Stonepeak Infrastructure consortium in talks to buy Tallgrass Energy

A consortium of Stonepeak Infrastructure Partners and Brookfield Asset Management is reportedly in talks to acquire midstream energy company Tallgrass Energy, which owns and operates a crude oil and natural gas transportation network.

The development was reported by Bloomberg, citing sources with knowledge of the matter.

According to the sources, the parties did not reach a final deal and negotiations may collapse.

If the consortium manages to secure the deal, it would be the second-largest take-private of a US pipeline operator, according to data compiled by the publication.

The $22bn buyout of Kinder Morgan by private equity investors, including Carlyle Group and Goldman Sachs in 2007, is currently the largest pipeline takeover.

Tallgrass has been pressured by volatility in the oil and gas markets, as well as amendments to the US tax regime.

Energy infrastructure companies had initially been established as master limited partnerships (MLPs), which have an arrangement that involves passing on most of their income to investors in dividend-style distributions. Under the MLP structure, companies are exempted from paying taxes at the corporate level.

However, changes to the US tax code introduced in March have taken away certain tax benefits enjoyed by MLPs.

The new tax policy mandated that partnerships can no longer charge customers for taxes they do not pay.

As a result of the changes, Tallgrass and other pipeline operators have been signing transactions to do away with their MLP status.

Earlier this year, Tallgrass’s general partner acquired around 47.6 million Tallgrass Energy Partners common units held by the public.

Tallgrass operates more than 8,300 miles of natural gas pipeline and 800 miles of crude pipeline across the US.

The pipelines connect basins in the Rocky Mountains, Upper Midwest and Appalachian regions with demand markets in the Rockies, the Midwest, and eastern Ohio.