(Bloomberg) -- Tortoise, which holds a 9.5% stake in Tallgrass Energy LP, is urging independent directors to seek a higher offer from Blackstone Infrastructure Partners, according to a person familiar with the matter.
A conflicts committee made up of independent members of Tallgrass' board is reviewing Blackstone's offer to take the company private at a price of $19.50 for all outstanding Class A shares. Despite representing a 36% premium, the bid is attracting criticism because it followed a roughly 40% drop between Blackstone's March move to take control and the offer announcement late last month.
Tortoise is seeking a sweetened bid that would represent a slight discount to what Blackstone paid for its original stake in March, said the person, who asked not to be named because the information is not public.
Representatives for Blackstone and Tortoise declined to comment. Tallgrass did not immediately respond to a request for comment.
Side Letters
In agreements struck alongside Blackstone's March deal, senior Tallgrass executives including Chief Executive Officer Dave Dehaemers were guaranteed $26.25 per share should Blackstone decide to take the rest of the company private.
Those side letters garnered criticism from analysts including Morningstar Inc.'s Stephen Ellis, who said the provisions represent “a poor example of corporate governance.” Tallgrass has said that the arrangements “provide an incentive to management to retain their investment in the company and thereby ensure continued alignment between management and TGE's equity holders.”
Tallgrass has been trading above the $19.50 offer, which in some instances signals expectations of a sweetened bid. In this case, however, it may also reflect shareholders' expectation of another 54-cent dividend. Shares were up less than 1% at $20.01 at 12:15 p.m. in New York.
Pushing for an improved offer may be tricky, as Blackstone not only holds a major chunk of the Tallgrass Class A shares but also controls its general partner. Though a handful of analysts have said investors could seek a sweetener, Tudor, Pickering, Holt & Co. said worries over Tallgrass' ability to recontract two major pipeline projects mean the proposed deal comes at “a notably attractive valuation for existing shareholders.”
To contact the reporter on this story: Rachel Adams-Heard in Houston at radamsheard@bloomberg.net
To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Joe Carroll, Christine Buurma
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