Amendment No. 1 to the Form S-4
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Index to Financial Statements

As filed with the Securities and Exchange Commission on May 21, 2009

Registration No. 333-158444

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Magellan Midstream Partners, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware   4610   73-1599053

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

One Williams Center

Tulsa, Oklahoma 74172

(918) 574-7000

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

 

Lonny E. Townsend

One Williams Center

Tulsa, Oklahoma 74172

(918) 574-7000

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

 

Copies to:

 

Michael J. Swidler, Esq.

Vinson & Elkins L.L.P.

666 Fifth Avenue, 26th Floor

New York, New York 10103

(212) 237-0000

 

Christine B. LaFollette, Esq.

J. Vincent Kendrick, Esq.

Akin Gump Strauss Hauer & Feld LLP

1111 Louisiana Street, 44th Floor

Houston, Texas 77002

(713) 220-5800

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this registration statement and the effective time of the simplification pursuant to the simplification agreement described in the enclosed joint proxy statement/prospectus.

 

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer  x    Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller reporting company  ¨
     (Do not check if a smaller reporting company)  

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)    ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third Party Tender Offer)    ¨

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Index to Financial Statements

The information in this joint proxy statement/prospectus is not complete and may be changed. We may not distribute the common units of Magellan Midstream Partners, L.P. being registered pursuant to this registration statement until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/prospectus is not an offer to distribute these securities and it is not soliciting an offer to receive these securities in any state where such offer or distribution is not permitted.

 

Subject to completion, dated May 21, 2009

SIMPLIFICATION OF CAPITAL STRUCTURE PROPOSED—YOUR VOTE IS VERY IMPORTANT

Magellan Midstream Partners, L.P. (“MMP”), Magellan Midstream Holdings, L.P. (“MGG”) and their respective general partners have entered into an Agreement Relating to Simplification of Capital Structure dated as of March 3, 2009 (the “simplification agreement”) to simplify their capital structure by transforming the incentive distribution rights in MMP and approximate 2% economic interest of MMP’s general partner into MMP common units. Through a number of steps, MGG unitholders will receive 0.6325 MMP common units in exchange for each MGG common unit at closing.

Pursuant to the simplification agreement, MMP’s existing partnership agreement will be amended and restated to provide for the transformation of the incentive distribution rights and the approximate 2% general partner interest in MMP owned, directly and indirectly, by MMP’s general partner into MMP common units and a general partner interest in MMP that will not entitle MMP’s general partner to receive any distributions or other economic benefits under MMP’s amended and restated partnership agreement (referred to in this joint proxy statement/prospectus as a “non-economic general partner interest”) (collectively, the “transformation”). Once the transformation is complete, pursuant to the simplification agreement, MMP’s general partner, which is currently a wholly owned subsidiary of MGG, will distribute the MMP common units it receives in the transformation to MGG (the “distributions”). Once the transformation and distributions are complete, pursuant to a Contribution and Assumption Agreement among MMP, MGG, their respective general partners and the sole member of MGG’s general partner (the “contribution agreement”): (i) MGG will contribute 100% of the limited liability company interests in the sole member of its general partner to MMP’s general partner; (ii) MGG will contribute 100% of the limited liability company interests in MMP’s general partner to MMP; (iii) MGG will contribute to MMP all of its cash and other remaining assets other than the MMP common units it receives in the distributions; and (iv) MMP will assume all of the liabilities of MGG (collectively, the “contributions”). Once the transformation, distributions and contributions are complete, pursuant to the simplification agreement, MGG’s partnership agreement and a Plan of Liquidation between MGG and its general partner (the “plan of liquidation”), MGG will dissolve and wind-up its affairs (the “liquidation”). As part of the liquidation, MGG will distribute the MMP common units it receives in the distributions to its unitholders (the “redistribution”). The steps described above and the other matters contemplated by the simplification agreement are referred to collectively in this joint proxy statement/prospectus as the “simplification.” Please read “Summary—Ownership Structure” on page 13 of this joint proxy statement/prospectus for an illustration of MMP’s and MGG’s ownership structure prior to and after giving effect to the simplification.

The simplification agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The form of MMP’s amended and restated partnership agreement is attached as Annex B to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The form of the contribution agreement is attached as Annex C to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The form of the plan of liquidation is attached as Annex D to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference.

Pursuant to the simplification agreement, MGG will receive approximately 39.6 million MMP common units as a result of the transformation and distributions, and each unitholder of MGG will receive 0.6325 MMP common units per MGG common unit in the liquidation and redistribution. MMP common units received by MGG unitholders will be accompanied by associated unit purchase rights (“rights”) issued pursuant to MMP’s unit purchase rights agreement, dated as of December 4, 2008, as amended, between MMP and Computershare Trust Company, N.A., as rights agent. MMP unitholders will continue to own their existing MMP common units. Immediately following the liquidation and redistribution, MMP will be owned approximately 62.8% by its current unitholders and approximately 37.2% by former MGG unitholders. MMP common units will continue to trade on the New York Stock Exchange under the symbol “MMP” following the simplification.

YOUR VOTE IS VERY IMPORTANT. We cannot complete the simplification unless: (a) MMP unitholders approve the simplification agreement and the matters contemplated thereby and approve MMP’s amended and restated partnership agreement; and (b) MGG unitholders approve the simplification agreement and the matters contemplated thereby, approve a proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the


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simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters, approve the contributions and approve the liquidation.

The MMP special meeting will be held on                     , 2009 at         a.m., local time, at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma. The MGG special meeting will be held on                 , 2009 at         a.m., local time, at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma. Whether or not you plan to attend your special meeting, please complete and submit the enclosed proxy card as soon as possible or transmit your voting instructions by using the telephone or internet procedures described on your proxy card.

Recommendation of MMP Conflicts Committee

The conflicts committee of the board of directors of MMP’s general partner (the “MMP Conflicts Committee”) has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby and has determined that the simplification agreement and the matters contemplated thereby are fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby. In addition, the MMP Conflicts Committee has unanimously approved and declared the advisability of MMP’s amended and restated partnership agreement and has determined that the amended and restated partnership agreement is fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” the proposal to approve the amended and restated partnership agreement. Further, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” any proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of either of the foregoing proposals.

Recommendation of MGG Conflicts Committee

The conflicts committee of the board of directors of MGG’s general partner (the “MGG Conflicts Committee”) has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby and determined that the simplification agreement and the matters contemplated thereby are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby. In addition, the MGG Conflicts Committee has unanimously approved and declared the advisability of the proposal to (i) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (ii) direct MMP’s general partner to implement the matters described in (i) above, and determined that such proposal is fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to (i) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (ii) direct MMP’s general partner to implement the matters described in (i) above. In addition, the MGG Conflicts Committee has unanimously approved the contributions and determined that the contributions are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the contributions. In addition, the MGG Conflicts Committee has unanimously approved and declared the advisability of the liquidation and determined that the liquidation is fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general


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partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the liquidation. Further, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” any proposal to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

This joint proxy statement/prospectus gives you detailed information about the special meetings and the proposed simplification and related matters. MMP and MGG both urge you to read carefully this entire joint proxy statement/prospectus, including all of its annexes. In particular, please read “Risk Factors” beginning on page 21 of this joint proxy statement/prospectus for a discussion of risks relevant to the simplification and related matters and to MMP following the simplification.

MMP common units are traded on the New York Stock Exchange under the symbol “MMP.” The last reported sale price of MMP common units on the New York Stock Exchange on May 20, 2009 was $33.67. MGG common units are traded on the New York Stock Exchange under the symbol “MGG.” The last reported sale price of MGG common units on the New York Stock Exchange on May 20, 2009 was $20.26.

 

John D. Chandler

Senior Vice President, Chief Financial Officer

and Treasurer

Magellan GP, LLC

 

Don R. Wellendorf

President, Chief Executive Officer and

Chairman of the Board

Magellan Midstream Holdings GP, LLC

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated                     , 2009 and is first being mailed to MMP unitholders and MGG unitholders on or about                     , 2009.


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NOTICE OF SPECIAL MEETING OF UNITHOLDERS OF

MAGELLAN MIDSTREAM PARTNERS, L.P.

TO BE HELD ON                     , 2009

To the Unitholders of Magellan Midstream Partners, L.P.:

This is a notice that a special meeting of the unitholders of Magellan Midstream Partners, L.P. (“MMP”) will be held on                     , 2009 at         a.m., local time, at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma. The purpose of the MMP special meeting is:

1. To consider and vote upon the approval of the Agreement Relating to Simplification of Capital Structure (the “simplification agreement,” a copy of which is attached as Annex A to this joint proxy statement/prospectus), dated as of March 3, 2009, by and among MMP, Magellan GP, LLC, MMP’s general partner, Magellan Midstream Holdings, L.P. (“MGG”) and Magellan Midstream Holdings GP, LLC, MGG’s general partner, as such agreement may be amended from time to time, pursuant to which (i) MMP’s existing partnership agreement will be amended and restated to, among other things, provide for the transformation of MMP’s incentive distribution rights and the approximate 2% general partner interest in MMP owned, directly or indirectly, by MMP’s general partner into MMP common units and a general partner interest in MMP that will not entitle MMP’s general partner to receive any distributions or other economic benefits under MMP’s amended and restated partnership agreement (referred to in this joint proxy statement/prospectus as a “non-economic general partner interest”) (collectively, the “transformation”); (ii) MMP’s general partner will distribute the MMP common units it receives in the transformation to MGG (the “distributions”); (iii) MGG, MMP, their respective general partners and the sole member of MGG’s general partner will enter into a Contribution and Assumption Agreement (the “contribution agreement”) pursuant to which MGG will contribute 100% of the limited liability company interests in the sole member of its general partner to MMP’s general partner, MGG will contribute 100% of the limited liability company interests in MMP’s general partner to MMP, MGG will contribute to MMP all of its cash and other remaining assets other than the MMP common units it receives in the distributions, and MMP will assume all of the liabilities of MGG (collectively, the “contributions”); and (iv) MGG and its general partner will adopt a Plan of Liquidation (the “plan of liquidation”) pursuant to which MGG will dissolve and wind-up its affairs (the “liquidation”) and, in connection therewith, MGG will distribute the MMP common units it receives in the distributions to its unitholders (the “redistribution”), such that each unitholder of MGG will receive 0.6325 MMP common units per MGG common unit;

2. To consider and vote upon the approval of the Fifth Amended and Restated Agreement of Limited Partnership of Magellan Midstream Partners, L.P. (the “amended and restated partnership agreement,” a copy of which is attached as Annex B to this joint proxy statement/prospectus);

3. To consider and vote upon any proposal that may be presented to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals; and

4. To consider and vote upon any proposal to transact such other business as may properly come before the MMP special meeting and any adjournment or postponement thereof.

The conflicts committee of the board of directors of MMP’s general partner (the “MMP Conflicts Committee”) has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby and has determined that the simplification agreement and the matters contemplated thereby are fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby. In addition, the MMP Conflicts Committee has unanimously approved and declared the advisability of MMP’s amended and restated partnership agreement and has determined that the amended and restated partnership agreement is fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” the proposal to approve the amended and restated partnership agreement. Further, the


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MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” any proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of either of the foregoing proposals.

The proposals described in paragraphs 1 and 2 above require the affirmative vote of the holders of a majority of the outstanding MMP common units (excluding those owned by MMP’s general partner and its affiliates) entitled to vote as of the record date. If a quorum is not present, the proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the other proposals would require the affirmative vote of the holders of a majority of MMP’s common units entitled to vote as of the record date present in person or represented by proxy at the MMP special meeting. The approval of the items listed under paragraphs 1 and 2 is a condition to completion of the simplification and related matters. Only MMP common unitholders of record at the close of business on                     , 2009 are entitled to receive this notice and to vote at the MMP special meeting or any adjournment or postponement of that meeting.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the MMP special meeting, please submit your proxy with voting instructions as soon as possible. If you hold MMP common units in your name as MMP unitholder of record, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed stamped envelope, use the toll-free telephone number shown on the proxy card or use the internet website shown on the proxy card. If you hold your MMP common units through a bank or broker, please use the voting instructions you have received from your bank or broker. Submitting your proxy will not prevent you from attending the MMP special meeting and voting in person. Please note, however, that if you hold your MMP common units through a bank or broker, and you wish to vote in person at the MMP special meeting, you must obtain from your bank or broker a proxy issued in your name. You may revoke your proxy by attending the MMP special meeting and voting your MMP common units in person at the MMP special meeting. You may also revoke your proxy at any time before it is voted by giving written notice of revocation to Morrow & Co., LLC at the address provided with the proxy card at or before the MMP special meeting or by submitting a proxy with a later date.

The accompanying document describes the proposed simplification and related matters in more detail. We urge you to read carefully the entire document before voting your MMP common units at the MMP special meeting or submitting your voting instructions by proxy.

By Order of the Conflicts Committee of the Board of Directors of Magellan GP, LLC, the general partner of Magellan Midstream Partners, L.P.

Suzanne H. Costin

Secretary

Tulsa, Oklahoma

                    , 2009


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NOTICE OF SPECIAL MEETING OF UNITHOLDERS OF

MAGELLAN MIDSTREAM HOLDINGS, L.P.

TO BE HELD ON                     , 2009

To the Unitholders of Magellan Midstream Holdings, L.P.:

This is a notice that a special meeting of the unitholders of Magellan Midstream Holdings, L.P. (“MGG”) will be held on                     , 2009 at         a.m., local time, at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma. The purpose of the MGG special meeting is:

1. To consider and vote upon the approval of the Agreement Relating to Simplification of Capital Structure (the “simplification agreement,” a copy of which is attached as Annex A to this joint proxy statement/prospectus), dated as of March 3, 2009, by and among Magellan Midstream Partners, L.P. (“MMP”), Magellan GP, LLC, MMP’s general partner, MGG, and Magellan Midstream Holdings GP, LLC, MGG’s general partner, as such agreement may be amended from time to time, pursuant to which (i) MMP’s existing partnership agreement will be amended and restated to, among other things, provide for the transformation of MMP’s incentive distribution rights and the approximate 2% general partner interest in MMP owned, directly or indirectly, by MMP’s general partner into MMP common units and a general partner interest in MMP that will not entitle MMP’s general partner to receive any distributions or other economic benefits under MMP’s amended and restated partnership agreement (referred to in this joint proxy statement/prospectus as a “non-economic general partner interest”) (collectively, the “transformation”); (ii) MMP’s general partner will distribute the MMP common units it receives in the transformation to MGG (the “distributions”); (iii) MGG, MMP, their respective general partners and the sole member of MGG’s general partner will enter into a Contribution and Assumption Agreement (the “contribution agreement”) pursuant to which MGG will contribute 100% of the limited liability company interests in the sole member of its general partner to MMP’s general partner, MGG will contribute 100% of the limited liability company interests in MMP’s general partner to MMP, MGG will contribute to MMP all of its cash and other remaining assets other than the MMP common units it receives in the distributions, and MMP will assume all of the liabilities of MGG (collectively, the “contributions”); and (iv) MGG and its general partner will adopt a Plan of Liquidation of MGG (the “plan of liquidation”) pursuant to which MGG will dissolve and wind-up its affairs (the “liquidation”) and, in connection therewith, MGG will distribute the MMP common units it receives in the distributions to its unitholders (the “redistribution”), such that each unitholder of MGG will receive 0.6325 MMP common units per MGG common unit;

2. To consider and vote upon the proposal to (a) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s Fifth Amended and Restated Agreement of Limited Partnership (the “amended and restated partnership agreement,” a copy of which is attached as Annex B to this joint proxy statement/prospectus) and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (b) direct MMP’s general partner to implement the matters described in (a) above;

3. To consider and vote upon the approval of the contributions (a copy of the contribution agreement is attached as Annex C to this joint proxy statement/prospectus);

4. To consider and vote upon the approval of the liquidation (a copy of the plan of liquidation is attached as Annex D to this joint proxy statement/prospectus);

5. To consider and vote upon any proposal that may be presented to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals; and

6. To consider and vote upon any proposal to transact such other business as may properly come before the MGG special meeting and any adjournment or postponement thereof.

