Shares of Rattler in the middle of the current (RTLR 14.16%) jumped 14% on Monday after the midstream oil and gas company agreed to be acquired by Diamondback Energy (CROC -1.60%).
Diamondback created Rattler Midstream in 2018 to house its energy-focused infrastructure assets. The Partnership owns and operates oil and gas pipelines, gathering systems and processing facilities.
Today, however, Diamondback CEO and Rattler general partner Travis Stice says the two companies will be best served by operating under one umbrella.
“The energy landscape has changed dramatically since Rattler’s IPO in 2019, and we believe this corporate merger agreement is in the best interests of both Diamondback and Rattler stakeholders,” Stice said. “This merger will allow both companies to benefit from the simplicity and scale of the combined entity in the future.”
Diamondback holds the majority stake in Rattler. Under the terms of the agreement, the oil and gas exploration and production company would acquire the units it does not already own for approximately $2.2 billion. Rattler unitholders would receive 0.113 of a unit of Diamondback shares for each Rattler unit held. This translates to a premium of around 17% over the unit price of Rattler on Friday.
The transaction is expected to close in the third quarter.
Separating midstream assets from upstream operations has made it easier for investors to own companies with risk and potential return profiles better suited to their individual goals. But limited partnerships can have slightly more complicated tax reporting requirements for investors than corporations.
Several large energy companies have bought out their intermediary partnerships in recent years to simplify their operations and the tax reporting obligations of their shareholders. Diamondback is the latest to attempt to do so, but it likely won’t be the last.