Gas station giant Phillips 66 (NYSE:PSX) announced a big new deal today. Phillips 66 will now own the bulk of pipeline operator DCP Midstream (NYSE:DCP). Its stock is up slightly in Friday afternoon trading, which suggests investors are pretty happy with the deal.
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The deal calls for Phillips 66 to spend roughly $3.8 billion to buy all publicly-held common units in DCP Midstream. That represents a per-unit price of $41.75 and will give Phillips 66 an ownership stake of 86.8% of the company. To get the $3.8 billion to make the deal happen, Phillips 66 will use both cash on hand and some new debt issues. That last might raise an eyebrow or two, but reports note that Phillips 66 will issue so little debt to make up the difference that it won’t impact its credit rating at all.
Meanwhile, Phillips 66 expects that the move will land an extra $1 billion in income before interest, taxes, depreciation, and amortization. Additionally, Phillips 66 will realize an extra $300 million at least in “operational and commercial synergies.” Phillips has been planning to upgrade its pipeline operations for some time now, and picking up DCP is likely the most efficient way to get there. With Phillips 66 already posting excellent results from its last earnings report, making a move like this should help drive it forward from there.
Wall Street seems happy with Phillips 66 as well. Analyst consensus currently calls it a Moderate Buy. With an average price target of $122.55, the stock also enjoys 16.91% upside potential.