The conflicts committee of the board of directors of MGG’s general partner (the “MGG Conflicts Committee”) has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby and determined that the simplification agreement and the matters contemplated thereby are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee


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unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby. In addition, the MGG Conflicts Committee has unanimously approved and declared the advisability of the proposal to (i) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (ii) direct MMP’s general partner to implement the matters described in (i) above, and determined that such proposal is fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to (i) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (ii) direct MMP’s general partner to implement the matters described in (i) above. In addition, the MGG Conflicts Committee has unanimously approved the contributions and determined that the contributions are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the contributions. In addition, the MGG Conflicts Committee has unanimously approved and declared the advisability of the liquidation and determined that the liquidation is fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the liquidation. Further, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” any proposal to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

The proposals described in paragraphs 1 through 5 above require the affirmative vote of the holders of a majority of the outstanding MGG common units entitled to vote as of the record date. If a quorum is not present, the proposal to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the other proposals would require the affirmative vote of the holders of a majority of MGG common units entitled to vote as of the record date present in person or represented by proxy at the MGG special meeting. The approval of the items listed under paragraphs 1, 2, 3 and 4 is a condition to completion of the simplification and related matters. Only MGG unitholders of record at the close of business on                     , 2009 are entitled to receive this notice and to vote at the MGG special meeting or any adjournment or postponement of that meeting.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the MGG special meeting, please submit your proxy with voting instructions as soon as possible. If you hold MGG units in your name as MGG unitholder of record, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed stamped envelope, use the toll-free telephone number shown on the proxy card or use the internet website shown on the proxy card. If you hold your MGG common units through a bank or broker, please use the voting instructions you have received from your bank or broker. Submitting your proxy will not prevent you from attending the MGG special meeting and voting in person. Please note, however, that if you hold your MGG common units through a bank or broker, and you wish to vote in person at the MGG special meeting, you must obtain from your bank or broker a proxy issued in your name. You may revoke your proxy by attending the MGG special meeting and voting your MGG common units in person at the MGG special meeting. You may also revoke your proxy at any time before it is voted by giving written notice of revocation to Morrow & Co., LLC at the address provided with the proxy card at or before the MGG special meeting or by submitting a proxy with a later date.

The accompanying document describes the proposed simplification and related matters in more detail. We urge you to read carefully the entire document before voting your MGG common units at the MGG special meeting or submitting your voting instructions by proxy.


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By Order of the Conflicts Committee of the Board of Directors of Magellan Midstream Holdings GP, LLC, the general partner of Magellan Midstream Holdings, L.P.

Lonny E. Townsend

Secretary

Tulsa, Oklahoma

                    , 2009


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TABLE OF CONTENTS

 

     Page

IMPORTANT NOTE ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

   iv

QUESTIONS AND ANSWERS ABOUT THE SIMPLIFICATION

   v

SUMMARY

   1

The Proposed Simplification

   1

Steps and Agreements Related to the Simplification

   2

Directors and Executive Officers of MMP’s General Partner Following the Simplification

   3

Recommendation of the MMP Conflicts Committee and Its Reasons for the Simplification

   3

Recommendation of the MGG Conflicts Committee and Its Reasons for the Simplification

   4

Conditions to the Effectiveness of the Matters Contemplated by the Simplification Agreement

   5

The Parties to the Simplification Agreement

   5

Relationship of the Parties

   5

Information About the Special Meetings and Voting

   6

Risk Factors

   8

Appraisal Rights

   8

No Solicitation of Other Offers by MGG

   8

Termination of Simplification Agreement

   9

Expenses

   10

Opinion of the MMP Conflicts Committee’s Financial Advisor

   10

Opinion of the MGG Conflicts Committee’s Financial Advisor

   11

Comparison of MMP Unitholder Rights and MGG Unitholder Rights

   11

Interests of Certain Persons in the Simplification

   11

Accounting Treatment of the Simplification

   12

Material Federal Income Tax Consequences of the Simplification

   12

Recent Developments

   13

Ownership Structure

   13

Summary Historical and Unaudited Pro Forma Financial Information of MGG

   15

Summary Historical Financial Information of MMP

   17

UNAUDITED COMPARATIVE PER UNIT INFORMATION

   19

MARKET PRICES AND DISTRIBUTION INFORMATION

   20

RISK FACTORS

   21

Risks Related to the Simplification and Related Matters

   21

Tax Risks Related to the Simplification

   25

Tax Risks to the Holders of MGG Common Units

   25

Tax Risks to Existing MMP Unitholders

   25

SPECIAL FACTORS

   27

Background of the Simplification

   27

Recommendation of the MMP Conflicts Committee and Its Reasons for the Simplification

   47

Recommendation of the MGG Conflicts Committee and Its Reasons for the Simplification

   50

Financial Projections Provided to Financial Advisors

   54

Opinion of Tudor, Pickering, Holt & Co.—Financial Advisor to the MMP Conflicts Committee

   56

Opinion of Lazard Frères & Co. LLC—Financial Advisor to the MGG Conflicts Committee

   66

FORWARD-LOOKING STATEMENTS

   75

THE PARTIES TO THE SIMPLIFICATION AGREEMENT

   76

Magellan Midstream Partners, L.P.

   76

Magellan Midstream Holdings, L.P.

   76

Relationship of the Parties

   76

 

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     Page

INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING

   78

THE PROPOSED SIMPLIFICATION

   85

General

   85

Steps and Agreements Related to the Simplification

   86

Amendment to Unit Purchase Rights Agreements

   87

Appraisal Rights

   88

Listing of MMP Common Units; Delisting and Deregistration of MGG Common Units

   88

Accounting Treatment of the Simplification

   88

THE SIMPLIFICATION AGREEMENT

   89

Explanatory Note Regarding Summary of the Simplification Agreement

   89

Effective Time

   89

Amounts to be Received by MGG Unitholders in the Liquidation and Redistribution

   89

The Redistribution

   90

Actions Pending Completion of the Simplification

   91

Representations and Warranties

   94

Directors and Executive Officers of MMP’s General Partner Following the Simplification

   95

Additional Covenants

   95

Conditions to the Effectiveness of the Matters Contemplated by the Simplification Agreement

   98

Change in Recommendation by the MMP Conflicts Committee

   100

No Solicitation of Other Offers by MGG

   100

Termination of Simplification Agreement

   101

Expenses

   103

Waiver and Amendment of the Simplification Agreement

   103

Governing Law

   103

THE AMENDED AND RESTATED PARTNERSHIP AGREEMENT OF MMP

   104

Organization and Duration

   104

Purpose

   104

Power of Attorney

   105

Capital Contributions

   105

Limited Liability

   105

Voting Rights

   106

Issuance of Additional Securities

   106

Amendment of the Amended and Restated Partnership Agreement

   107

Merger, Sale or Other Disposition of Assets

   109

Withdrawal or Removal of the General Partner

   109

Transfer of General Partner Interest

   110

Termination and Dissolution

   110

Liquidation and Distribution of Proceeds

   110

Change of Management Provisions

   111

Meetings; Voting

   111

Board of Directors

   112

Status as Limited Partner or Assignee

   112

Non-citizen Assignees; Redemption

   112

Indemnification

   112

Books and Reports

   113

Right to Inspect MMP’s Books and Records

   113

COSTS RELATED TO THE SIMPLIFICATION

   114

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SIMPLIFICATION

   115

 

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     Page

FEDERAL INCOME TAXATION OF MMP AND ITS UNITHOLDERS

   120

Partnership Status

   120

Limited Partner Status

   122

Tax Consequences of MMP Common Unit Ownership

   122

Tax Treatment of Operations

   128

Disposition of MMP Common Units

   129

Uniformity of MMP Common Units

   131

Tax-Exempt Organizations and Other Investors

   132

Administrative Matters

   133

State, Local and Other Tax Considerations

   135

INTERESTS OF CERTAIN PERSONS IN THE SIMPLIFICATION

   136

Interests of the Executive Officers and Directors in the Simplification

   136

Unit Ownership by Directors and Executive Officers

   136

Indemnification; Directors’ and Officers’ Insurance

   138

Director and Executive Officer Interlock

   138

DIRECTORS AND EXECUTIVE OFFICERS OF MMP’s GENERAL PARTNER FOLLOWING THE SIMPLIFICATION

   139

COMPARISON OF MMP UNITHOLDER RIGHTS AND MGG UNITHOLDER RIGHTS

   142

MMP CASH DISTRIBUTION POLICY

   146

Distributions of Available Cash

   146

Incentive Distribution Rights

   146

Distributions of Cash Upon Liquidation

   146

DESCRIPTION OF MMP COMMON UNITS

   147

MMP Common Units

   147

Transfer Agent and Registrar

   147

Transfer of MMP Common Units

   147

LEGAL MATTERS

   149

EXPERTS

   149

Magellan Midstream Partners, L.P.

   149

Magellan Midstream Holdings, L.P.

   149

ADDITIONAL INFORMATION FOR UNITHOLDERS; FUTURE UNITHOLDER PROPOSALS

   150

Magellan Midstream Partners, L.P. 2010 Annual Unitholder Meeting and Unitholder Proposals

   150

Magellan Midstream Holdings, L.P. 2010 Annual Unitholder Meeting and Unitholder Proposals

   150

WHERE YOU CAN FIND MORE INFORMATION

   151

MMP Filings with the SEC (File No. 001-16335)

   151

MGG Filings with the SEC (File No. 001-32745)

   151

MAGELLAN MIDSTREAM PARTNERS, L.P. AND SUBSIDIARIES INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

   F-1
ANNEX A    Agreement Relating to Simplification of Capital Structure    Annex A-1
ANNEX B   

Fifth Amended and Restated Agreement of Limited Partnership of Magellan Midstream Partners, L.P.

   Annex B-1
ANNEX C    Contribution and Assumption Agreement    Annex C-1
ANNEX D    Plan of Liquidation of Magellan Midstream Holdings, L.P.    Annex D-1
ANNEX E    Opinion of Tudor, Pickering, Holt & Co.    Annex E-1
ANNEX F    Opinion of Lazard Frères & Co. LLC    Annex F-1

 

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IMPORTANT NOTE ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”), constitutes a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of (a) MMP with respect to the solicitation of proxies for the MMP special meeting to, among other things, approve the simplification agreement and the matters contemplated thereby and approve MMP’s amended and restated partnership agreement; and (b) MGG with respect to the solicitation of proxies for the MGG special meeting to, among other things, approve the simplification agreement and the matters contemplated thereby, approve the proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters, approve the contributions and approve the liquidation. This joint proxy statement/prospectus is also a prospectus of MMP under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), for MMP common units that MGG unitholders will receive in connection with the simplification.

As permitted under the rules of the SEC, this joint proxy statement/prospectus incorporates by reference important business and financial information about MMP and MGG from other documents filed with the SEC that are not included in or delivered with this joint proxy statement/prospectus. Please read “Where You Can Find More Information” beginning on page 151. This information is available to you without charge upon your request. You can obtain documents incorporated by reference in this joint proxy statement/prospectus by requesting them in writing or by telephone from MMP or MGG at the following addresses and telephone numbers:

 

Magellan Midstream Partners, L.P.

One Williams Center

Tulsa, Oklahoma 74172

(918) 574-7650

Attention: Investor Relations

 

Magellan Midstream Holdings, L.P.

One Williams Center

Tulsa, Oklahoma 74172

(918) 574-7650

Attention: Investor Relations

Please note that copies of the documents provided to you will not include exhibits.

You may obtain certain of these documents at MMP’s website, www.magellanlp.com, by selecting “Investors” and then selecting “SEC Filings” or “Financials,” and at MGG’s website, www.mgglp.com, by selecting “Investors” and then selecting “SEC Filings” or “Financials.” Information contained on MMP’s and MGG’s websites is expressly not incorporated by reference into this joint proxy statement/prospectus.

In order to receive timely delivery of the documents in advance of the MMP special meeting and the MGG special meeting, your request should be received no later than                     , 2009.

MMP and MGG have not authorized anyone to give any information or make any representation about the simplification and related matters or about MMP or MGG that is different from, or in addition to, that contained in this joint proxy statement/prospectus or in any of the materials that have been incorporated into this joint proxy statement/prospectus. Therefore, if anyone distributes this type of information, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this joint proxy statement/prospectus or the solicitation of proxies is unlawful, or you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this joint proxy statement/prospectus does not extend to you. The information contained in this joint proxy statement/prospectus speaks only as of the date of this joint proxy statement/prospectus unless the information specifically indicates that another date applies.

 

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QUESTIONS AND ANSWERS ABOUT THE SIMPLIFICATION

In the following questions and answers below, we highlight selected information from this joint proxy statement/prospectus but have not included all of the information that may be important to you regarding the simplification. To better understand the simplification, and for a complete description of the legal terms of the agreements relating to the simplification, you should carefully read this joint proxy statement/prospectus in its entirety, including the annexes, as well as the documents we have incorporated by reference in this joint proxy statement/prospectus. Please read “Important Note About this Joint Proxy Statement/Prospectus” on page iv and “Where You Can Find More Information” beginning on page 151.

Q: What is the proposed simplification?

A: MMP and MGG have agreed to simplify their capital structures by transforming MMP’s incentive distribution rights and the approximate 2% general partner interest in MMP owned, directly and indirectly, by MMP’s general partner into MMP common units and a non-economic general partner interest in MMP pursuant to the terms of a simplification agreement that is described in this joint proxy statement/prospectus and attached as Annex A to this joint proxy statement/prospectus. MGG currently is the sole member of MMP’s general partner. As a result of the transformation and the other matters contemplated by the simplification agreement, MMP’s general partner will be owned by MMP, MMP will assume all of the liabilities of MGG, and MGG will dissolve and wind-up its affairs, and its existence will be terminated. The simplification agreement provides that MMP common units received by MGG as a result of the transformation will be distributed to MGG unitholders in a liquidating distribution.

Q: Why am I receiving these materials?

A: The simplification cannot be completed without obtaining the appropriate approvals of the MMP unitholders and the MGG unitholders. MMP and MGG will hold separate special meetings of their respective unitholders to obtain these approvals.

Q: Why are MMP and MGG proposing the simplification?

A: MMP and MGG both believe that the simplification will provide substantial benefits to MMP unitholders and MGG unitholders by creating a single partnership that is better positioned to compete in the marketplace. The MMP Conflicts Committee and the MGG Conflicts Committee both believe that the simplification offers the following advantages, among others, to MMP:

 

   

the significant reduction in MMP’s equity cost of capital because MMP will no longer have any issued and outstanding incentive distribution rights and the enhancement of MMP’s ability to compete for new acquisitions following the simplification as a result of its reduced equity cost of capital;

 

   

the fact that the simplification is expected to be long-term accretive to MMP’s distributable cash flow per common unit in MMP;

 

   

the fact that the simplification will likely result in a capital structure and governance structure of MMP that is more easily understood by the investing public;

 

   

the fact that the simplification will eliminate potential conflicts of interest that may arise as a result of a person being an officer of the general partner of MMP and of the general partner of MGG and as a result of a person being a member of the board of directors of the general partner of MMP and a member of the board of directors of the general partner of MGG;

 

   

the fact that having a greater number of outstanding common units in MMP is expected to increase the public float and trading liquidity of the market for MMP common units; and

 

   

the elimination of certain control rights that MGG currently possesses with respect to MMP as the sole member of MMP’s general partner.

