Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement
On October 26, 2021, Phillips 66 Partners LP, a Delaware limited partnership (the “Partnership” or “we”), Phillips 66 Partners GP LLC, a Delaware limited liability company and the general partner of the Partnership (the “General Partner”), Phillips 66, a Delaware corporation (the “Company”), Phillips 66 Company, a Delaware corporation and wholly owned subsidiary of the Company (“P66 Company”), Phillips 66 Project Development Inc., a Delaware corporation and wholly owned subsidiary of P66 Company (“P66 PDI”), and Phoenix Merger Sub LLC, a Delaware limited liability company and jointly owned subsidiary of P66 Company and P66 PDI (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will merge with and into the Partnership, with the Partnership surviving as an indirect, wholly owned subsidiary of the Company (the “Merger”).
Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (i) each outstanding common unit representing a limited partner interest in the Partnership (each, a “Common Unit”) other than Common Units owned by the Company and its subsidiaries, including P66 Company and P66 PDI (each, a “Public Common Unit”), will be converted into the right to receive 0.50 (the “Exchange Ratio”) shares of common stock, par value $0.01 per share, of the Company (the “Common Stock” and the shares of Common Stock to be issued in the Merger, the “Merger Consideration”), and (ii) (a) each Partnership LTIP Award (as defined in the Merger Agreement), other than Director LTIP Awards (as defined in the Merger Agreement), whether vested or not, that is outstanding immediately prior to the Effective Time, will cease to relate to or represent any right to receive Common Units and will be converted, at the Effective Time, into an equivalent award of Parent RSUs (as defined in the Merger Agreement), adjusted by the Exchange Ratio, on the same terms and conditions as were applicable to the corresponding Partnership LTIP Award, including any applicable payment timing provisions and dividend equivalent rights, as applicable, except as otherwise adjusted by the Merger Agreement and (b) each Director LTIP Award (as defined in the Merger Agreement) shall become fully vested and shall be automatically converted into the right to receive, with respect to each Common Unit subject thereto, the Merger Consideration (or, to the extent set forth under the terms of the applicable Director LTIP Award, cash in an amount equal to the value of the Merger Consideration determined based on the closing price of a share of Common Stock as of the closing date) (plus any accrued but unpaid amounts in relation to distribution equivalent rights). In connection with the Merger, (i) the General Partner’s non-economic general partner interest in the Partnership and (ii) the Common Units owned by the Company and its subsidiaries, including P66 Company and P66 PDI, shall not be cancelled, shall not be converted into the Merger Consideration and shall remain outstanding following the Merger as a non-economic general partner interest in the Partnership and as Common Units, respectively.
The Conflicts Committee (the “Conflicts Committee”) of the board of directors of the General Partner (the “GP Board”) has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of the Partnership and the holders of Public Common Units, (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and (iii) recommended that the GP Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and resolve to direct that the Merger Agreement be submitted to a vote of the limited partners of the Partnership (the “Limited Partners”) for approval. The GP Board (acting upon the recommendation of the Conflicts Committee) has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of the Partnership and the Limited Partners, (ii) authorized and approved the execution, delivery and performance of the Merger Agreement and the transactions contemplated thereby, including the Merger, (iii) directed that the Merger Agreement be submitted to a vote of the Limited Partners and (iv) authorized the Limited Partners to act by written consent pursuant to the terms of the Third A&R Partnership Agreement (as defined below).
Immediately following the execution of the Merger Agreement and the LPA Amendment (as defined below), P66 PDI, which as of the Record Date (as defined below) held 169,760,137 Common Units (the “Covered Units”), representing approximately 70.21% of the outstanding Common Units and Series A preferred units representing limited partner interests in the Partnership (“Series A Preferred Units”), voting together as a single class on an as-converted basis, delivered its written consents with respect to all of the Covered Units approving the Merger Agreement and the transactions contemplated thereby, including the Merger (the “Merger Written Consent”), and the LPA Amendment (as defined below) (the “LPA Written Consent” and together with the Merger Written Consent, the “Written Consents”).
The Merger Agreement contains customary representations and warranties from the parties, and each party has agreed to customary covenants, including, among others, covenants relating to (i) the conduct of business during the interim period between the execution of the Merger Agreement and the Effective Time and (ii) the obligation to use reasonable best efforts to cause the Merger to be consummated.
Completion of the Merger is subject to certain customary conditions, including, among others: (i) approval of the Merger Agreement by holders of a majority of the outstanding Common Units and Series A Preferred Units, voting together as a single class on an as-converted basis, which was received on October 26, 2021 in the Merger Written Consent; (ii) there being no law or injunction prohibiting consummation of the transactions contemplated under the Merger Agreement; (iii) the effectiveness of a registration statement on Form S-4 relating to the shares of Common Stock to be issued as Merger Consideration; (iv) approval for listing on the New York Stock Exchange of the shares of Common Stock to be issued as Merger Consideration; (v) subject to specified materiality standards, the accuracy of certain representations and warranties of each party; and (vi) compliance by each party in all material respects with its covenants.
The Merger Agreement provides for certain termination rights for both the Company and the Partnership, including in the event that (i) the parties agree by mutual written consent to terminate the Merger Agreement, (ii) the Merger is not consummated by April 26, 2022 or (iii) a law or injunction prohibiting the consummation of the transactions contemplated by the Merger Agreement is in effect and has become final and non-appealable. The Merger Agreement provides that upon termination of the Merger Agreement under certain circumstances, (i) the Partnership will be obligated to reimburse the Company for its expenses and (ii) the Company will be obligated to reimburse the Partnership for its expenses, in each case, in an amount not to exceed $4.5 million.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by the actual Merger Agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated into this Item 1.01 by reference.
The foregoing summary of the Merger Agreement has been included to provide investors and security holders with information regarding the terms of the Merger Agreement and is qualified in its entirety by the terms and conditions of the Merger Agreement. It is not intended to provide any other factual information about the Company, the Partnership or their respective subsidiaries and affiliates. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of such agreement and as of specified dates, were solely for the benefit of the respective parties to such agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the respective parties to such agreement instead of establishing these matters as facts, and may be subject to standards of materiality that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, the Partnership or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s or the Partnership’s public disclosures.
