

For purposes of its analysis of the pro forma impact of the merger, Evercore relied on the expected annual synergies prepared by management of Crestwood of $10 million in 2013, $15 million in 2014 and $20 million in each of 2015, 2016 and 2017.

B.    The following disclosure precedes the first sentence of the fifth full paragraph on page 51 of the Proxy Statement/Prospectus with the following:

Utilizing the closing price of Inergy Midstream common units as of May 3, 2013, the merger consideration to be received by Crestwood unitholders (other than the Crestwood Affiliated Entities) consisting of 1.0700 Inergy Midstream common units and $1.03 in cash would equate to $27.30 per unit.

C.    The following disclosure supplements the discussion following the third full paragraph on page 52 of the Proxy Statement/Prospectus by adding the following new paragraphs and tables:

The following table sets forth Crestwood’s projected unlevered free cash flows for the six months ending December 31, 2013 and calendar years 2014 through 2017 utilized by Evercore in its analysis ($ in millions):

 

     For the Six
Months Ending
December 31,
     For the Years Ending December 31,  
     2013E      2014E      2015E      2016E      2017E  

Unlevered FCF

   $ 59.6       $ 88.2       $ 167.2       $ 178.0       $ 203.6   

Evercore calculated an implied WACC for Crestwood Midstream of 7.8% and utilized a discount rate range of 7.5% to 8.5% in its analysis. The assumptions used in the Capital Asset Pricing Model and the associated derivation of Crestwood Midstream’s Weighted Average Cost of Capital are shown below ($ in millions, except per unit amounts):

 

   

Partnership

  Unit
Price
5/3/2013
    Market
Equity
Value
    Total
Debt
    Preferred
Stock
    Total Debt
and
Preferred
Stock
    Total Debt /
Total
Capitalization
    Adjusted
Beta 
(1)
    Unlevered
Beta 
(2)
 

Equity Cost

of Capital

  American Midstream Partners, LP   $ 18.01      $ 169      $ 113      $ 90      $ 203        54.7     0.59        0.33   
  Atlas Pipeline Partners, L.P.     36.48        2,403        1,180               1,180        32.9     1.05        0.80   
  Access Midstream Partners, L.P.     42.48        8,215        2,500               2,500        23.3     0.66        0.55   
  Crosstex Energy, L.P.     18.78        1,795        1,036               1,036        36.6     0.87        0.64   
  DCP Midstream Partners, LP     48.06        2,973        1,620               1,620        35.3     0.69        0.51   
  MarkWest Energy Partners, L.P.     60.70        9,050        2,523               2,523        21.8     0.75        0.64   
  Regency Energy Partners LP     25.54        5,251        2,757        73        2,830        35.0     0.70        0.52   
  Southcross Energy Partners, L.P.     21.61        539        191        259        450        45.5     0.64        0.41   
  Summit Midstream Partners, LP     27.46        1,368        199               199        12.7     1.07        0.98   
  Targa Resources Partners LP     46.63        4,843        2,393               2,393        33.1     0.72        0.54   
  Western Gas Partners, LP     59.73        6,406        1,927               1,927        23.1     0.73        0.61   
              Mean (3)        28.2     0.80        0.64   
              Median (3)        32.9     0.73        0.61   

 

WACC       WACC  
  Risk-free Rate (4)     1.6%   
  Unlevered Beta     0.64   
  Debt and Preferred / Total Capitalization     28.2%   
  Adjusted Levered Equity Beta     0.81   
  Market Risk Premium (5)     6.6%   
  Small Company Risk Premium (5)     1.8%   
  Equity Cost of Capital (6)     8.8%   
  Pre-Tax Cost of Debt     8.0%   
  After-Tax Cost of Debt     5.2%   
  WACC     7.8%   

 

  (1) Source: Predicted raw betas from FactSet; Adjusted Equity Beta calculated as: (0.67) × Raw Beta +(0.33) × 1.0

 

3


  (2) Unlevered Beta calculated as: Adjusted Equity Beta × (E/(E + D × (1-T)); Assumes corporate tax rate of 35.0%
  (3) Excludes American Midstream Partners, LP and Southcross Energy Partners, L.P. due to relatively new partnerships with a non-comparable size
  (4) 10-year Treasury as of May 3, 2013
  (5) Source: Ibbotson Associates
  (6) Equity Cost of Capital calculated as: Risk-free rate + (Levered Equity Beta × Market Risk Premium) + Small Company Risk Premium)