 

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Q: What will MGG unitholders receive in connection with the simplification?

A: If the simplification is completed, MGG unitholders will receive 0.6325 MMP common units per MGG common unit. Based on the number of outstanding MGG common units on May 15, 2009, the total number of MMP common units to be received by MGG unitholders is approximately 39.6 million. Each such MMP common unit will include the associated unit purchase rights pursuant to MMP’s unit purchase rights agreement, dated as of December 4, 2008, as amended. No MGG unitholder will receive a fractional MMP common unit; instead, any MGG unitholder who would otherwise be entitled to receive a fractional MMP common unit will receive cash in lieu thereof.

Q: How do I exchange my MGG common units for MMP common units?

A: Each holder of record of MGG common units at the close of business on the date of the dissolution of MGG will receive a letter of transmittal and other appropriate and customary transmittal materials which will contain instructions for the surrender of MGG common units for MMP common units.

Q: Do I have appraisal rights?

A: No. Under Delaware law, neither MGG unitholders nor MMP unitholders have or are entitled to exercise appraisal rights in connection with the simplification.

Q: Will MGG unitholders be able to trade MMP common units that they receive pursuant to the simplification?

A: Yes. MMP common units received pursuant to the simplification will be registered under the Securities Act and will be listed on the New York Stock Exchange under the symbol “MMP.” All MMP common units that each MGG unitholder receives in the simplification will be freely transferable unless such MGG unitholder is deemed an affiliate of MMP following the simplification for purposes of federal securities laws.

Q: What will MMP unitholders receive in connection with the simplification?

A: MMP unitholders will continue to own their existing MMP common units. They will not receive any additional MMP common units in the simplification.

Q: What happens to distributions of MMP?

A: Once the simplification is completed and MGG unitholders receive their MMP common units, when distributions are approved and declared by MMP’s general partner and paid by MMP, the former MGG unitholders and the current MMP unitholders will receive distributions on their MMP common units.

Q: As an MGG unitholder, what happens to the payment of distributions for the quarter in which the simplification is effective?

A: If the simplification is completed before the record date for a quarterly distribution, MGG unitholders will receive no quarterly distribution from MGG; instead, an MGG unitholder will receive MMP distributions on all MMP common units such unitholder received in the liquidation and redistribution. If the simplification closes after the record date, MGG unitholders will receive distributions on MGG common units held as of the record date. However, MGG unitholders will not receive distributions from both MMP and MGG for the same quarter.

Q: What will happen to MGG after simplification?

A: MGG will cease to exist and MGG common units will no longer be publicly traded.

Q: What MGG unitholder and MMP unitholder approvals are required?

A: The following require the affirmative vote of the holders of at least a majority of the outstanding MMP common units (excluding those owned by MMP’s general partner and its affiliates) entitled to vote as of the

 

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record date: (a) the approval of the simplification agreement; and (b) the approval of MMP’s amended and restated partnership agreement. Accordingly, if an MMP unitholder fails to vote, or if an MMP unitholder abstains, that will have the same effect as a vote against (a) and (b) above.

The following require the affirmative vote of the holders of at least a majority of the outstanding MGG common units entitled to vote as of the record date: (a) the approval of the simplification agreement; (b) the approval of the proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters; (c) the approval of the contributions; and (d) the approval of the liquidation. Accordingly, if an MGG unitholder fails to vote, or if an MGG unitholder abstains, that will have the same effect as a vote against: (a) through (d) above.

Q: When do you expect the simplification to be completed?

A: A number of conditions must be satisfied before MMP and MGG can complete the simplification, including the approvals by MMP unitholders and MGG unitholders and the effectiveness of the registration statement on Form S-4, of which this joint proxy statement/prospectus is a part, relating to MMP common units to be received by MGG unitholders. We expect to complete the simplification promptly following the MMP special meeting and the MGG special meeting, which we currently anticipate will occur in the third quarter of 2009.

Q: After completion of the simplification, will I be able to vote to elect directors of MMP’s general partner?

A: Yes. Pursuant to MMP’s amended and restated partnership agreement, MMP unitholders will continue to have the right to elect directors to MMP’s general partner’s board by a plurality of the votes cast at each annual meeting of MMP unitholders. The terms of the directors of MMP’s general partner’s board are “staggered,” and the directors are divided into three classes. At each annual meeting of MMP unitholders, only one class of directors is elected. The directors elected at any annual meeting of MMP unitholders will hold office until the third succeeding annual meeting of unitholders or until the directors’ successors are duly elected and qualified, or until the directors’ earlier death, resignation or removal.

Q: What are the expected tax consequences to MGG unitholders of the simplification?

A: It is anticipated that no income or gain should be recognized by MGG and the holders of MGG common units solely as a result of the simplification, other than any gain resulting from the sale of MMP common units in lieu of distributing any fractional MMP common units. A holder of MGG common units who receives cash in lieu of the distribution of fractional common units will recognize gain or loss equal to the difference between the cash received and the unitholder’s adjusted tax basis allocable to such fractional common unit. It is possible that MGG and the holders of MGG common units may recognize income or gain as a result of the assumption or payment of certain liabilities by MMP.

Please read “Risk Factors—Tax Risks to the Holders of MGG Common Units” beginning on page 25 and “Material Federal Income Tax Consequences of the Simplification” beginning on page 115 for a more complete discussion of the federal income tax consequences of the simplification.

Q: Under what circumstances could the simplification result in an existing MMP unitholder recognizing taxable gain as a result of the recalculation of such unitholder’s share of MMP’s nonrecourse liabilities?

A: Upon the completion of the simplification, MGG unitholders who receive MMP common units will become partners in MMP and will be allocated their pro rata share of MMP’s nonrecourse liabilities. This will result in a reduction in the allocable share of nonrecourse liabilities of an existing MMP unitholder, which is

 

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referred to as a “reducing debt shift.” If an existing MMP unitholder experiences a reducing debt shift as a result of the simplification, such unitholder will be deemed to have received a cash distribution in the amount of the reduction. An existing MMP unitholder will recognize gain to the extent such unitholder’s share of the constructive cash distribution exceeds such unitholder’s tax basis in such unitholder’s MMP common units. Although MMP has not received an opinion with respect to the shift of nonrecourse liabilities, MMP does not expect that any constructive cash distribution will exceed an existing unitholder’s tax basis in his MMP common units. Please read “Material Federal Income Tax Consequences of the Simplification—Tax Consequences of the Transformation, Distributions and Contributions to Existing MMP Common Unitholders” beginning on page 117.

Q: What taxes will MGG unitholders who receive MMP common units be subject to?

A: Each MGG unitholder who will become an MMP unitholder as a result of the simplification will, as is the case for the existing MMP unitholders, be required to report on the MMP unitholder’s federal income tax return such unitholder’s distributive share of MMP’s income, gain, loss, deduction, and credit. In addition to federal income taxes, an MMP unitholder will be subject to other taxes, including state and local income taxes, unincorporated business taxes, and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which MMP conducts business or owns property or in which an MMP unitholder is a resident. Please read “Federal Income Taxation of MMP and Its Unitholders” beginning on page 120.

Q: Who is entitled to vote at the special meetings?

A: MMP special meeting: All of MMP’s unitholders of record at the close of business on                     , 2009, the record date for the MMP special meeting, are entitled to receive notice of and to vote at the MMP special meeting, subject to certain limitations for persons or groups owning 20% or more of any class of units. The simplification agreement provides that any MMP common units owned by MMP’s general partner and its affiliates will not be counted towards the vote at the MMP special meeting.

MGG special meeting: All MGG unitholders of record at the close of business on                     , 2009, the record date for the MGG special meeting, are entitled to receive notice of and to vote at the MGG special meeting.

Q: What do I need to do now?

A: After you have carefully read this joint proxy statement/prospectus, please respond by completing, signing and dating your proxy card and returning it in the enclosed postage-paid envelope or by submitting your proxy or voting instruction by telephone or through the internet as soon as possible so that your MMP common units or MGG common units will be represented and voted at your special meeting.

If your MMP common units or MGG common units are held in “street name,” please refer to your proxy card or the information forwarded by your broker or other nominee to see which options are available to you. The internet and telephone proxy submission procedures are designed to authenticate MMP unitholders or MGG unitholders and to allow you to confirm that your instructions have been properly recorded.

The method you use to submit a proxy will not limit your right to vote in person at the MMP special meeting or the MGG special meeting if you later decide to attend your special meeting. If your MMP common units or MGG common units are held in the name of a broker or other nominee, you must obtain a proxy, executed in your favor from the holder of record, to be able to vote in person at the MMP special meeting or the MGG special meeting.

Q: If my MMP common units or MGG common units are held in “street name” by my broker or other nominee, will my broker or other nominee vote my shares or units for me?

A: No. Your broker will not be able to vote your MMP common units or MGG common units without instructions from you, except with respect to any proposal presented to adjourn your special meeting in order to solicit additional proxies. Please follow the procedure your broker provides to vote your units.

 

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In connection with either special meeting, abstentions and broker non-votes will be considered in determining the presence of a quorum. Further, an abstention will be the equivalent of a “NO” vote with respect to all of the matters to be voted upon. A broker non-vote will have the effect of a vote against all of the matters to be voted upon at the special meetings.

An abstention occurs when an MMP unitholder or MGG unitholder abstains from voting (either in person or by proxy) on one or more of the proposals. Broker non-votes may occur when a person holding units through a bank, broker or other nominee does not provide instructions as to how the shares or units should be voted, and the broker lacks discretionary authority to vote on a particular proposal.

Q: If I am an MGG unitholder, should I send in my unit certificates with my proxy card?

A: No. Please DO NOT send your MGG unit certificates with your proxy card. A letter of transmittal for your MGG common units and instructions will be delivered to you in a separate mailing. If your MGG common units are held in “street name” by your broker or other nominee, you should follow their instructions.

Q: If I am an MMP unitholder, should I send in my MMP unit certificates with my proxy card?

A: No. Please DO NOT send your MMP unit certificates with your proxy card. Since MMP units are not being exchanged, you should keep your MMP unit certificates.

Q: If I am planning on attending a special meeting in person, should I still submit a proxy?

A: Yes. Whether or not you plan to attend your special meeting, you should submit a proxy. Generally, MMP common units or MGG common units will not be voted if the holder of such MMP common units or MGG common units does not submit a proxy and if such holder does not vote in person at such holder’s special meeting. Failure to submit a proxy would have the same effect as a vote against all the proposals at the MMP special meeting (except that if a quorum is not present, the failure to submit a proxy will have no effect on the outcome of a vote in favor of any proposal to adjourn the MMP special meeting) and will have the same effect as a vote against the proposals at the MGG special meeting (except that if a quorum is not present, the failure to submit a proxy will have no effect on the outcome of a vote in favor of any proposal to adjourn the MGG special meeting).

Q: What do I do if I want to change my vote after I have delivered my proxy card?

A: You may change your vote at any time before MMP common units or MGG common units are voted at your special meeting. You can do this in any of the three following ways:

 

   

by sending a written notice to Morrow & Co., LLC in time to be received before your special meeting stating that you revoke your proxy;

 

   

by completing, signing and dating another proxy card and returning it by mail in time to be received before your special meeting or by submitting a later dated proxy by telephone or the internet, in which case your later-submitted proxy will be recorded and your earlier proxy revoked; or

 

   

if you are a holder of record, or if you hold a proxy in your favor executed by a holder of record, by attending your special meeting and voting in person.

If your MMP common units or MGG common units are held in an account at a broker or other nominee, you should contact your broker or other nominee to change your vote.

Q: What should I do if I receive more than one set of voting materials for the MMP special meeting or the MGG special meeting?

A: You may receive more than one set of voting materials for the MMP special meeting or the MGG special meeting and the materials may include multiple proxy cards or voting instruction cards. For example, you will

 

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receive a separate voting instruction card for each brokerage account in which you hold units. If you are a holder of record registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive according to the instructions on it.

Q: Can I submit my proxy by telephone or the internet?

A: Yes. In addition to mailing your proxy, you may submit it telephonically or on the internet. Voting instructions for using the telephone or internet procedures are described on your proxy card.

Q: Who can I contact with questions about the special meetings or the simplification and related matters?

A: If you have any questions about the simplification and the other matters contemplated by this joint proxy statement/prospectus or how to submit your proxy or voting instruction card, or if you need additional copies of this joint proxy statement/prospectus or the enclosed proxy card or voting instruction card, you should contact:

Morrow & Co., LLC

470 West Avenue

Stamford, Connecticut 06902

Banks and brokers call (203) 658-9400

Unitholders call toll-free (800) 607-0088

Email: magellaninfo@morrowco.com

 

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SUMMARY

This brief summary highlights selected information from this joint proxy statement/prospectus. It does not contain all of the information that may be important to you. To understand the simplification fully and for a complete description of the terms of the simplification and related matters, you should read carefully this joint proxy statement/prospectus, the documents incorporated by reference and the full text of the annexes to this joint proxy statement/prospectus. Please read “Where You Can Find More Information” beginning on page 151.

The Proposed Simplification (page 85)

Pursuant to the simplification agreement, MMP’s existing partnership agreement will be amended and restated to provide for the transformation of the incentive distribution rights and the approximate 2% general partner interest in MMP owned, directly and indirectly, by MMP’s general partner into MMP common units and a non-economic general partner interest in MMP (the “transformation”). Once the transformation is complete, pursuant to the simplification agreement, MMP’s general partner, which is currently a wholly owned subsidiary of MGG, will distribute MMP common units it receives in the transformation through a series of steps to MGG (the “distributions”). Once the transformation and distributions are complete, MGG, MMP, their respective general partners and the sole member of MGG’s general partner will enter into a contribution and assumption agreement pursuant to which (i) MGG will contribute 100% of the limited liability company interests in the sole member of its general partner to MMP’s general partner; (ii) MGG will contribute 100% of the limited liability company interests in MMP’s general partner to MMP; (iii) MGG will contribute to MMP all of its cash and other remaining assets other than MMP common units it receives in the distributions; and (iv) MMP will assume all of the liabilities of MGG (collectively, the “contributions”).

On the day following the completion of the transformation, distributions and contributions, MMP will issue not less than 10,000 common units to certain of its non-executive key employees pursuant to MMP’s long-term incentive plan.

Two days following the completion of the transformation, distributions and contributions, pursuant to its limited partnership agreement and a plan of liquidation, MGG will dissolve and wind-up its affairs (the “liquidation”). In connection with the liquidation, MGG will distribute MMP common units it receives in the distributions to its unitholders (the “redistribution”).

The steps discussed above and the other matters contemplated by the simplification agreement are referred to in this joint proxy statement/prospectus collectively as the “simplification.” Pursuant to the simplification agreement, MGG will receive approximately 39.6 million MMP common units as a result of the transformation and distributions, and each unitholder of MGG will receive 0.6325 MMP common units per MGG common unit in the liquidation and redistribution but will receive cash in lieu of any fractional MMP common units. MMP unitholders will continue to own their existing MMP common units. Immediately following the liquidation and redistribution, MMP will be owned approximately 62.8% by its current unitholders and approximately 37.2% by former MGG unitholders. MMP’s general partner will continue to manage MMP as a wholly owned subsidiary of MMP following the simplification. MMP common units will continue to be traded on the New York Stock Exchange under the symbol “MMP” following the simplification.

The simplification agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. Please read the simplification agreement carefully and fully as it is the primary legal document that governs the simplification. For a summary of the simplification agreement, please read “The Simplification Agreement” beginning on page 89.

