One of the most intriguing movers in today’s market is Shell Midstream Partners (NYSE:SHLX). An otherwise very stable (or boring) high-yield energy stock, shares of this midstream crude oil player are surging in today’s session. At the time of writing, SHLX stock is up more than 10% on 10 times the stock’s average daily volume.
This move comes following an announcement that Shell USA has agreed to acquire Shell Midstream Partners for $1.96 billion. This deal values the outstanding shares of SHLX stock at $15.85. Interestingly, Shell Midstream’s stock is currently trading above $16 at the time of writing.
Thus, investors appear to be pricing in more than a 100% chance this deal will get done. Perhaps there will be another buyout offer on the table, or a reason for Shell USA to raise its offer. Whatever the case, investors appear to be very bullish on this announcement today.
Let’s dive more into what’s behind this deal for interested investors.
SHLX Stock Surges on Buyout Offer
Shell Midstream’s assets are looking incredibly attractive to Shell USA. The company’s refining assets, as well as transportation terminals, have become increasingly important to the overall discussion around domestic energy security. However, these assets have also become highly profitable, given the supply chain issues that have plagued the energy sector for some time.
For Shell USA, acquiring these assets, and therefore capturing more of the value created in the energy supply chain, makes a whole lot of sense. Indeed, Shell USA’s offer, while attractive, could receive attention from rivals. Accordingly, the premium at which SHLX stock trades is one I think makes sense.
Most of the attention the energy sector receives is on the upstream (production) or downstream (retail/gas station) portions of the supply chain. However, midstream companies (engaged in transforming crude oil or natural gas into refined products such as gasoline, petroleum, or chemicals) are often overlooked due to historically limited margins. Those margins have increased of late, as refining capacity remains a key issue domestically and abroad.
This deal, which will likely close in the fourth quarter, has investors’ attention. Indeed, SHLX stock has found its way onto my watchlist for this reason. I’m going to be watching to see if a competing offer materializes — I think it just might.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