The Total Expected Market Return methodology is derived by the sum of the current yield and expected distribution growth for the Crestwood Midstream peer group as discussed in the Peer Group Trading Analysis. The assumptions used in the Total Expected Market Return Weighted Average Cost of Capital analysis are shown below:

 

    

Partnership

   Current
Yield
     Distribution
Growth
     Total
Return
 
Total Return    American Midstream Partners, LP      9.6%         2.6%         12.2%   
   Atlas Pipeline Partners, L.P.      6.4%         8.5%         14.9%   
   Access Midstream Partners, L.P.      4.2%         11.3%         15.5%   
   Crosstex Energy, L.P.      7.0%         5.6%         12.6%   
   DCP Midstream Partners, LP      5.7%         8.4%         14.2%   
   MarkWest Energy Partners, L.P.      5.4%         9.2%         14.6%   
   Regency Energy Partners LP      7.2%         4.3%         11.5%   
   Southcross Energy Partners, L.P.      7.4%         6.3%         13.7%   
   Summit Midstream Partners, LP      6.0%         8.0%         14.0%   
   Targa Resources Partners LP      5.8%         8.5%         14.3%   
   Western Gas Partners, LP      3.6%         11.6%         15.2%   
        Mean (1)                  14.1%   
        Median (1)                  14.3%   

 

  (1) Excludes American Midstream Partners, LP and Southcross Energy Partners, L.P. due to relatively new partnerships with a non-comparable size.

As mentioned above, the terminal value of Crestwood Midstream was calculated using various exit EV/EBITDA multiples ranging from 9.0x to 11.0x. The exit EV/EBITDA multiples were selected by Evercore by reviewing Crestwood Midstream’s historical trading multiples as well as the EV/EBITDA multiples of the Crestwood Midstream peer group. The terminal value of Crestwood Midstream was also calculated using various perpetuity growth rates ranging from 0.5% to 1.5%. Such perpetuity growth rates were based on Evercore’s judgment of Crestwood’s long-term growth rate and prevailing inflation rates. The terminal yield range of 7.0% to 10.0% for Crestwood Midstream distributions per unit utilized by Evercore in its Discounted Cash Flow Analysis was based on Crestwood Midstream’s exhibited 52-week current yield range of 6.89% to 9.74%.

D.    The following disclosure supplements the discussion following the last full paragraph on page 52 of the Proxy Statement/Prospectus by adding the following new paragraph and table:

The mean and median historical EBITDA multiples paid in the selected transactions reviewed by Evercore were 12.0x and 9.8x, respectively. The selected transactions utilized in the Precedent M&A Transaction Analysis for Crestwood Midstream are shown below ($ in millions):

 

Date

  

Acquiror

  

Seller

   Transaction
Price
 
04/13    Atlas Pipeline Partners, L.P.    TEAK Midstream, L.L.C.    $ 1,000.0   
02/13    Regency Energy Partners LP    Southern Union Company      1,429.0   
02/13    Western Gas Partners, LP    Anadarko Petroleum Corporation      490.0   
02/13    Western Gas Partners, LP    Chesapeake Energy Corporation      133.5   
02/13    DCP Midstream Partners LP    DCP Midstream LLC      856.0   
01/13    Summit Midstream Partners    Bear Tracker Energy, LLC      513.0   
01/13    Crestwood Midstream Partners    Crestwood Holdings Partners LLC      258.0   
11/12    Targa Resources Partners LP    Saddle Butte Pipeline, LLC      950.0   
11/12    Atlas Pipeline Partners, L.P.    Cardinal Midstream L.L.C.      600.0   
08/12    Eagle Rock Energy Partners    BP America Production Co.      227.5   
07/12    Crestwood Midstream Partners LP    Devon Energy Corporation      90.0   
06/12    CenterPoint Energy, Inc.    Martin Midstream Partners L.P.      275.0   
05/12    MarkWest Energy Partners, L.P.   