 

 

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Steps and Agreements Related to the Simplification (page 86)

Amended and Restated Partnership Agreement and the Transformation

Pursuant to the simplification agreement, MMP’s existing partnership agreement will be amended and restated. Under MMP’s amended and restated partnership agreement, (i) in the transformation, the incentive distribution rights and the approximate 2% general partner interest in MMP will be transformed into MMP common units and a non-economic general partner interest in MMP; (ii) MMP’s general partner’s right to acquire all limited partner interests of MMP if the general partner or its affiliates own 80% or more of MMP’s limited partner interests will be eliminated; (iii) MMP’s general partner will not have the contractual right to withdraw from MMP, and (iv) MMP’s general partner may not be removed without the unanimous vote of all unitholders. For a summary of the amended and restated partnership agreement, please read “The Amended and Restated Partnership Agreement of MMP” beginning on page 104.

The foregoing description of MMP’s amended and restated partnership agreement and the transformation contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the full text of the amended and restated partnership agreement, which is attached as Annex B to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus.

The Distributions

Following the transformation, MMP will assume all of the liabilities of the subsidiary of MMP’s general partner that currently owns all of the incentive distribution rights and will also assume all of the liabilities of the entity that owns all of the limited partner interests of such subsidiary. Following such assumption, MMP common units received in the transformation will be distributed by such subsidiaries to MMP’s general partner. MMP’s general partner will then distribute such MMP common units, together with MMP common units it receives in connection with the transformation of the approximate 2% general partner interest in MMP to MGG.

Contribution Agreement and the Contributions

Pursuant to the simplification agreement, MMP, MMP’s general partner, MGG, MGG’s general partner and the sole member of MGG’s general partner will enter into a contribution and assumption agreement (the “contribution agreement”) whereby, immediately following the transformation and the distributions, (i) MGG will contribute 100% of the limited liability company interests in the sole member of its general partner to MMP’s general partner; (ii) MGG will contribute 100% of the limited liability company interests in MMP’s general partner to MMP; (iii) MGG will contribute to MMP all of its cash and other remaining assets other than MMP common units it receives in the distributions; and (iv) MMP will assume all of the liabilities of MGG.

Also pursuant to the contribution agreement, the limited liability company agreements of the general partners of MMP and MGG and of the sole member of MGG’s general partner and the agreement of limited partnership of MGG will be amended or amended and restated in order to facilitate and reflect the contributions. In addition, the control rights that MGG currently possesses with respect to MMP as the sole member of MMP’s general partner will be eliminated from the amended and restated limited liability company agreement of MMP’s general partner.

The foregoing description of the contribution agreement and the contributions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the full text of the form of the contribution agreement, which is attached as Annex C to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus.

 

 

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Plan of Liquidation and the Redistribution

Pursuant to the simplification agreement, MGG and its general partner, for itself and on behalf of all of the limited partners of MGG, will enter into a plan of liquidation whereby, effective two days following the transformation, distributions and contributions, MGG will dissolve and wind-up its affairs and the MMP common units it is entitled to receive in connection with the transformation and distributions will be distributed to its unitholders. Each MGG unitholder will receive 0.6325 MMP common units for each MGG common unit, together with the associated unit purchase rights under the rights agreement, in the liquidation and redistribution and cash for each fractional unit. MGG will then be terminated pursuant to the filing of a certificate of cancellation of its certificate of limited partnership with the Secretary of State of the State of Delaware.

The foregoing description of the plan of liquidation and the redistribution does not purport to be complete and is qualified in its entirety by reference to the full text of the form of the plan of liquidation, which is attached as Annex D to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus.

Directors and Executive Officers of MMP’s General Partner Following the Simplification (page 139)

MMP’s general partner will continue to manage MMP after the simplification as a wholly owned subsidiary of MMP. MMP’s general partner’s management team will continue in their current roles and will manage MMP’s general partner following the simplification. Following the effective time, the board of directors of MMP’s general partner will consist of seven or eight members. The four current members of MMP’s general partner’s board will continue as directors of MMP’s general partner’s board. Pursuant to the simplification agreement, the MGG Conflicts Committee has designated three independent members currently serving on MGG’s general partner’s board, Walter R. Arnheim, Robert G. Croyle and James C. Kempner, to serve as additional members of MMP’s general partner’s board as of the effective time. Pursuant to the simplification agreement, the MMP Conflicts Committee has the right to designate one additional independent board member prior to the mailing of this joint proxy statement/prospectus.

Recommendation of the MMP Conflicts Committee and Its Reasons for the Simplification (page 47)

The board of directors of MMP’s general partner delegated full authority to the MMP Conflicts Committee to negotiate the simplification on behalf of the board of directors of MMP’s general partner. The MMP Conflicts Committee engaged independent legal and financial advisors to assist in the negotiations.

The MMP Conflicts Committee has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby and has determined that the simplification agreement and the matters contemplated thereby are fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby.

In addition, the MMP Conflicts Committee has unanimously approved and declared the advisability of MMP’s amended and restated partnership agreement and has determined that the amended and restated partnership agreement is fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” the proposal to approve the amended and restated partnership agreement.

Further, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” any proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of either of the foregoing proposals.

 

 

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To review the background and the MMP Conflicts Committee’s reasons for the simplification in greater detail, please read “Special Factors—Background of the Simplification” beginning on page 27 and “Special Factors—Recommendation of the MMP Conflicts Committee and Its Reasons for the Simplification” beginning on page 47. To review certain risks related to the simplification, please read “Risk Factors” beginning on page 21.

Recommendation of the MGG Conflicts Committee and Its Reasons for the Simplification (page 50)

The board of directors of MGG’s general partner delegated full authority to the MGG Conflicts Committee to negotiate the simplification on behalf of the board of directors of MGG’s general partner. The MGG Conflicts Committee engaged independent legal and financial advisors to assist in the negotiations.

The MGG Conflicts Committee has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby and determined that the simplification agreement and the matters contemplated thereby are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby.

In addition, the MGG Conflicts Committee has unanimously approved and declared the advisability of the proposal to (i) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (ii) direct MMP’s general partner to implement the matters described in (i) above, and determined that such proposal is fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to (i) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (ii) direct MMP’s general partner to implement the matters described in (i) above.

In addition, the MGG Conflicts Committee has unanimously approved the contributions and determined that the contributions are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the contributions.

In addition, the MGG Conflicts Committee has unanimously approved and declared the advisability of the liquidation and determined that the liquidation is fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” the proposal to approve the liquidation.

Further, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” any proposal to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

To review the background and the MGG Conflicts Committee’s reasons for the simplification in greater detail, please read “Special Factors—Background of the Simplification” beginning on page 27 and “Special Factors—Recommendation of the MGG Conflicts Committee and Its Reasons for the Simplification” beginning on page 50. To review certain risks related to the simplification, please read “Risk Factors” beginning on page 21.

 

 

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Conditions to the Effectiveness of the Matters Contemplated by the Simplification Agreement (page 98)

Before MMP and MGG can complete the simplification, a number of conditions must be satisfied, or where permissible, waived by MMP or MGG, as appropriate. For the complete list of conditions to the completion of the simplification, please see “The Simplification Agreement—Conditions to the Effectiveness of the Matters Contemplated by the Simplification Agreement.”

The Parties to the Simplification Agreement (page 76)

Magellan Midstream Partners, L.P.

MMP is a publicly traded Delaware limited partnership principally engaged in the transportation, storage and distribution of refined petroleum products.

As of May 15, 2009, MMP’s assets consisted of:

 

   

an 8,700-mile petroleum products pipeline system, including 49 petroleum products terminals serving the mid-continent region of the United States;

 

   

seven petroleum products terminal facilities located along the United States Gulf and East Coasts, referred to as marine terminal facilities, and 27 petroleum products terminals located principally in the southeastern United States; and

 

   

an 1,100-mile ammonia pipeline system serving the mid-continent region of the United States.

The executive offices of MMP are located at One Williams Center, Tulsa, Oklahoma 74172. The telephone number is (918) 574-7000.

Magellan Midstream Holdings, L.P.

MGG is a publicly traded Delaware limited partnership that owns the general partner of MMP and possesses certain control rights with respect to MMP as the sole member of the general partner of MMP. MGG’s only cash-generating asset is its ownership interest in the general partner of MMP, which owns the following:

 

   

the general partner interest in MMP, which entitles MGG to receive approximately 2% of the cash distributed by MMP; and

 

   

through subsidiaries, 100% of the incentive distribution rights in MMP, which entitle the holders thereof to receive increasing percentages, up to a maximum of 48%, of any incremental cash distributed by MMP per limited partner unit as certain target distribution levels are reached in excess of $0.28875 per MMP unit in any quarter.

The executive offices of MGG are located at One Williams Center, Tulsa, Oklahoma 74172. The telephone number is (918) 574-7000.

Relationship of the Parties

MGG and MMP are already closely related. MGG currently owns all of the limited liability company interests of MMP’s general partner and possesses certain control rights with respect to MMP as the sole member of MMP’s general partner. MMP’s general partner currently owns an approximate 2% general partner interest in MMP and, through subsidiaries, all of MMP’s incentive distribution rights.

Distributions by MMP have increased from $0.28125 per common unit for the quarter ended June 30, 2001 (its first full quarter of operations after its initial public offering) to $0.71 per common unit for the quarter ended

 

 

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March 31, 2009; and as a result, distributions from MMP to MGG with respect to the approximate 2% general partner interest in MMP have increased from approximately $0.1 million for the quarter ended June 30, 2001 to approximately $1.4 million for the quarter ended March 31, 2009; and with respect to the incentive distribution rights, distributions have increased from zero for the quarter ended June 30, 2001 to approximately $22.1 million for the quarter ended March 31, 2009. In total, the total distributions from MGG’s investment in MMP have increased from approximately $0.1 million for the quarter ended June 30, 2001 to approximately $23.5 million for the quarter ended March 31, 2009.

Moreover, certain directors and executive officers of MGG’s general partner are also directors and executive officers of MMP’s general partner. Messrs. Don R. Wellendorf and Patrick C. Eilers serve as members of both MGG’s general partner’s board and MMP’s general partner’s board. The executive officers of MGG’s general partner are also executive officers of MMP’s general partner, and the employees of MGG’s general partner operate MMP.

Information About the Special Meetings and Voting (page 78)

MMP Special Meeting

Where and when: The MMP special meeting will take place at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma, on                      , 2009 at          a.m., local time.

What MMP unitholders are being asked to vote on: At the MMP special meeting, MMP unitholders will be asked to consider and vote on the following matters:

 

   

a proposal to approve the simplification agreement and the matters contemplated thereby;

 

   

a proposal to approve MMP’s amended and restated partnership agreement;

 

   

any proposal that may be presented to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals; and

 

   

any proposal to transact such other business as may properly come before the MMP special meeting and any adjournment or postponement thereof.

Who may vote: You may vote at the MMP special meeting if you owned MMP common units at the close of business on the record date,                     , 2009. You may cast one vote for each MMP common unit that you owned on the record date.

How to vote: Please complete and submit the enclosed proxy card as soon as possible or transmit your voting instructions by using the telephone or internet procedures described on your proxy card.

What vote is needed: The affirmative vote of the holders of at least a majority of the outstanding MMP common units (excluding units owned by MMP’s general partner and its affiliates) is required to: (1) approve the simplification agreement and the matters contemplated thereby; (2) approve MMP’s amended and restated partnership agreement; and (3) approve any proposal to adjourn the MMP special meeting, if necessary to solicit additional proxies for any of the foregoing proposals, unless a quorum is not present, in which case, the affirmative vote of the holders of at least a majority of MMP’s common units entitled to vote as of the record date present in person or represented by proxy at the MMP special meeting would be required to adjourn the MMP special meeting.

Recommendations of the MMP Conflicts Committee: The MMP Conflicts Committee unanimously recommends that you vote “FOR” the proposal to approve the simplification agreement and the matters contemplated thereby. In addition, the MMP Conflicts Committee unanimously recommends that you vote

 

 

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“FOR” the proposal to approve MMP’s amended and restated partnership agreement. Further, the MMP Conflicts Committee unanimously recommends that you vote “FOR” any proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

The approval of each of the simplification agreement and the amended and restated partnership agreement by MMP’s unitholders are conditions to completion of the simplification.

MGG Special Meeting

Where and when: The MGG special meeting will take place at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma, on                      , 2009 at          a.m., local time.

What MGG unitholders are being asked to vote on: At the MGG special meeting, MGG unitholders will be asked to consider and vote on the following matters:

 

   

a proposal to approve the simplification agreement and the matters contemplated thereby;

 

   

a proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters;

 

   

a proposal to approve the contributions;

 

   

a proposal to approve the liquidation;

 

   

any proposal that may be presented to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals; and

 

   

any proposal to transact such other business as may properly come before the MGG special meeting and any adjournment or postponement thereof.

Who may vote: You may vote at the MGG special meeting if you owned common units of MGG at the close of business on the record date,                      , 2009. You may cast one vote for each common unit of MGG that you owned on the record date.

How to vote: Please complete and submit the enclosed proxy card as soon as possible or transmit your voting instructions by using the telephone or internet procedures described on your proxy card.

What vote is needed: The affirmative vote of the holders of at least a majority of MGG’s outstanding common units entitled to vote as of the record date is required to: (1) approve the simplification agreement and the matters contemplated thereby; (2) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters; (3) approve the contributions; (4) approve the liquidation; and (5) approve any proposal to adjourn the MGG special meeting, if necessary to solicit additional proxies for any of the foregoing proposals, unless a quorum is not present, in which case, the affirmative vote of the holders of at least a majority of MGG’s common units entitled to vote as of the record date present in person or represented by proxy at the MGG special meeting would be required to adjourn the MGG special meeting.

 

 

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Recommendations of the MGG Conflicts Committee: The MGG Conflicts Committee unanimously recommends that you vote “FOR” (i) the proposal to approve the simplification agreement and the matters contemplated thereby, (ii) the proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters, (iii) the proposal to approve the contributions, (iv) the proposal to approve the liquidation and (v) any proposal to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

The approval of each of the simplification agreement, the proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters, the contributions and the liquidation are conditions to the completion of the simplification.

Risk Factors (page 21)

You should consider carefully all of the risk factors together with all of the other information included in this joint proxy statement/prospectus before deciding how to vote. Certain risks related to the simplification are described under the caption “Risk Factors” beginning on page 21 of this joint proxy statement/prospectus. Some of these risks include, but are not limited to, those described below:

 

   

the directors and executive officers of MMP’s general partner and of MGG’s general partner may have interests that differ from your interests;

 

   

at the effective time of the simplification, the market value of MMP common units to be received in the simplification could decrease and MGG unitholders cannot be sure of the market value of such MMP common units; and

 

   

no ruling has been obtained with respect to the tax consequences of the simplification.

Appraisal Rights (page 88)

Neither MGG unitholders nor MMP unitholders are entitled to exercise appraisal rights in connection with the simplification.

No Solicitation of Other Offers by MGG (page 100)

Pursuant to the simplification agreement, MGG agreed not to (a) initiate, solicit or knowingly encourage the submission of any acquisition proposal; or (b) participate in any discussions or negotiations regarding, or furnish to any person, any non-public information with respect to any acquisition proposal. Notwithstanding these restrictions, at any time prior to the approval of the simplification agreement by MGG unitholders, MGG is permitted to enter into or participate in any discussions or negotiations with any party who has made an unsolicited written acquisition proposal the MGG Conflicts Committee determines, after consultation with, and taking into account the advice of, its outside legal advisors and financial consultants, could possibly lead to a change in its recommendation. See “The Simplification Agreement—No Solicitation of Other Offers by MGG.”

