UPDATE: Teppco Rejects Bid From Enterprise Products Partners

Enterprise Products Partners LP (EPD) on Wednesday made public a proposal to acquire Teppco Partners (TPP) in a deal worth $2.8 billion that would combine oil and gas pipeline firms linked to Houston billionaire Dan Duncan.

Teppco has rejected the offer.

Enterprise and Teppco are both master limited partnerships, or MLPs, a form of tax-advantaged publicly traded company owned by partners. Houston-based Enterprise owns natural-gas and crude-oil pipelines, processing plants and storage facilities. Teppco, also based in Houston, owns gas, oil and refined-petroleum pipelines.

Enterprise is offering to buy all of Teppco's outstanding partnership interests for $21.89 a unit, a premium of about 4.8% based on the 10-day average closing prices of Teppco and Enterprise common units on March 6, the day before Enterprise made the proposal to Teppco. A common unit represents a limited-partner interest in an MLP.

A special committee formed by Teppco's general partner - Texas Eastern Products Pipeline Co., the company that manages Teppco - "has unanimously concluded that it does not support the proposal as it now stands and has advised Enterprise of its decision," Teppco said in a statement.

Teppco said it's willing to consider a revised offer from Enterprise, however.

Enterprise and Teppco already have a relationship, although they are independent companies with separate boards of directors. Teppco and Enterprise's general partners are owned by the same company, Enterprise GP Holdings LP (EPE), which was founded by Duncan. EPE owns 4.2% of Teppco's outstanding units and about 3% of Enterprise's outstanding units.

The proposed deal would allow Enterprise to diversify its business and lower its risk profile on the cheap, analysts said. Teppco has been hit hard by falling commodity prices, losing almost half its market value in 2008.

The companies said they won't comment further on acquisition discussions unless a definitive agreement is reached. Rick Rainey, the spokesman for both Enterprise and Teppco, couldn't be reached for comment.

"Enterprise probably just views this as the time to propose such a transaction with the downturn in the commodity price environment," said Mark Reichman, an analyst with SMH Capital in Houston. Teppco has experienced some management shake-ups recently with the resignation of its chief financial officer in January and the announcement in March that Teppco's president and chief executive, Jerry Thompson, was taking a temporary medical leave of absence.

"We suspect the offer to acquire Teppco may be a bit of gamesmanship: A successful bid would win full control of Teppco on the cheap, while an unsuccessful bid would underscore the idea that Teppco is undervalued," wrote Jason Stevens, an analyst with Morningstar Inc., in a note to clients Wednesday.

Teppco and Enterprise said last week that the companies decided not to become part of the Texas Offshore Port System Partnership, a project that includes an offshore port, two onshore crude oil storage facilities and an associated pipeline system, after a disagreement with the third partner in the deal.

-By Christine Buurma, Dow Jones Newswires; 201-938-2061; [e-mail]

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