Stonehenge Energy Resources, L.P.,

Rex Energy Corporation,

Summit Discovery Resources II, LLC

     512.0   
04/12    PennVirginia Resource Partners, L.P.    Chief Gathering LLC      1,252.5   
03/12    Williams Partners L.P.    Caiman Eastern Midstream LLC      2,500.0   
01/12    Western Gas Partners L.P.    Anadarko Petroleum Corporation      483.0   
12/11    Crestwood Midstream Partners LP    Antero Resources      375.0   
12/11    Plains All American Pipeline, L.P.    Velocity South Texas Gathering LLC      352.0   
10/11    Kinder Morgan Energy Partners, L.P.    SouthTex Treaters      155.0   
10/11    Crestwood Midstream Partners LP   

Energy Spectrum Capital and

Zwolle Pipeline, LLC

     73.0   
07/11    Western Gas Partners, LP    Anadarko Petroleum Corporation      130.0   
06/11    Sable NGL LLC    EOG Resources, Inc.      185.0   
05/11    Kinder Morgan Energy Partners, L.P.    Petrohawk Energy Corporation      920.0   
03/11   

Energy Transfer Partners, L.P. and

Regency Energy Partners LP

   Louis Dreyfus Highbridge Energy LLC      1,925.0   
03/11    Anadarko Petroleum Corp    BP plc      575.5   
02/11    Crestwood Midstream Partners    Frontier Gas Services, LLC      338.0   
01/11    MarkWest Energy Partners L.P.    EQT Corporation      230.0   
01/11    Western Gas Partners, LP    Encana Oil & Gas (USA) Inc.      303.3   
12/10    Chesapeake Midstream Partners LP   

Chesapeake Midstream Development LP

(a wholly-owned subsidiary of

Chesapeake Energy Corporation)

     500.0   
11/10    Williams Partners L.P.    Cabot Oil & Gas Corporation      150.0   
11/10    Chevron Corporation    Atlas Pipeline Partners, LP      403.0   
11/10    ArcLight Capital Partners LLC    OGE Energy      183.0   
10/10    Williams Partners L.P.    Williams Companies, Inc.      782.0   
10/10    Cardinal Midstream, LLC    Antero Resources, LLC      268.0   
09/10    Targa Resources Partners LP    Targa Resources, Inc.      167.5   
08/10    Targa Resources Partners LP    Targa Resources, Inc.      230.0   
08/10    Regency Energy Partners, L.P.    Zephyr Gas Services      185.0   
08/10    Western Gas Partners, LP    Anadarko Petroleum Corporation      498.0   
07/10    Enbridge Energy Partners, L.P.    Atlas Pipeline Partners, LP      686.1   
06/10    DCP Midstream, LLC    Ceritas Energy      79.0   
04/10    Regency Energy Partners LP    GE Energy Financial Services      92.1   
04/10    Kinder Morgan Energy Partners, L.P.    Petrohawk Energy      875.0   
04/10    Enterprise Products Partners, L.P.    Yorktown Partners      1,200.0   
03/10    Targa Resources Partners LP    Targa Resources, Inc.      420.0   
02/10    Western Gas Partners, LP    Anadarko Petroleum Corporation      254.4   

E.    The following disclosure supplements the discussion following the last full paragraph on page 53 of the Proxy Statement/Prospectus by adding the following new paragraph and table:

Evercore reviewed the financial and operating data and associated pricing multiples and ratios observed for each of the selected MLPs in the Peer Group Trading Analysis for Crestwood Midstream as shown below ($ in millions, except per unit amounts):

 

                          Enterprise
Value /

EBITDA
                                   
     Price
(05/13/2013)
     Equity
Value
     Enterprise
Value
       Distribution Yield      Distribution
Growth
     Total
Return
 