 

 

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Termination of Simplification Agreement (page 101)

The simplification agreement may be terminated and the simplification may be abandoned at any time (notwithstanding the receipt of MMP unitholder and MGG unitholder approvals) prior to the consummation of the simplification under the following circumstances (among others):

 

   

by mutual written consent of MGG and MMP;

 

   

by either MGG or MMP upon written notice to the other:

 

   

if the simplification is not completed on or before September 30, 2009, unless the failure of the closing to occur by this date is due to the failure of the party seeking to terminate the simplification agreement to fulfill any material obligation under the simplification agreement or a material breach of the simplification agreement by such party;

 

   

if any regulatory authority has issued a final and nonappealable statute, rule, order, decree or regulation or taken any other action that restrains, or prohibits the consummation of the simplification; provided, that the terminating party is not in breach of its obligation to use reasonable best efforts to complete the simplification;

 

   

if MGG fails to obtain the necessary approval of its unitholders at the MGG special meeting;

 

   

if MMP fails to obtain the necessary approval of its unitholders at the MMP special meeting;

 

   

in the event that, prior to obtaining the necessary approval of MGG unitholders at the MGG special meeting, the MGG Conflicts Committee has made a change in recommendation; or

 

   

in the event that, prior to obtaining the necessary approval of MMP unitholders at the MMP special meeting, the MMP Conflicts Committee has made a change in recommendation; provided, that MMP is not entitled to exercise its right to terminate the simplification agreement pursuant to this provision for a period of 60 days following the date of the simplification agreement;

 

   

by MMP, upon written notice to MGG if:

 

   

there has been a breach of or there is any inaccuracy in any of the representations or warranties of MGG or its general partner set forth in the simplification agreement under certain circumstances;

 

   

there has been a material breach of any of the covenants or agreements of MGG or its general partner set forth in the simplification agreement under certain circumstances; or

 

   

MGG has materially breached its no-solicitation obligations under the simplification agreement; or

 

   

by MGG, upon written notice to MMP if:

 

   

there has been a breach of or there is any inaccuracy in any of the representations or warranties of MMP or its general partner set forth in the simplification agreement under certain circumstances; or

 

   

there has been a material breach of any of the covenants or agreements of MMP or its general partner set forth in the simplification agreement under certain circumstances.

 

 

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Expenses (page 103)

Under the simplification agreement, as a general matter, MMP will bear all of its own costs and expenses and will reimburse MGG for all of its reasonable expenses related to the matters contemplated by the simplification agreement, except upon the termination of the simplification agreement in the following circumstances:

 

   

MGG will be obligated to pay all of its own expenses and the reasonable expenses of MMP if the simplification agreement is terminated by:

 

   

MMP or MGG following a change in recommendation by the MGG Conflicts Committee;

 

   

MMP upon a material breach of or inaccuracy in any of the representations and warranties of MGG or its general partner as described above;

 

   

MMP upon a material breach of any of the covenants or agreements of MGG or its general partner as described above; or

 

   

MMP because MGG materially breached the non-solicitation provisions of the simplification agreement; and

 

   

MGG will be obligated to pay all of its own expenses and to reimburse MMP for any expenses of MGG previously paid by MMP if the simplification agreement is terminated upon the mutual consent of MMP and MGG in a written instrument or by MMP or MGG:

 

   

upon written notice to the other party if the effective time has not occurred on or before September 30, 2009 as described above;

 

   

if any regulatory authority has issued a final and nonappealable statute, rule, order, decree or regulation or taken any other action that restrains or prohibits the consummation of the simplification as described above;

 

   

if MGG fails to obtain the necessary approval of its unitholders at the MGG special meeting; or

 

   

if MMP fails to obtain the necessary approval of its unitholders at the MMP special meeting.

Opinion of the MMP Conflicts Committee’s Financial Advisor (page 56)

The MMP Conflicts Committee retained Tudor, Pickering, Holt & Co. Securities, Inc., or TudorPickering, to act as its financial advisor in connection with the simplification. At a meeting of the MMP Conflicts Committee held on March 3, 2009, TudorPickering rendered its opinion to the MMP Conflicts Committee that, as of March 3, 2009, and based upon and subject to the factors and assumptions set forth in the opinion, the transformation to be effected pursuant to the simplification agreement was fair from a financial point of view to the holders of the MMP common units, other than affiliates of MMP who are holders of the MGG common units.

The full text of the TudorPickering opinion, dated as of March 3, 2009, which sets forth, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by TudorPickering in rendering its opinion, is attached as Annex E to this joint proxy statement/ prospectus and is incorporated herein by reference. The summary of the TudorPickering opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion. The holders of MMP common units are urged to read the TudorPickering opinion carefully and in its entirety. TudorPickering provided financial advisory services and its opinion for the information and assistance of the MMP Conflicts Committee in connection with its consideration of the simplification. The TudorPickering opinion does not constitute a recommendation to any holder of the MMP common units as to how such holder should vote with respect to the simplification or any other matter. Pursuant to two engagement letters between the MMP Conflicts Committee and TudorPickering, MMP has agreed to pay TudorPickering’s fees for its services, a principal portion of which is contingent upon consummation of the simplification.

 

 

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Opinion of the MGG Conflicts Committee’s Financial Advisor (page 66)

In connection with the simplification, the MGG Conflicts Committee retained Lazard Frères & Co. LLC, or Lazard, as its financial advisor. On March 3, 2009, Lazard rendered its opinion to the MGG Conflicts Committee, that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations set forth therein, the Consideration (as defined in such opinion) to be paid to the holders of MGG common units (other than MMP, MMP’s general partner, MGG’s general partner or their respective affiliates) in the simplification was fair, from a financial point of view, to such holders. Consideration, for the purposes of the Lazard opinion, means the 0.6325 MMP common units for each MGG common unit that holders of MGG common units will receive as a result of the simplification.

The full text of Lazard’s written opinion, dated March 3, 2009, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Lazard in connection with its opinion is attached to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. We encourage you to read Lazard’s opinion, which is attached as Annex F to this joint proxy statement/prospectus, carefully and in its entirety. Lazard’s opinion was directed to the MGG Conflicts Committee for the information and assistance of the MGG Conflicts Committee in connection with its evaluation of the simplification and only addressed the fairness, from a financial point of view, to the holders of MGG common units of the number of MMP common units to be paid to certain holders of MGG common units in the simplification as of the date of Lazard’s opinion. Lazard’s opinion did not address any other aspect of the simplification and was not intended to and does not constitute a recommendation to any holder of MGG common units as to how such holder should vote or act with respect to the simplification or any matter relating thereto. Pursuant to the engagement letter between the MGG Conflicts Committee and Lazard, MGG has agreed to pay Lazard’s fees for its services, a principal portion of which is contingent upon consummation of the simplification.

Comparison of MMP Unitholder Rights and MGG Unitholder Rights (page 142)

As a result of the simplification, MGG unitholders will become holders of MMP common units. The rights of MMP’s common unitholders will be governed by MMP’s amended and restated partnership agreement and applicable Delaware law. There are certain differences between the rights of MGG unitholders and MMP unitholders pursuant to the existing partnership agreement of MGG and the amended and restated partnership agreement of MMP. These differences are described under “Comparison of MMP Unitholder Rights and MGG Unitholder Rights.”

Interests of Certain Persons in the Simplification (page 136)

In considering the recommendations of the MMP Conflicts Committee and the MGG Conflicts Committee, MMP unitholders and MGG unitholders should be aware that some of the executive officers and directors of MMP’s general partner and MGG’s general partner have interests in the simplification that may differ from, or may be in addition to, the interests of MMP unitholders or of MGG unitholders generally. These interests include:

 

   

Projections Made by Executive Officers. Some members of senior management currently own MGG common units and will be receiving MMP common units as a result of the simplification. Senior management of the general partners of MMP and MGG prepared projections with respect to MMP’s future financial and operating performance on a stand-alone basis and on a combined basis. These projections were provided to TudorPickering and Lazard in connection with their independent financial analyses and in the preparation of their fairness opinions. The projections were also provided to the MMP Conflicts Committee and the MGG Conflicts Committee.

 

 

11


Table of Contents
Index to Financial Statements
   

MGG Common Units. MGG common units held by the directors and executive officers of MGG’s general partner will be transformed into MMP common units at a ratio of 0.6325 MMP common units per MGG common unit. This is the same ratio as that applicable to all other holders of MGG common units.

 

   

Deferred Phantom Units. Each outstanding MGG deferred phantom unit, which is held by certain directors of MGG’s general partner will be transformed into an MMP deferred phantom unit at a ratio of 0.6325 MMP deferred phantom units per MGG deferred phantom unit.

 

   

Indemnification and Insurance. The simplification agreement provides for indemnification by MMP of each person who was, as of the date of the simplification agreement, or is at any time from the date of the simplification agreement through the effective date an “Indemnitee” under the existing MGG partnership agreement as if MMP were the original obligor thereunder and for the maintenance of directors’ and officers’ liability insurance covering directors and executive officers of MGG’s general partner for a period of six years following the dissolution of MGG.

 

   

Director and Executive Officer Interlock. Certain of MGG’s general partner’s directors and all of MGG’s general partner’s executive officers are currently directors and executive officers of MMP’s general partner, respectively, and will remain directors and executive officers of MMP’s general partner following the simplification.

Accounting Treatment of the Simplification (page 88)

The transformation, distributions and contributions will be accounted for in accordance with Statement of Financial Accounting Standards, which is referred to as “SFAS,” No. 160, Non-Controlling Interests in Consolidated Financial Statements (as amended). MGG is considered as the surviving consolidated entity for accounting purposes rather than MMP, which is the surviving consolidated entity for legal and reporting purposes. Therefore, the changes in MGG’s ownership interest will be accounted for as an equity transaction and no gain or loss will be recognized as a result of the simplification.

Material Federal Income Tax Consequences of the Simplification (page 115)

Tax matters associated with the simplification are complicated. The tax consequences to an MGG unitholder of the simplification and related matters will depend on such unitholder’s own personal tax situation. MGG unitholders are urged to consult their tax advisors for a full understanding of the personal, federal, state, local and foreign tax consequences of the simplification that will be applicable to them.

MMP expects to receive an opinion from Vinson & Elkins L.L.P. to the effect that no gain or loss should be recognized by MMP unitholders as a result of the simplification (other than gain resulting from any difference in MMP liabilities pursuant to Section 752 of the Internal Revenue Code). MGG expects to receive an opinion from Akin Gump Strauss Hauer & Feld LLP to the effect that no gain or loss should be recognized by the holders of MGG common units to the extent MMP common units are received by such holders as a result of the simplification except for (i) any gain resulting from the sale of MMP common units in lieu of distributing fractional MMP common units, or (ii) income and gain, if any, resulting from the assumption or payment of liabilities of MGG or its subsidiaries by MMP. Opinions of counsel, however, are not binding on the IRS, and no assurance can be given that the IRS would not successfully assert a contrary position regarding the transformation and the opinions of counsel.

The federal income tax consequences described above may not apply to some holders of MMP common units and MGG common units. Please read “Risk Factors—Tax Risks Related to the Simplification,” “Risk Factors—Tax Risks to the Holders of MGG Common Units” and “Risk Factors—Tax Risks to Existing MMP Unitholders” beginning on page 25 and “Material Federal Income Tax Consequences of the Simplification” beginning on page 115 for a more complete discussion of the federal income tax consequences of the simplification.

 

 

12


Table of Contents
Index to Financial Statements

Recent Developments

Acquisition Proposal

After the date of the simplification agreement, the MGG Conflicts Committee received a written acquisition proposal from a publicly traded master limited partnership offering to purchase all the outstanding common units of both MGG and MMP. After discussion with its financial and legal advisors, the MMP Conflicts Committee determined that it was not interested in pursuing such acquisition proposal on behalf of MMP. After discussion with its financial and legal advisors and the financial advisor to such publicly traded master limited partnership, the MGG Conflicts Committee determined that the proposed acquisition could not go forward without the participation of the MMP Conflicts Committee on behalf of MMP. Please read “Special Factors—Background of the Simplification” beginning on page 27 for a more complete discussion of recent developments.

Updated 2009 Guidance

On May 6, 2009, MMP announced its earnings for the first quarter of 2009. As part of the earnings announcement, MMP’s senior management provided an update as to MMP’s projected 2009 distributable cash flow. The projections originally provided by MMP’s and MGG’s senior management to the MMP Conflicts Committee and the MGG Conflicts Committee included a projected 2009 distributable cash flow amount of $306.4 million, as discussed under “Special Factors—Financial Projections Provided to Financial Advisors.” As of May 6, 2009, MMP’s management projected MMP’s 2009 distributable cash flow to be approximately $330.0 million. The projected increase primarily relates to higher projected petroleum prices for the year, which are expected to benefit MMP’s commodity-related activities. Please see “Special Factors—Financial Projections Provided to Financial Advisors.”

MGG Loan Agreement

On May 18, 2009, MGG entered into a $3.5 million one-year revolving loan facility with Bank of Oklahoma, National Association. This MGG loan facility will be used to finance MGG’s general working capital needs and is guaranteed by certain of MGG’s subsidiaries, including MMP’s general partner. The MGG loan facility has a maturity date of May 17, 2010; however, the loan facility will terminate and all balances outstanding thereunder will become due and payable upon completion of the simplification. As of May 21, 2009, there are no amounts outstanding under the loan facility.

Ownership Structure

The diagrams on the following page depict MMP’s and MGG’s ownership structure before and after giving effect to the simplification, with both MMP common units and MGG common units being presented on a fully diluted basis.

 

 

13


Table of Contents
Index to Financial Statements

Current Ownership Structure

LOGO

Ownership Structure Following the Simplification

LOGO

 

 

14


Table of Contents
Index to Financial Statements

Summary Historical and Unaudited Pro Forma Financial Information of MGG

MGG will be treated as the surviving consolidated entity of the simplification for accounting purposes, even though only MMP will be the surviving consolidated entity for legal and reporting purposes. The following table sets forth summary consolidated historical financial data and pro forma combined financial data for MGG. The summary historical financial data as of and for the years ended December 31, 2004 through 2008 is derived from MGG’s historical audited consolidated financial statements and related notes. The summary historical financial data as of and for the three months ended March 31, 2009 is derived from MGG’s historical unaudited consolidated financial statements and related notes. We have retrospectively applied the provisions of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, to the applicable amounts for all periods presented in the following table. The summary financial data should be read in conjunction with MGG’s consolidated financial statements, including the notes thereto. MGG’s consolidated balance sheets as of December 31, 2007 and 2008 and as of March 31, 2009 and the related consolidated statements of income, owners’ equity and cash flows for each of the three years in the period ended December 31, 2008 and for the three months ended March 31, 2009 are incorporated by reference into this joint proxy statement/prospectus.

Currently, MMP, a publicly traded limited partnership, is a consolidated subsidiary of MGG, also a publicly traded limited partnership. If the simplification as described in this joint proxy statement/prospectus is approved by the unitholders of both MGG and MMP and all other conditions set forth in the simplification agreement are met, the general partners of MMP and of MGG will legally become wholly owned subsidiaries of MMP, and MGG will dissolve, wind-up its affairs and be terminated. For accounting purposes, MGG is considered the accounting acquirer of MMP’s non-controlling interest.

The unaudited pro forma consolidated financial data provided below gives pro forma effect to the simplification, resulting in MMP’s distribution of 0.6325 MMP common units for each outstanding common unit of MGG following the transformation of the incentive distribution rights and approximate 2% general partner interest in MMP into MMP common units. The unaudited pro forma balance sheet data assumes the simplification occurred as of March 31, 2009. The unaudited pro forma income statement data for the year ended December 31, 2008 and for the three months ended March 31, 2009 assumes the simplification occurred as of January 1, 2008 and January 1, 2009, respectively.

 

    MGG Consolidated Historical     Pro Forma  
    Year Ended December 31,     Three
Months
Ended
March 31,

2009
    Year Ended
December 31,

2008
    Three
Months
Ended
March 31,

2009
 
    2004     2005     2006     2007     2008        
                                  (unaudited)  
    (in thousands, except per unit amounts)  

Income Statement Data:

               

Transportation and terminals revenues

  $ 419,772     $ 501,324     $ 559,321     $ 608,781     $ 638,810     $ 155,020     $ 638,810     $ 155,020  

Product sales revenues

    275,769       636,209       664,569       709,564       574,095       57,716       574,095       57,716  

Affiliate management fee revenues

    488       667       690       712       733       190       733       190  
                                                               

Total revenues

    696,029       1,138,200       1,224,580       1,319,057       1,213,638       212,926       1,213,638       212,926  

Operating expenses

    180,422       229,720       243,860       250,935       264,871       60,467       264,871       60,467  

Product purchases

    255,599       582,631       605,341       633,909       436,567       52,630       436,567       52,630  

Gain on assignment of supply agreement

    —         —         —         —         (26,492 )     —         (26,492 )     —    

Equity earnings

    (1,602 )     (3,104 )     (3,324 )     (4,027 )     (4,067 )     (519 )     (4,067 )     (519 )
                                                               

Operating margin

    261,610       328,953       378,703       438,240       542,759       100,348       542,759       100,348  

Depreciation and amortization expense

    57,196       71,655       76,200       79,140       86,501       23,152       86,501       23,152  

General and administrative expense

    54,240       61,506       69,503       74,859       73,302       21,136       72,302       20,886  
                                                               

Operating profit

    150,174       195,792       233,000       284,241       382,956       56,060       383,956       56,310  

Interest expense, net

    36,734       52,273       47,624       47,653       50,479       14,395       51,379       14,620  

Write-off of unamortized debt placement fees

    9,820       6,413       —         —         —         —         —         —    

Debt placement fee amortization

    2,568       2,247       1,925       1,554       767       220       767       220  

Debt prepayment premium

    12,666       —         —         1,984       —         —         —         —    

Other (income) expense, net

    (949 )     (1,312 )     653       728       (380 )     (82 )     (380 )     (82 )
                                                               

Income before provision for income taxes

    89,335       136,171       182,798       232,322       332,090       41,527       332,190       41,552  

Provision for income taxes (a)

    —         —         —         1,568       1,987       357       1,987       357  
                                                               

Net income

  $ 89,335     $ 136,171     $ 182,798     $ 230,754     $ 330,103     $ 41,170     $ 330,203     $ 41,195  
                                                               

Basic and diluted net income per limited partner unit

    n/a       n/a     $ 0.53     $ 0.98     $ 1.40     $ 0.19     $ 3.10     $ 0.39  
                                                               

 

 

15


Table of Contents
Index to Financial Statements
    MGG Consolidated Historical     Pro Forma  
    Year Ended December 31,     Three
Months
Ended
March 31,

2009
    Year Ended
December 31,

2008
  Three
Months
Ended
March 31,

2009
 
    2004   2005   2006     2007     2008        
                              (unaudited)  
    (in thousands, except per unit amounts)  

Balance Sheet Data:

               

Working capital (deficit) (b)

  $ 73,140   $ 13,783   $ (310,087 )   $ (15,609 )   $ (29,644 )   $ (39,921 )     —     $ (39,921 )

Total assets

    2,282,704     2,264,995     2,316,508       2,416,931       2,600,708       2,611,601       —       2,611,601  

Long-term debt (b)

    1,062,470     787,194     518,609       914,536       1,083,485       1,125,089       —       1,131,751  

Owners’ equity

  $ 953,037   $ 1,180,352   $ 1,165,775     $ 1,184,566     $ 1,254,132     $ 1,220,998       —     $ 1,214,336  

Cash Distribution Data:

               

Cash distribution declared per unit (c)

  $ —     $ —     $ 0.91     $ 1.13     $ 1.37     $ 0.36     $ 2.55   $ 0.66  

Cash distribution paid per unit (c)

  $ —     $ —     $ 0.66     $ 1.07     $ 1.32     $ 0.36     $ 2.48   $ 0.66  

Other Data:

               

Operating margin (loss):

               

Petroleum product pipeline system

  $ 195,092   $ 250,623   $ 285,743     $ 352,715     $ 426,495     $ 74,507     $ 426,495   $ 74,507  

Petroleum products terminals

    56,179     67,237     86,823       85,488       104,121       24,764       104,121     24,764  

Ammonia pipeline system

    7,310     7,687     2,554       (2,995 )     8,660       116       8,660     116  

Allocated partnership depreciation costs (d)

    3,029     3,406     3,583       3,032       3,483       961       3,483     961  
                                                         

Operating margin (e)

  $ 261,610   $ 328,953   $ 378,703     $ 438,240     $ 542,759     $ 100,348     $ 542,759   $ 100,348  
                                                         

Adjusted EBITDA:

               

Net income

  $ 89,335   $ 136,171   $ 182,798     $ 230,754     $ 330,103     $ 41,170     $ 330,203   $ 41,195  

Provision for income taxes

    —       —       —         1,568       1,987       357       1,987     357  

Debt prepayment premium

    12,666     —       —         1,984       —         —         —       —    

Write-off of unamortized debt placement fees

    9,820     6,413     —         —         —         —         —       —    

Debt placement fee amortization

    2,568     2,247     1,925       1,554       767       220       767     220  

Interest expense, net

    36,734     52,273     47,624       47,653       50,479       14,395       51,379     14,620  

Depreciation and amortization expense

    57,196     71,655     76,200       79,140       86,501       23,152       86,501     23,152  
                                                         

Adjusted EBITDA (f)

  $ 208,319   $ 268,759   $ 308,547     $ 362,653     $ 469,837     $ 79,294     $ 470,837   $ 79,544  
                                                         

 

(a) Beginning in 2007, the State of Texas implemented a partnership-level tax based on a percentage of MMP’s net revenues apportioned to the State of Texas. MGG reported MMP’s estimate of this tax as provision for income taxes on its consolidated statements of income.

 

(b) The maturity date of certain of MMP’s notes was October 7, 2007. As a result, the $270.8 million carrying value of these notes was classified as a current liability on MGG’s December 31, 2006 consolidated balance sheet. This debt was refinanced before its maturity.

 

(c) Cash distributions declared represent distributions declared associated with each calendar year. Distributions were declared and paid within 45 days following the close of each quarter. Cash distributions paid represent cash payments for distributions during each of the periods presented. Cash distributions declared/paid reflect the distribution decisions made by the boards of directors of the general partners of MMP and MGG at their respective quarterly board meetings. As such, these pro forma calculations are not necessarily indicative of the distribution decision that MMP’s board of directors would have made had the simplification been completed at January 1, 2008 or January 1, 2009. For comparison to MGG per unit data, the pro forma calculations should be multiplied by the 0.6325 transformation ratio.

 

(d) Certain assets contributed to MMP were recorded as property, plant and equipment at the partnership level. The associated depreciation expense was allocated to MMP’s various business segments, which in turn recognized these allocated costs as operating expense, reducing segment operating margins by these amounts.

 

(e) The non-GAAP measure of operating margin (in the aggregate and by segment) is presented. MMP and MGG compute the components of operating margin by using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is its nearest comparable GAAP financial measure, is included above. See Note 15—Segment Disclosures in the audited consolidated financial statements of MGG for the year ended December 31, 2008 and Note 4—Segment Disclosures in the unaudited consolidated financial statements of MGG for the three months ended March 31, 2009 incorporated by reference herein for a reconciliation of segment operating margin to segment operating profit. MMP and MGG believe that investors benefit from having access to the same financial measures being utilized by management. Operating margin is an important measure of the economic performance of MMP’s core operations. This measure forms the basis of MMP’s and MGG’s internal financial reporting and is used by MMP’s management in deciding how to allocate MMP’s capital resources between segments. Operating profit, alternatively, includes expense items such as depreciation and amortization and general and administrative expense, that management does not consider when evaluating the core profitability of an operation.

 

(f) MMP and MGG define Adjusted EBITDA, which is not a GAAP measure, in the schedules in this filing as net income plus provision for income taxes, debt prepayment premium, write-off of unamortized debt placement fees, debt placement fee amortization, interest expense (net of interest income and interest capitalized) and depreciation and amortization. Adjusted EBITDA should not be considered an alternative to net income, operating profit, cash flow from operations or any other measure of financial performance presented in accordance with GAAP. Because Adjusted EBITDA excludes some items that affect net income and these items may vary among other companies, the Adjusted EBITDA data presented may not be comparable to similarly titled measures of other companies. MMP’s management uses Adjusted EBITDA as a performance measure to assess the viability of projects and to determine overall rates of return on alternative investment opportunities. A reconciliation of Adjusted EBITDA to net income, the nearest comparable GAAP measure, is included above.

 

 

16


Table of Contents
Index to Financial Statements

Summary Historical Financial Information of MMP

The following table sets forth summary consolidated historical financial information for MMP. The summary historical financial data as of and for the years ended December 31, 2004 through 2008 is derived from MMP’s historical audited consolidated financial statements and related notes. The summary historical financial data as of and for the three months ended March 31, 2009 is derived from MMP’s historical unaudited consolidated financial statements and related notes. We have retrospectively applied the provisions of EITF No. 07-4, Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships, to the basic and diluted net income per limited partner unit amounts for all periods presented in the table below. This summary financial data should be read in conjunction with MMP’s consolidated historical financial statements, including the notes thereto. MMP’s consolidated balance sheets as of December 31, 2007 and 2008 and as of March 31, 2009 and the related consolidated statements of income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2008 and the three months ended March 31, 2009 are incorporated by reference into this joint proxy statement/prospectus.

 

    MMP Consolidated Historical  
    Year Ended December 31,     Three Months
Ended
March 31,
2009
 
    2004     2005     2006     2007     2008    
                                  (unaudited)  
    (in thousands, except per unit amounts)  

Income Statement Data:

           

Transportation and terminals revenues

  $ 419,117     $ 500,196     $ 558,301     $ 607,845     $ 637,958     $ 154,888  

Product sales revenues

    275,769       636,209       664,569       709,564       574,095       57,716  

Affiliate management fee revenues

    488       667       690       712       733       190  
                                               

Total revenues

    695,374       1,137,072       1,223,560       1,318,121       1,212,786       212,794  

Operating expenses

    179,657       229,795       244,526       251,601       265,728       60,727  

Product purchases

    255,599       582,631       605,341       633,909       436,567       52,630  

Gain on assignment of supply agreement

    —         —         —         —         (26,492 )     —    

Equity earnings

    (1,602 )     (3,104 )     (3,324 )     (4,027 )     (4,067 )     (519 )
                                               

Operating margin

    261,720       327,750       377,017       436,638       541,050       99,956  

Depreciation and amortization expense

    41,845       56,307       60,852       63,792       71,153       19,315  

Affiliate general and administrative expense

    54,466       61,131       67,112       72,587       70,435       20,525  
                                               

Operating profit

    165,409       210,312       249,053       300,259       399,462       60,116  

Interest expense, net

    35,435       48,258       53,010       51,045       50,470       14,390  

Debt prepayment premium

    12,666       —         —         1,984       —         —    

Write-off of unamortized debt placement fees

    5,002       —         —         —         —         —    

Debt placement fee amortization

    3,056       2,871       2,681       2,144       767       220  

Other (income) expense, net

    (953 )     (300 )     634       728       (375 )     (82 )
                                               

Income before provision for income taxes

    110,203       159,483       192,728       244,358       348,600       45,588  

Provision for income taxes (a)

    —         —         —         1,568       1,987       357  
                                               

Net income

  $ 110,203     $ 159,483     $ 192,728     $ 242,790     $ 346,613     $ 45,231  
                                               

Basic net income per limited partner unit

  $ 1.70     $ 2.01     $ 2.21     $ 2.69     $ 3.77     $ 0.34  
                                               

Diluted net income per limited partner unit

  $ 1.70     $ 2.01     $ 2.21     $ 2.69     $ 3.76     $ 0.34  
                                               

Balance Sheet Data:

           

Working capital (deficit) (b)

  $ 71,737     $ (206 )   $ (341,371 )   $ (15,563 )   $ (29,675 )   $ (37,562 )

Total assets

    1,817,832       1,876,518       1,952,649       2,101,194       2,296,115       2,317,244  

Long-term debt (b)

    789,568       782,639       518,609       914,536       1,083,485       1,125,089  

Partners’ capital

    789,109       807,990       806,482       871,164       955,442       928,630  

Cash Distribution Data:

           

Cash distribution declared per unit (c)

  $ 1.76     $ 2.06     $ 2.34     $ 2.55     $ 2.77     $ 0.71  

Cash distribution paid per unit (c)

  $ 1.72     $ 1.97     $ 2.29     $ 2.49     $ 2.72     $ 0.71  

Other Data:

           

Operating margin (loss):

           

Petroleum products pipeline system

  $ 195,024     $ 249,435     $ 284,190     $ 351,246     $ 424,957     $ 74,167  

Petroleum products terminals

    56,339       67,224       86,703       85,368       103,967       24,717  

Ammonia pipeline system

    7,328       7,685       2,541       (3,008 )     8,643       111  

Allocated partnership depreciation costs (d)

    3,029       3,406       3,583       3,032       3,483       961  
                                               

Operating margin (e)

  $ 261,720     $ 327,750     $ 377,017     $ 436,638     $ 541,050     $ 99,956  
                                               

 

 

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    MMP Consolidated Historical
    Year Ended December 31,   Three Months
Ended
March 31,
2009
    2004   2005   2006   2007   2008  
                        (unaudited)
    (in thousands, except per unit amounts)

Adjusted EBITDA:

           

Net income

  $ 110,203   $ 159,483   $ 192,728   $ 242,790   $ 346,613   $ 45,231

Provision for income taxes (a)

    —       —       —       1,568     1,987     357

Debt prepayment premium

    12,666     —       —       1,984     —       —  

Write-off of unamortized debt placement fees

    5,002     —       —       —       —       —  

Debt placement fee amortization

    3,056     2,871     2,681     2,144     767     220

Interest expense, net

    35,435     48,258     53,010     51,045     50,470     14,390

Depreciation and amortization expense

    41,845     56,307     60,852     63,792     71,153     19,315
                                   

Adjusted EBITDA (f)

  $ 208,207   $ 266,919   $ 309,271   $ 363,323   $ 470,990   $ 79,513
                                   

 

(a) Beginning in 2007, the State of Texas implemented a partnership-level tax based on a percentage of MMP’s net revenues apportioned to the State of Texas. MMP reported its estimate of this tax as provision for income taxes on its consolidated statements of income.

 

(b) The maturity date of certain of MMP’s notes was October 7, 2007. As a result, the $270.8 million carrying value of these notes was classified as a current liability on MMP’s December 31, 2006 consolidated balance sheet. This debt was refinanced before its maturity.

 

(c) Cash distributions declared represent distributions declared associated with each calendar year. Distributions were declared and paid within 45 days following the close of each quarter. Cash distributions paid represent cash payments for distributions during each of the periods presented.

 

(d) Certain assets contributed to MMP were recorded as property, plant and equipment at the partnership level. The associated depreciation expense was allocated to its various business segments, which in turn recognized these allocated costs as operating expense, reducing segment operating margins by these amounts.