Partnership

            2013E     2014E     Current      2013E      2014E        
Natural Gas Gathering and Processing MLPs                            
American Midstream Partners, LP    $ 18.01       $ 168.6       $ 378.7         11.5x        10.0x        9.6%         9.6%         9.6%         2.6%         12.2%   
Atlas Pipeline Partners, L.P.      36.48         2,403.1         3,646.9         10.2        8.1        6.4%         6.9%         7.8%         8.5%         14.9%   
Access Midstream Partners, L.P.      42.48         8,214.5         10,761.2         13.5        10.5        4.2%         4.6%         5.3%         11.3%         15.5%   
Crosstex Energy, L.P.      18.78         1,795.5         2,831.7         12.0        9.2        7.0%         7.5%         8.1%         5.6%         12.6%   
DCP Midstream Partners, LP      48.06         2,973.3         4,627.7         12.6        9.3        5.7%         6.0%         6.4%         8.4%         14.2%   
MarkWest Energy Partners, L.P.      60.70         9,049.7         11,553.2         16.6        12.3        5.4%         5.7%         6.2%         9.2%         14.6%   
Regency Energy Partners LP      25.54         5,251.4         8,104.9         12.9        10.4        7.2%         7.3%         7.6%         4.3%         11.5%   
Southcross Energy Partners, L.P.      21.61         538.8         981.0         18.6        17.2        7.4%         7.4%         7.6%         6.3%         13.7%   
Summit Midstream Partners, LP      27.46         1,367.9         1,559.3         13.1        11.0        6.0%         6.3%         7.0%         8.0%         14.0%   
Targa Resources Partners LP      46.63         4,843.3         7,319.1         11.5        9.0        5.8%         6.2%         6.8%         8.5%         14.3%   
Western Gas Partners, LP      59.73         6,406.3         8,204.3         18.7        13.7        3.6%         3.8%         4.4%         11.6%         15.2%   
     Mean                           13.8     11.0     6.2%         6.5%         7.0%         7.7%         13.9%   
     Median                           12.9        10.4        6.0%         6.3%         7.0%         8.4%         14.2%   
                                                                     
Crestwood Midstream Partners LP    $ 23.85       $ 1,456.5       $ 2,190.1         12.2     9.5     8.6%         8.7%         9.0%         3.9%         12.5%   

F.    The following disclosure replaces the fourth sentence in the fifth full paragraph on page 53 of the Proxy Statement/Prospectus with the following:

Based on the nature of Crestwood Midstream’s asset base, customer base, contract terms and business prospects, as well as certain other considerations related to the specific characteristics of the comparable MLPs, Evercore deemed a range of 11.5x to 13.5x for calendar year 2013 and a range of 9.0x to 12.0x for calendar year 2014 to be relevant.

 

4


G.    The following disclosure supplements the discussion following the first full paragraph on page 54 of the Proxy Statement/Prospectus by adding the following table:

 

            Transaction     Premium  

Date

Announced

                Equity
Value
    Enterprise
Value
                      52-Week
High
 
 

Target

 

Acquiror

  Consideration         1-Day     5-Day     30-Day    

01/29/13

  Copano Energy, L.L.C.   Kinder Morgan Energy Partners, L.P.     Unit-for-Unit        $3,777.5        $4,724.3        21.8%        21.7%        36.7%        6.1%   

02/23/11

  Duncan Energy Partners L.P.   Enterprise Products Partners L.P.     Unit-for-Unit        2,405.0        3,302.8        27.9%        27.7%        27.4%        2.3%   

06/09/09

  TEPPCO Partners LP   Enterprise Products Partners L.P.     Unit-for-Unit        3,290.7        6,024.5        7.1%        4.3%        8.9%        (13.5%

06/12/06

  Pacific Energy Partners, L.P.   Plains All American Pipeline, L.P.     Unit-for-Unit        1,395.4        2,007.9        10.6%        10.2%        14.4%        (0.5%

11/01/04

  Kaneb Pipeline Partners, L.P.   Valero L.P.     Unit-for-Unit        1,741.5        2,371.4        21.2%        17.6%        18.6%        4.2%   

12/15/03

  GulfTerra Energy Partners, L.P.   Enterprise Products Partners L.P.     Unit-for-Unit        2,408.4        4,240.3        2.2%        3.7%        2.1%        (2.0%

10/18/97

  Santa Fe Pacific Pipeline Partners LP   Kinder Morgan Energy Partners, L.P.     Unit-for-Unit        1,038.0        1,339.9        31.8%        33.2%        40.3%        5.3%   
            Median        21.2%        17.6%        18.6%        2.3%   
            Mean        17.5%        16.9%        21.2%        0.3%   
            Max        31.8%        33.2%        40.3%        6.1%   
            Min        2.2%        3.7%        2.1%        (13.5%