 

(e) The non-GAAP measure of operating margin (in the aggregate and by segment) is presented. MMP computes the components of operating margin by using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is its nearest comparable GAAP financial measure, is included above. See Note 14—Segment Disclosures in the audited consolidated financial statements of MMP for the year ended December 31, 2008 and Note 4—Segment Disclosures in the unaudited consolidated financial statements of MMP for the three months ended March 31, 2009 incorporated by reference herein for a reconciliation of segment operating margin to segment operating profit. MMP believes that investors benefit from having access to the same financial measures being utilized by management. Operating margin is an important measure of the economic performance of MMP’s core operations. This measure forms the basis of MMP’s internal financial reporting and is used by MMP’s management in deciding how to allocate MMP’s capital resources between segments. Operating profit, alternatively, includes expense items such as depreciation and amortization and general and administrative expense, that management does not consider when evaluating the core profitability of an operation.

 

(f) MMP defines Adjusted EBITDA, which is not a GAAP measure, in the schedules in this filing as net income plus provision for income taxes, debt prepayment premium, write-off of unamortized debt placement fees, debt placement fee amortization, interest expense (net of interest income and interest capitalized) and depreciation and amortization. Adjusted EBITDA should not be considered an alternative to net income, operating profit, cash flow from operations or any other measure of financial performance presented in accordance with GAAP. Because Adjusted EBITDA excludes some items that affect net income and these items may vary among other companies, the Adjusted EBITDA data presented may not be comparable to similarly titled measures of other companies. MMP’s management uses Adjusted EBITDA as a performance measure to assess the viability of projects and to determine overall rates of return on alternative investment opportunities. A reconciliation of Adjusted EBITDA to net income, the nearest comparable GAAP measure, is included above.

 

 

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UNAUDITED COMPARATIVE PER UNIT INFORMATION

The following table sets forth certain historical per unit information of MMP and MGG and the unaudited pro forma combined per unit information after giving pro forma effect to the simplification, resulting in MMP’s distribution of 0.6325 MMP common units for each outstanding common unit of MGG following the transformation of the incentive distribution rights and approximate 2% general partner interest in MMP into MMP common units.

You should read this information in conjunction with the summary historical financial information included elsewhere in this joint proxy statement/prospectus and the historical consolidated financial statements of MGG and MMP and related notes that are incorporated by reference in this joint proxy statement/prospectus and in conjunction with the Unaudited Pro Forma Consolidated Financial Statements and related notes included elsewhere in this joint proxy statement/prospectus. The unaudited pro forma combined per unit information does not purport to represent what the actual results of operations of MGG and MMP would have been had the partnerships been combined or to project MGG’s and MMP’s results of operations that may be achieved after the simplification is completed.

 

      Historical    Pro forma
     Year Ended
December 31, 2008
   Three Months
Ended
March 31, 2009
   Year Ended
December 31, 2008
   Three Months
Ended

March 31, 2009

Per Unit Data

   MMP    MGG    MMP    MGG    MMP (e)    MGG (f)    MMP (e)    MGG (f)

Net Income:

                       

Basic (a)

   $ 3.77    $ 1.40    $ 0.34    $ 0.19    $ 3.10    $ 1.96    $ 0.39    $ 0.25

Diluted (b)

   $ 3.76    $ 1.40    $ 0.34    $ 0.19    $ 3.10    $ 1.96    $ 0.39    $ 0.25

Cash Distributions:

                       

Declared Per Unit (c)

   $ 2.77    $ 1.37    $ 0.71    $ 0.36    $ 2.55    $ 1.61    $ 0.66    $ 0.42

Paid Per Unit (c)

   $ 2.72    $ 1.32    $ 0.71    $ 0.36    $ 2.48    $ 1.57    $ 0.66    $ 0.42

Book Value (d)

   $ 14.32    $ 20.02    $ 13.87    $ 19.49      —        —      $ 11.39    $ 7.20

 

(a) For MMP and MGG, the amounts are based on the weighted-average number of common units outstanding for the period. The pro forma amounts are based on information provided in “Unaudited Pro Forma Consolidated Financial Statements” included elsewhere in this joint proxy statement/prospectus.

 

(b) For MMP, the amount is based on the weighted-average number of limited partner units outstanding plus the potential dilution that would occur associated with certain awards granted under MMP’s long-term incentive plan. MGG had no dilutive units at December 31, 2008 or March 31, 2009. The pro forma combined amount is based on information provided in “Unaudited Pro Forma Consolidated Financial Statements” included elsewhere in this joint proxy statement/prospectus.

 

(c) The pro forma cash distribution declared/paid amounts are based on the weighted-average cash distributions declared/paid for MMP and MGG for each quarterly period and give effect to the additional MMP units outstanding as a result of the simplification. Cash distributions declared/paid reflect the distribution decisions made by the boards of directors of the general partners of MMP and MGG at their respective quarterly board meetings. As such, these pro forma calculations are not necessarily indicative of the distribution decisions that MMP’s board of directors would have made had the simplification been completed at January 1, 2008 for the period ended December 31, 2008 or January 1, 2009 for the three months ended March 31, 2009.

 

(d) For MMP and MGG, these amounts are computed by dividing partners’ capital for each entity by their respective limited partner units outstanding as of December 31, 2008 and as of March 31, 2009, as applicable. The pro forma combined amounts are computed by dividing the pro forma partners’ capital as of December 31, 2008 and March 31, 2009, as applicable by the number of limited partner units outstanding at December 31, 2008 and March 31, 2009, as applicable, adjusted to include the estimated number of MMP limited partner units to be outstanding as a result of the simplification. Pro forma data is not presented for December 31, 2008 because a pro forma balance sheet for that date is not included in this filing.

 

(e) The amounts represent the pro forma combined results of the simplification. For MMP comparisons, no adjustments are necessary to these calculations.

 

(f) For a comparison to MGG per unit data, pro forma amounts have been adjusted to reflect that MGG unitholders will receive 0.6325 MMP common units for each MGG common unit as a result of the simplification.

 

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MARKET PRICES AND DISTRIBUTION INFORMATION

MMP common units are traded on the New York Stock Exchange under the symbol “MMP,” and MGG’s common units are traded on the New York Stock Exchange under the symbol “MGG.” The following table sets forth, for the periods indicated, the range of high and low sales prices per unit for MMP common units and MGG common units, as well as information concerning quarterly cash distributions for MMP common units and MGG common units. The sales prices are as reported in published financial sources.

 

     MMP Common Units     MGG Common Units  
     High    Low    Distributions (1)     High    Low    Distributions (1)  

2007

                

First Quarter

   $ 47.94    $ 37.80    $ 0.61625     $ 27.00    $ 22.37    $ 0.2615  

Second Quarter

     53.39      43.21      0.63000       30.57      26.26      0.2760  

Third Quarter

     48.00      38.50      0.64375       31.00      25.61      0.2900  

Fourth Quarter

     43.99      39.51      0.65750       27.01      24.38      0.3070  

2008

                

First Quarter

   $ 45.00    $ 38.34    $ 0.67250     $ 26.96    $ 21.11    $ 0.3225  

Second Quarter

     43.61      35.47      0.68750       25.74      22.01      0.3375  

Third Quarter

     38.06      29.51      0.70250       23.14      16.00      0.3540  

Fourth Quarter

     37.32      18.85      0.71000       20.20      11.28      0.3590  

2009

                

First Quarter

   $ 36.00    $ 25.36    $ 0.71000     $ 19.19    $ 14.00    $ 0.3590  

Second Quarter (through May 20, 2009)

     35.66      28.93      n/a (2)     21.21      17.11      n/a (2)

 

(1) Represent cash distributions per MMP common unit or MGG common unit declared with respect to the quarter and paid in the following quarter.

 

(2) Cash distributions for MMP common units or MGG common units for the second quarter of 2009 have not been declared or paid.

As of May 15, 2009, MMP had 66,953,879 outstanding MMP common units. As of February 20, 2009, MMP common units were beneficially held by approximately 58,200 holders. MMP’s partnership agreement requires MMP to distribute all of its “available cash,” as defined in MMP’s partnership agreement, within 45 days after the end of each quarter. The payment of quarterly cash distributions by MMP following the simplification, therefore, will depend on the amount of “available cash” on hand at the end of each quarter.

As of May 15, 2009, MGG had 62,646,551 outstanding common units. As of February 20, 2009, MGG common units were beneficially held by approximately 18,100 holders. MGG’s partnership agreement requires MGG to distribute all of its “available cash,” as defined in MGG’s partnership agreement, within 50 days after the end of each quarter.

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including, without limitation, the risk factors and other information contained in MMP’s Annual Report on Form 10-K for the year ended December 31, 2008, and the risk factors and other information contained in MGG’s Annual Report on Form 10-K for the year ended December 31, 2008, you should carefully consider the following risk factors in deciding whether to vote to approve the simplification agreement and the matters contemplated thereby, MMP’s amended and restated partnership agreement, the proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters, the contributions and the liquidation, as applicable. This joint proxy statement/prospectus also contains forward-looking statements that involve risks and uncertainties. Please read “Forward-Looking Statements” on page 75.

Risks Related to the Simplification and Related Matters

The market value of the consideration to MGG unitholders will be determined by the price of MMP common units, the value of which will decrease if the market value of MMP common units decreases, and MGG unitholders cannot be sure of the market value of MMP common units that will be issued.

Pursuant to the simplification agreement, MGG will receive approximately 39.6 million MMP common units as a result of the transformation, contributions and distributions. The aggregate market value of MMP common units that MGG unitholders will receive in the liquidation and redistribution will fluctuate with any changes in the trading price of MMP common units. This means there is no “price protection” mechanism contained in the simplification agreement that would adjust the number of MMP common units that MGG unitholders will receive based on any decreases in the trading price of MMP common units. If MMP common unit price decreases, the market value of the consideration received by MGG unitholders will also decrease. Consider the following example:

Example: Pursuant to the simplification agreement, MGG unitholders will receive 0.6325 MMP common units per MGG common unit, subject to receipt of cash in lieu of any fractional MMP common units. Based on the closing sales price of MMP common units on March 3, 2009 of $28.37 per unit, the market value of the total MMP common units in the aggregate to be received by MGG unitholders would be approximately $1.1 billion. If the trading price for MMP common units decreased 10% from $28.37 to $25.53, then the market value of the total MMP common units in the aggregate to be received by MGG unitholders would be approximately $1.0 billion.

Accordingly, there is a risk that the 25% premium estimated by the MGG Conflicts Committee to exist at the date the simplification agreement was executed will not be realized by MGG unitholders at the time the simplification is completed. MMP common unit price changes may result from a variety of factors, including general market and economic conditions, changes in its business, operations and prospects, and regulatory considerations. Many of these factors are beyond MMP’s control. For historical prices of MGG common units and MMP common units, please read “Market Prices and Distribution Information.”

The directors and executive officers of MGG’s general partner and MMP’s general partner may have interests that differ from your interests.

Certain directors and executive officers of MGG’s general partner are also directors and executive officers of MMP’s general partner. Messrs. Wellendorf and Eilers serve as members of both the board of MGG’s general partner and the board of MMP’s general partner. Mr. Wellendorf is the President and Chief Executive Officer of both MGG’s general partner and MMP’s general partner. Lonny E. Townsend is the Senior Vice President, General Counsel, Secretary and Compliance and Ethics Officer of MGG’s general partner. Mr. Townsend is also

 

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the Senior Vice President, General Counsel, Assistant Secretary and Compliance and Ethics Officer of MMP’s general partner. John D. Chandler is the Senior Vice President and Chief Financial Officer and Treasurer of both MGG’s general partner and MMP’s general partner.

In considering the recommendation of the MMP Conflicts Committee or the MGG Conflicts Committee, as applicable, to approve the simplification agreement and the matters contemplated thereby, you should consider that the executive officers and directors of MGG’s general partner and MMP’s general partner have interests that differ from, or are in addition to, their interests as MGG unitholders or MMP unitholders generally. These interests include:

 

   

Some members of senior management currently own MGG common units and will be receiving MMP common units as a result of the simplification. Senior management of the general partners of MMP and MGG prepared projections with respect to MMP’s future financial and operating performance on a stand-alone basis and on a combined basis. These projections were provided to TudorPickering and Lazard in connection with their independent financial analyses and in the preparation of their fairness opinions.

 

   

Certain members of MGG’s general partner’s board being members of MMP’s general partner’s board and certain officers of MGG’s general partner being officers of MMP’s general partner;

 

   

All of the MGG deferred phantom common units held by certain members of MGG’s general partner’s board will be transformed into MMP deferred phantom common units;

 

   

The simplification agreement provides for indemnification by MMP of each person who was, as of the date of the simplification agreement, or is at any time from the date of the simplification agreement through the effective date an “Indemnitee” under the existing MGG partnership agreement as if MMP were the original obligor thereunder and for the maintenance of directors’ and officers’ liability insurance covering directors and executive officers of MGG’s general partner for a period of six years following the dissolution of MGG; and

 

   

Certain of MGG’s general partner’s directors and all of MGG’s general partner’s executive officers are currently directors and executive officers of MMP’s general partner, respectively, and will remain directors and executive officers of MMP’s general partner following the simplification.

The right of a MGG unitholder to distributions will be changed following the simplification.

Under MMP’s current partnership agreement, MGG is entitled to receive approximately 2% of all distributions made by MMP and increasing percentages, up to a maximum of 48%, of any incremental cash distributed by MMP for limited partner units as certain target distribution levels are reached in excess of $0.28875 per MMP unit in any quarter. After the simplification, the former MGG unitholders as a group will be entitled to receive approximately 37.2% of all distributions made by MMP. As a result of this change, the distributions received by the former unitholders of MGG could be significantly different. If distributions from MMP were to increase significantly, the distributions to the former MGG unitholders would be significantly less than they would be if the current structure was not changed. On the other hand, if distributions from MMP were to decrease significantly, the distributions to the former MGG unitholders would be significantly more than they would be if the current structure was not changed.

The matters contemplated by the simplification agreement may not be completed even if the requisite MGG unitholder and MMP unitholder approvals are obtained, in which case the partnership agreement of MMP will not be amended and restated as proposed.

The simplification agreement contains conditions that, if not satisfied or waived, would result in the simplification not occurring, even though MGG unitholders and MMP unitholders may have voted in favor of the simplification agreement and related matters. In addition, MGG and MMP can agree not to complete the

 

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simplification even if all unitholder approvals have been received. The closing conditions to the simplification may not be satisfied, and MGG or MMP may choose not to waive any unsatisfied condition, which may cause the simplification not to occur. If the simplification does not occur, the MMP partnership agreement will not be amended and restated as proposed in this joint proxy statement/prospectus.

While the simplification agreement is in effect, MGG’s opportunities to enter into different business combination transactions with other parties on more favorable terms may be limited, and both MGG and MMP may be limited in their ability to pursue other attractive business opportunities.

While the simplification agreement is in effect, MGG is prohibited from initiating, soliciting or knowingly encouraging the submission of any acquisition proposal or from participating in any discussions or negotiations regarding any acquisition proposal, subject to certain exceptions. As a result of these provisions in the simplification agreement, MGG’s opportunities to enter into more favorable transactions may be limited. Likewise, if MGG were to sell directly to a third party, it might have received more value with respect to the general partner interest in MMP and the incentive distribution rights in MMP based on the value of the business at such time.

Both MGG and MMP have also agreed to refrain from taking certain actions with respect to their businesses and financial affairs pending completion of the simplification or termination of the simplification agreement. These restrictions could be in effect for an extended period of time if completion of the simplification is delayed. These limitations do not preclude MMP from conducting its business in the ordinary or usual course or from acquiring assets or businesses so long as such activity does not materially affect MMP’s or MGG’s ability to complete the matters contemplated by the simplification agreement. For a detailed discussion of these restrictions, please read “The Simplification Agreement—Actions Pending Completion of the Simplification” beginning on page 91.