H.    The following disclosure supplements the discussion following the third full paragraph on page 54 of the Proxy Statement/Prospectus by adding the following table:

Wall Street Research Price Targets

 

Firm

  

Analyst

   Date     

Recommendation

   Target
Price
 

Ladenburg Thalmann

   Eduardo Seda      02/27/13       Buy      $32.50   

Hilliard Lyons

   Joel K. Havard      02/27/13       Long-term Buy      32.00   

Simmons

   Mark L. Reichman      03/21/13       Overweight      30.00   

Barclays

   Richard Gross      02/28/13       Equalweight      27.00   

RBC

   T.J. Schultz      02/27/13       Sector Perform      26.00   

Citi

   John K Tysseland      03/20/13       Neutral      24.00   

Bank of America

   Gabe Moreen      02/27/13       Underperform      24.00   

Wells Fargo

   Michael J. Blum      02/28/13       Outperform      NA   
         Median:      $27.00   
         Mean:      27.93   
         Low:      24.00   
         High:      32.50   

Inergy Midstream Analysis

I.    The following disclosure supplements the discussion following the first full paragraph on page 55 of the Proxy Statement/Prospectus by adding the following new paragraphs and tables:

The following table sets forth Inergy Midstream’s projected unlevered free cash flows for the three months ending September 30, 2013 and fiscal years 2014 through 2017 utilized by Evercore in its analysis ($ in millions):

 

     For the Three
Months Ending
September 30,
     For the Fiscal Years Ending
September 30,
 
     2013E      2014E      2015E      2016E      2017E  

Unlevered FCF

   $ 8.2       $ 97.4       $ 40.6       $ 5.0       $ 210.6   

The assumptions used in the Capital Asset Pricing Model and the associated derivation of Inergy Midstream’s Weighted Average Cost of Capital are shown below ($ in millions, except per unit amounts):

 

    

Partnership

   Unit Price
5/3/2013
     Market Equity
Value
     Total Debt and
Preferred Stock
     Total Debt /
Total
Capitalization
     Adjusted
Beta
(1)
     Unlevered
Beta
(2)
 

Equity Cost

of Capital

   Boardwalk Pipeline Partners, LP      $30.27         $7,121.9         $3,539.2         33.2%         0.72         0.54   
   El Paso Pipeline Partners, L.P.      42.50         9,381.0         4,338.0         31.6%         0.62         0.48   
   EQT Midstream Partners, LP      46.38         1,641.3                 0.0%         1.16         1.16   
   Niska Gas Storage Partners LLC      15.11         531.7         400.0         42.9%         0.81         0.54   
   PAA Natural Gas Storage, L.P.      21.90         1,589.0         582.1         26.8%         0.79         0.64   
   Spectra Energy Partners, LP      37.35         4,064.1         1,149.3         22.0%         0.74         0.62   
   TC PipeLines, LP      43.06         2,349.5         691.0         22.7%         0.57         0.48   
              Mean (3)         29.9%         0.71         0.55   
              Median (3)         29.2%         0.73         0.54   
WACC                WACC                              
        

 

 

             
   Risk-free Rate (4)         1.6%               
   Unlevered Beta         0.55               
   Debt and Preferred / Total Capitalization         29.9%               
   Adjusted Levered Equity Beta         0.70               
   Market Risk Premium (5)         6.6%               
   Small Company Risk Premium (5)         1.8%               
   Equity Cost of Capital (6)         8.1%               
   Pre-Tax Cost of Debt         6.0%               
   After-Tax Cost of Debt         3.9%               
   WACC               6.8%               

 

  (1) Source: Predicted raw betas from FactSet; Adjusted Equity Beta calculated as: (0.67) × Raw Beta +(0.33) × 1.0
  (2) Unlevered Beta calculated as: Adjusted Equity Beta × (E/(E + D × (1-T)); Assumes corporate tax rate of 35.0%
  (3) Excludes EQT Midstream, LP due to non-comparable capitalization
  (4) 10-year Treasury as of May 3, 2013
  (5) Source: Ibbotson Associates
  (6) Equity Cost of Capital calculated as: Risk-free rate + (Levered Equity Beta × Market Risk Premium) + Small Company Risk Premium)

The Total Expected Market Return methodology is derived by the sum of the current yield and expected distribution growth for the Inergy Midstream peer group as discussed in the Peer Group Trading Analysis. The assumptions used in the Total Expected Market Return Weighted Average Cost of Capital analysis are shown below:

 

    

Partnership

   Unit Price
5/3/2013
     Market Equity
Value
     Current
Yield
     Distribution
Growth
     Total
Return
 
Total Return    Boardwalk Pipeline Partners, LP      $30.27         $7,121.9         7.0%         2.4%         9.4%   
   El Paso Pipeline Partners, L.P.      42.50         9,381.0         5.8%         6.1%         11.9%   
   EQT Midstream Partners, LP      46.38         1,641.3         3.0%         38.2%         41.2%   
   Niska Gas Storage Partners LLC      15.11         531.7         9.3%         2.9%         12.2%   
   PAA Natural Gas Storage, L.P.      21.90         1,589.0         6.5%         2.4%         8.9%   
   Spectra Energy Partners, LP      37.35         4,064.1         5.3%         5.2%         10.5%   
   TC Pipelines, LP      43.06         2,349.5         7.2%         1.2%         8.4%   
              Mean (1)                  10.2%   
              Median (1)                  10.0%   

 

  (1) Excludes EQT Midstream, LP due to non-comparable capitalization

As mentioned above, the terminal value of Inergy Midstream was calculated using various exit EV/EBITDA multiples ranging from 11.5x to 13.5x. The exit EV/EBITDA multiples were selected by Evercore by reviewing Inergy Midstream’s historical trading multiples as well as the EV/EBITDA multiples of the Inergy Midstream peer group. The terminal value of Inergy Midstream was also calculated using various perpetuity growth rates ranging from 0.5% to 1.5%. Such perpetuity growth rates were based on Evercore’s judgment of Inergy Midstream’s long-term growth rate and prevailing inflation rates.

J.    The following disclosure supplements the discussion following the fourth full paragraph on page 55 of the Proxy Statement/Prospectus by adding the following new paragraph and table:

 

5


The mean and median historical EBITDA multiples paid in the selected transactions reviewed by Evercore were 12.3x and 12.2x, respectively. The selected transactions utilized in the Precedent M&A Transaction Analysis for Inergy Midstream are shown below ($ in millions):

 

Date

  

Acquiror

  

Seller

   Transaction
Price
 

08/12

   Boardwalk Pipeline Partners, LP    PL Logistics LLC    $ 625.0   

10/11

   Boardwalk Pipeline Partners, LP    Enterprise Products Partners L.P.      550.0   

07/11

   Inergy, L.P.    New York State Electric & Gas Corp.      65.0   

06/11

   Cardinal Gas Storage Partners LLC    High Sierra Energy LP      148.0   

01/11

   DCP Midstream Partners LP    Marysville Hydrocarbon Holdings LLC      101.0   

12/10

   PAA Natural Gas Storage, L.P.    SGR Holdings, L.L.C.      750.0   

09/10

   Inergy, L.P.    NGS Energy LP      725.0   

07/10

   Spectra Energy Corp.    Haddington Energy Partners, GE Energy Financial Services      965.0   

07/10

   Buckeye Partners    ArcLight Capital Partners      484.0   

08/09

   Plains All American Pipeline, L.P.    Vulcan Capital      220.0   

03/06

   Riverstone (Niska)    EnCana Corp.      1,515.0   

08/05

   Plains All American Pipeline, L.P. and Vulcan Capital    Sempra Energy      510.0   

07/05

   Inergy, L.P.    eCORP, L.L.C.      230.0   

08/04

   AGL Resources    AEP      86.0   

08/02

   Scottish Power PLC (PacifiCorp Power Marketing)    Aquila, Inc.      180.0   

08/00

   Duke Energy Gas Transmission Corp.    NiSource      400.0   

07/00

   El Paso Energy Partners    El Paso Corp.      170.0   

K.    The following disclosure supplements the discussion following the second full paragraph on page 56 of the Proxy Statement/Prospectus by adding the following new paragraph and table:

Evercore reviewed the financial and operating data and associated pricing multiples and ratios observed for each of the selected MLPs in the Peer Group Trading Analysis for Inergy Midstream as shown below ($ in millions, except per unit amounts):

 

                          Enterprise Value /
EBITDA
                                   
     Price
(05/03/2013)
     Equity
Value
     Enterprise
Value
       Distribution Yield      Distribution
Growth
     Total
Return
 

Partnership

            2013E     2014E     Current      2013E      2014E        
Natural Gas Pipelines/Storage                            

Boardwalk Pipeline Partners, LP

   $ 30.27       $ 7,121.9       $ 10,657.2         13.5     12.7     7.0%         7.0%         7.1%         2.4%         9.4%   

El Paso Pipeline Partners, L.P.

     42.50         9,381.0         13,513.0         11.6        10.9        5.8%         6.0%         6.3%         6.1%         11.9%   

EQT Midstream Partners, LP

     46.38         1,641.3         1,619.3         15.3        11.8        3.0%         3.3%         4.0%         38.2%         41.2%   

Niska Gas Storage Partners LLC

     15.11         531.7         923.2         6.7        6.5        9.3%         9.3%         9.3%         2.9%         12.2%   

PAA Natural Gas Storage, L.P.

     21.90         1,589.0         2,170.4         18.1        16.5        6.5%         6.6%         6.6%         2.4%         8.9%   

Spectra Energy Partners, LP

     37.35         4,064.1         5,157.0         20.0        16.5        5.3%         5.4%         5.7%         5.2%         10.5%   

TC PipeLines, LP

     43.06         2,349.5         3,037.5         17.0        15.7        7.2%         7.3%         7.4%         1.2%         8.4%   
     Mean                           13.3     10.3     6.3%         6.5%         6.8%         5.7%         12.0%   
     Median                           13.5        10.9        6.5%         6.5%         6.5%         3.1%         11.2%   
                                                                     

Inergy Midstream, L.P. (1)

   $ 24.55       $ 2,108.9       $ 2,820.5         14.0     10.1     6.4%         6.6%         7.2%         8.3%         14.7%   
                          Enterprise Value /
EBITDA
                                   
     Price
(05/03/2013)
     Equity
Value
     Enterprise
Value
       Distribution Yield      Distribution
Growth
     Total
Return
 

Partnership

            2013E     2014E     Current      2013E      2014E        

Niska Gas Storage Partners LLC

   $ 15.11       $ 531.7       $ 923.2         6.7     6.5     9.3%         9.3%         9.3%         2.9%         12.2%   

PAA Natural Gas Storage, L.P.

     21.90         1,589.0         2,170.4         18.1        16.5        6.5%         6.6%         6.6%         2.4%         8.9%   
     Mean                           12.4     11.5     7.9%         7.9%         8.0%         2.6%         10.5%   
                                                                     

Inergy Midstream, L.P. (1)

   $ 24.55       $ 2,108.9       $ 2,820.5         14.0     10.1     6.4%         6.6%         7.2%         8.3%         14.7%   

 

  (1) IBES estimates are on a calendar basis, fiscal year ends September 30

L.    The following disclosure replaces the third sentence in the first full paragraph on page 56 of the Proxy Statement/Prospectus with the following:

Based on the nature of Inergy Midstream’s asset base, customer base, contract terms and business prospects, as compared to its peer group, as well as certain other considerations related to the specific characteristics of the comparable MLPs, Evercore deemed a range of 14.0x to 18.0x for fiscal year 2013 and a range of 12.0x to 16.0x for fiscal year 2014 to be relevant.

3.    The section of the Proxy Statement/Prospectus titled “Special Factors – Presentation of Citi, Financial Advisor to Crestwood and Crestwood Holdings” is hereby supplemented as follows:

The following disclosure supplements the discussion following the second full paragraph of page 66 of the Proxy Statement/Prospectus by adding the following new sentence at the end thereof:

Citi was not asked to render a fairness opinion because the Crestwood Board of Directors intended to seek “Special Approval” of the merger under Crestwood’s partnership agreement by the Crestwood Conflicts Committee and it was expected that the Crestwood Conflicts Committee would engage a financial advisor that would render a fairness opinion in the course of considering whether or not to grant “Special Approval” of the merger.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

This communication contains information about the Merger. In connection with the Merger, Crestwood and Inergy Midstream filed the definitive Proxy Statement/Prospectus on September 5, 2013 and began mailing the Proxy Statement/Prospectus to its unitholders on September 6, 2013. INVESTORS AND UNITHOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT CRESTWOOD, INERGY MIDSTREAM, THE MERGER AND RELATED MATTERS. Investors and unitholders can obtain free copies of the Proxy Statement/Prospectus and other documents filed with the SEC by Inergy Midstream and Crestwood through the website maintained by the SEC at www.sec.gov. In addition, investors and unitholders can obtain free copies of documents filed by Crestwood with the SEC from Crestwood’s website, www.crestwoodlp.com, under the heading “SEC Filings” in the “Investor Relations” tab and free copies of documents filed by Inergy with the SEC from Inergy Midstream’s website, www.inergylp.com/midstream, under the heading “SEC Filings” in the “Investor Relations” tab.

PARTICIPANTS IN THE SOLICITATION

Crestwood, Inergy Midstream and their respective general partner’s directors and executive officers may be deemed to be participants in the solicitation of proxies from the unitholders of Crestwood in respect of the Merger.

 

6


Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the unitholders of Crestwood in connection with the Merger, including a description of their direct or indirect interests, by security holdings or otherwise, are set forth in the Proxy Statement. Information regarding Crestwood’s directors and executive officers is contained in Crestwood’s Annual Report on Form 10-K for the year ended December 31, 2012, which is filed with the SEC. Information regarding Inergy Midstream’s directors and executive officers is contained in Inergy Midstream’s Annual Report on Form 10-K for the year ended September 30, 2012, which is filed with the SEC. Free copies of these documents may be obtained from the sources described above.

FORWARD-LOOKING STATEMENTS

The statements in this communication regarding future events, occurrences, circumstances, activities, performance, outcomes and results are forward-looking statements. Although these statements reflect the current views, assumptions and expectations of Crestwood’s management, the matters addressed herein are subject to numerous risks and uncertainties which could cause actual activities, performance, outcomes and results to differ materially from those indicated. Such forward-looking statements include, but are not limited to, statements about the future financial and operating results, objectives, expectations and intentions and other statements that are not historical facts. Factors that could result in such differences or otherwise materially affect Crestwood’s financial condition, results of operations and cash flows include, without limitation, failure to satisfy closing conditions with respect to the merger; the risks that the Crestwood and Inergy businesses will not be integrated successfully or may take longer than anticipated; the possibility that expected synergies will not be realized, or will not be realized within the expected timeframe; fluctuations in oil, natural gas and NGL prices; the extent and success of drilling efforts, as well as the extent and quality of natural gas volumes produced within proximity of our assets; failure or delays by our customers in achieving expected production in their natural gas projects; competitive conditions in our industry and their impact on our ability to connect natural gas supplies to our gathering and processing assets or systems; actions or inactions taken or non-performance by third parties, including suppliers, contractors, operators, processors, transporters and customers; our ability to consummate acquisitions, successfully integrate the acquired businesses, realize any cost savings and other synergies from any acquisition; changes in the availability and cost of capital; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; timely receipt of necessary government approvals and permits, our ability to control the costs of construction, including costs of materials, labor and right-of-way and other factors that may impact our ability to complete projects within budget and on schedule; the effects of existing and future laws and governmental regulations, including environmental and climate change requirements; the effects of existing and future litigation; and risks related to our substantial indebtedness, as well as other factors disclosed in Crestwood’s filings with the U.S. Securities and Exchange Commission. You should read our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2012, and our most recent Quarterly Reports and Current Reports for a more extensive list of factors that could affect results. Crestwood does not assume any obligation to update these forward-looking statements.

 

7


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

   INERGY MIDSTREAM, L.P.
   By:   

        NRGM GP, LLC,

        its General Partner

Date: September 24, 2013    By:   

/s/ Michael J. Campbell

     

Michael J. Campbell

Senior Vice President and Chief Financial Officer

 

8