In addition to the economic costs associated with pursuing the simplification, MGG’s general partner’s management and MMP’s general partner’s management will continue to devote substantial time and other human resources to the proposed simplification, which could limit MGG’s and MMP’s ability to pursue other attractive business opportunities, including potential joint ventures, stand-alone projects and other transactions. If either MGG or MMP is unable to pursue such other attractive business opportunities, then its growth prospects and the long-term strategic position of its business and MMP’s business following the simplification could be adversely affected.

Existing MMP unitholders will be diluted by the simplification and will have reduced voting power.

The simplification will dilute the ownership position of the existing MMP unitholders. After the simplification, the existing MMP unitholders will have reduced voting power. Pursuant to the simplification agreement, MGG unitholders will receive approximately 39.6 million MMP common units as a result of the simplification. Immediately following the liquidation and redistribution, MMP will be owned approximately 62.8% by its current unitholders and approximately 37.2% by former MGG unitholders.

The number of outstanding MMP common units will increase as a result of the simplification, which could make it more difficult to pay the current level of quarterly distributions.

As of May 15, 2009, there were approximately 67.0 million MMP common units outstanding. MMP will issue approximately 39.6 million MMP common units in connection with the simplification. Accordingly, the dollar amount required to pay the current per unit quarterly distributions will increase, which will increase the likelihood that MMP will not have sufficient funds to pay the current level of quarterly distributions to all MMP common unitholders. Using the amount of $0.71 per MMP common unit paid with respect to the first quarter of 2009, the cash distribution paid to MMP unitholders totaled $47.5 million, resulting in a distribution of $23.5 million to the general partner for its general partner interest and incentive distribution rights. Therefore, MMP’s combined total distribution paid with respect to the first quarter of 2009 was $71.0 million. Pursuant to the simplification agreement, MGG unitholders will receive approximately 39.6 million MMP common units as a

 

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result of the simplification. The combined pro forma MMP distribution with respect to the first quarter of 2009, had the simplification been completed prior to such distribution, would result in $0.71 per unit being distributed on approximately 106.6 million MMP common units, or a total of $75.7 million, with the general partner no longer receiving any distributions. As a result, MMP will be required to distribute an additional $4.7 million per quarter in order to maintain the distribution level of $0.71 per MMP common unit paid with respect to the first quarter of 2009.

Although the elimination of the incentive distribution rights may increase the cash available for distribution to MMP common units in the future, this source of funds may not be sufficient to meet the overall increase in cash required to maintain the current level of quarterly distributions to holders of MMP common units.

Failure to complete the simplification or delays in completing the simplification could negatively impact MMP common unit prices and MGG common unit prices and future business and operations.

If the simplification is not completed for any reason, MMP and MGG may be subject to a number of material risks, including the following:

 

   

MMP will not realize the benefits expected from the simplification, including a potentially enhanced financial and competitive position;

 

   

the price of MMP common units or MGG common units may decline to the extent that the current market price of these securities reflects a market assumption that the simplification will be completed; and

 

   

some costs relating to the simplification, such as certain investment banking fees and legal and accounting fees, must be paid even if the simplification is not completed.

The costs of the simplification could adversely affect MMP’s operations and cash flows available for distribution to its unitholders.

MMP and MGG estimate the total costs of the simplification to be approximately $13.4 million, primarily consisting of investment banking and legal advisors’ fees, accounting fees, financial printing and other related costs. These costs could adversely affect MMP’s operations and cash flows available for distributions to its unitholders. In addition, the foregoing estimate is preliminary and is subject to change.

If the simplification agreement were terminated, MGG may be obligated to re-pay MMP for costs incurred related to the simplification and related steps. These costs could require MGG to seek loans or use MGG’s available cash that would have otherwise been available for distributions.

Upon termination of the simplification agreement, and depending upon the circumstances leading to that termination, MGG could be responsible for reimbursing MMP for simplification related expenses that MMP has paid on MGG’s behalf. Under certain circumstances, MGG may also be required to reimburse MMP for its reasonable expenses. For a detailed discussion of the various circumstances leading to a reimbursement of expenses, please read “The Simplification Agreement—Expenses” beginning on page 103.

MGG’s only source of cash is its distributions received from MMP. If the simplification agreement is terminated, the expense reimbursements required by MGG under the simplification agreement may require MGG to seek loans or use cash received from its distributions from MMP to repay these expenses. In either case, reimbursement of these costs could reduce the cash MGG has available to make its quarterly distribution.

MMP’s amended and restated partnership agreement that will be in effect following the simplification limits the ability of MMP’s general partner to withdraw as general partner of MMP and limits the ability of MMP’s unitholders to remove MMP’s general partner.

Under MMP’s amended and restated partnership agreement, to the fullest extent permitted by law, MMP’s general partner may not withdraw as general partner of MMP at any time for any reason except in the event that

 

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the general partner has transferred all of its general partner interest in MMP in accordance with MMP’s amended and restated partnership agreement. In addition, MMP’s general partner may not be removed unless the removal is approved by the vote of the holders of 100% of the outstanding units, including units held by MMP’s general partner and its affiliates, and MMP receives an opinion of counsel regarding limited liability and tax matters. Any removal of MMP’s general partner is also subject to the approval of a successor general partner by the vote of the holders of 100% of MMP’s outstanding units.

Tax Risks Related to the Simplification

In addition to reading the following risk factors, you should read “Material Federal Income Tax Consequences of the Simplification” beginning on page 115 and “Federal Income Taxation of MMP and Its Unitholders” beginning on page 120 for a more complete discussion of the expected material federal income tax consequences of the transformation and of owning and disposing of MMP common units received in the simplification.

No ruling has been obtained with respect to the tax consequences of the simplification.

No ruling has been or will be requested from the Internal Revenue Service, or IRS, with respect to the tax consequences of the simplification. Instead, MMP and MGG are relying on the opinions of their respective counsel as to the tax consequences of the simplification, and counsel’s conclusions may not be sustained if challenged by the IRS. Please Read “Material Federal Income Tax Consequences of the Simplification.”

The intended tax consequences of the simplification are dependent upon each of MMP and MGG being treated as a partnership for tax purposes.

The treatment of the simplification as nontaxable to MMP unitholders and MGG unitholders is dependent upon each of MMP and MGG being treated as a partnership for federal income tax purposes. If either MMP or MGG were treated as a corporation for federal income tax purposes, the consequences of the simplification would be materially different and would be taxable to an MGG unitholder.

Tax Risks to the Holders of MGG Common Units

An MGG unitholder may recognize taxable income as a result of receiving cash in lieu of fractional shares or as a result of the assumption or payment of liabilities of MGG.

Although it is anticipated that no gain or loss should be recognized by an MGG unitholder as a result of the simplification, (i) any gain resulting from the sale of MMP common units in lieu of distributing any fractional MMP common units and (ii) income and gain, if any, resulting from the assumption or payment of liabilities of MGG or its subsidiaries by MMP, may result in an MGG unitholder recognizing taxable income. Please read “Material Federal Income Tax Consequences of the Simplification.”

Tax Risks to Existing MMP Unitholders

An existing MMP unitholder may be required to recognize gain as a result of the decrease in his allocable share of MMP nonrecourse liabilities as a result of the simplification.

As a result of the simplification, the allocable shares of nonrecourse liabilities allocated to the existing MMP unitholders will be recalculated to take into account MMP common units issued by MMP in the transformation. If an existing MMP unitholder experiences a reduction in MMP unitholder’s share of nonrecourse liabilities as a result of the transformation, a “reducing debt shift,” such MMP unitholders will be deemed to have received a cash distribution equal to the amount of the reduction. A reduction in an MMP unitholder’s share of liabilities will result in a corresponding basis reduction in an MMP unitholder’s common units. A reducing debt shift and the resulting deemed cash distribution may, under certain circumstances, result in the recognition of taxable gain by an MMP unitholder. If the reduction in an MMP unitholder’s share of

 

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nonrecourse liabilities and the resulting deemed cash distribution exceeds such MMP unitholder’s common unit basis, such MMP unitholder would recognize gain in an amount equal to such excess. Although MMP has not received an opinion with respect to the shift of nonrecourse liabilities, MMP does not expect that any constructive cash distribution will exceed an existing unitholder’s tax basis in his MMP common units. Please read “Material Federal Income Tax Consequences of the Simplification—Tax Consequences of the Transformation, Distributions and Contributions to Existing MMP Common Unitholders.”

MMP estimates that the transformation will result in an increase in the amount of net income (or decrease in the amount of net loss) allocable to all of the existing MMP unitholders for the period from January 1, 2009 through December 31, 2010 (the “Projection Period”).

MMP estimates that the effectiveness of the simplification will result in an increase in the amount of net income (or decrease in the amount of net loss) allocable to all of the existing MMP unitholders for the Projection Period. In addition, the federal income tax liability of an existing MMP unitholder could be increased during the Projection Period if MMP makes a future offering of MMP common units and uses the proceeds of the offering in a manner that does not produce substantial additional deductions during the Projection Period, such as to repay indebtedness currently outstanding or to acquire property that is not eligible for depreciation or amortization for federal income tax purposes or that is depreciable or amortizable at a rate significantly slower than the rate currently applicable to MMP’s assets. Please read “Material Federal Income Tax Consequences of the Simplification—Tax Consequences of the Transformation, Distributions and Contributions to Existing MMP Common Unitholders.”

 

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SPECIAL FACTORS

Background of the Simplification

Since early 2008, the senior management of MMP and MGG (“senior management”), the board of directors of the general partner of MMP and the board of directors of the general partner of MGG have been independently considering and evaluating strategic alternatives to enhance long-term value to both MMP’s unitholders and MGG’s unitholders. The strategic alternatives included those focused on improving the competitive position of MMP by reducing its cost of equity capital and enhancing the long-term growth prospects for MMP, which could benefit both MMP’s unitholders and MGG’s unitholders. At such time, MMP believed that its cost of equity capital was high in comparison to its peer master limited partnerships. Because MMP was at the time (and currently is) in the highest tier of its IDR structure, if MMP were to increase its distribution to its existing limited partners, MMP’s general partner would be entitled to approximately 50% of any incremental distributions made by MMP even though it owns only an approximate 2% interest in MMP. When MMP is competing for acquisitions with its competitors, in order to make the acquisition accretive to its limited partners, MMP must overcome the fact that its general partner, when compared to other master limited partnerships, is in many cases entitled to a more significant percentage of the distributable cash flow generated by the acquired asset. Accordingly, by eliminating the competitive disadvantages associated with the IDRs, MMP believed it would be more likely to make accretive acquisitions and improve its long-term distribution growth prospects as a consequence.

To further the consideration of such potential strategic alternatives and to manage the potential conflicts of interest of senior management and certain directors who are directors and/or officers of both MMP and MGG, the board of directors of the general partner of MMP, on April 1, 2008, authorized and directed the MMP Conflicts Committee composed of James R. Montague, George A. O’Brien, Jr. and John P. DesBarres, to, among other things, (i) determine whether a potential transaction involving the purchase by MMP of the equity of MGG was in the best interest of MMP, (ii) negotiate such an acquisition, and (iii) make a recommendation to the board of directors of the general partner of MMP with respect to such an acquisition.

In early April 2008, senior management was approached by an investment banker concerning the potential interest of an unrelated publicly traded master limited partnership (the “Interested Party”). The Interested Party informally expressed an interest in merging both MMP and MGG with the Interested Party.

On April 8, 2008, senior management provided a presentation to the MMP Conflicts Committee concerning a proposed acquisition of MGG. The acquisition would eliminate the IDRs and general partner interest. Those rights currently are owned by MGG and entitle MGG to approximately 50% of any incremental distribution increases or decreases that MMP makes to its current unitholders based upon MMP’s distribution levels at such time. Senior management stated that an acquisition of MGG could be in the best interest of MMP because: (a) the liquidity in the marketplace for public general partner entities was currently limited, (b) the spread between the yield on MMP’s equity and MGG’s equity currently made such an acquisition feasible, (c) MMP had significant debt capacity, and (d) the elimination of MMP’s IDRs would decrease MMP’s incremental cost of any newly issued limited partner capital. As of April 8, 2008, senior management projected that the yields based upon the projected 2009 distributable cash flow per unit divided by the market price of those units (assuming MMP and MGG distributed all cash flow and did not hold any reserves) would be 7.8% for MMP common units and 8.2% for MGG common units. This meant that MMP’s unit price relative to its projected 2009 distributable cash flow was stronger than MGG’s unit price relative to its 2009 distributable cash flow, thereby making it feasible through an exchange of units to combine MMP with MGG and potentially offer a premium to MGG unitholders. Furthermore, at that time, senior management believed MMP could issue reasonably priced debt and offer a combined cash and equity exchange offer for MGG common units versus a 100% equity exchange offer.

On the downside, senior management noted that an acquisition of MGG (a) would increase MMP’s leverage if debt was used in such acquisition, and (b) would result in MMP buying its general partner which before this transaction would receive a disproportionate share of any decrease in distributions because of the incentive

 

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distribution rights, thereby increasing the downside risks to MMP of any future negative impacts to MMP’s business. Because MMP was in the highest tier of its IDR structure at that time, if MMP reduced its distribution to the existing MMP unitholders, the amount distributed to MMP’s general partner would also be reduced by approximately 50% of the total distribution reduction made by MMP. By eliminating the IDRs, the full impact of a distribution reduction by MMP would be borne by MMP’s limited partners. The MMP Conflicts Committee also considered other potential uses for MMP’s cash.

At this meeting, the MMP Conflicts Committee was informed by senior management about the Interested Party’s expression of preliminary interest in merging MMP and MGG with the Interested Party. Senior management explained that this expression of interest was brought to senior management’s attention by an investment banker and that, as of that date, no information had been exchanged between senior management and the Interested Party. Senior management did not provide to the MMP Conflicts Committee any economic assessment of a potential combination but did briefly describe the key business activities of the Interested Party. Senior management explained that it would keep the MMP Conflicts Committee informed if the expression of interest developed into more substantive discussions. Following the presentation by senior management, the MMP Conflicts Committee met with Richards, Layton & Finger, P.A. (“Richards Layton”) to discuss the process required to complete an acquisition of MGG by MMP, the legal duties and obligations of the MMP Conflicts Committee members (in particular, the fiduciary duties of the MMP Conflicts Committee members under Delaware law, as modified by MMP’s partnership agreement, and the obligation of the MMP Conflicts Committee members to evaluate any potential transaction from the perspective of MMP and the public unitholders of MMP) and possible implications of the Interested Party’s expression of interest. The MMP Conflicts Committee also formally engaged Richards Layton to act as the MMP Conflicts Committee’s legal counsel.

On April 9, 2008, the CEO met with the MGG Conflicts Committee, composed of Walter R. Arnheim, Robert G. Croyle and James C. Kempner, to inform it that senior management had met with the MMP Conflicts Committee the day before and had given them information to help analyze making a possible offer to buy MGG. The CEO also informed the MGG Conflicts Committee about the Interested Party’s expression of preliminary interest in acquiring MMP and MGG.

Because of the potential conflicts related to the consideration of strategic alternatives referred to above, on April 10, 2008, the board of directors of the general partner of MGG delegated consideration of the potential MMP acquisition proposal to the MGG Conflicts Committee. The MGG Conflicts Committee was given the power to, among other things, (i) review, evaluate, investigate and negotiate the terms and conditions of an MMP proposal; (ii) solicit third parties with respect to alternative transactions; (iii) evaluate any offers received in response to such solicitations; (iv) consider and analyze whether any counteroffer would be appropriate; (v) review and comment on any confidentiality or standstill agreements prepared for an MMP proposal or any alternative transaction; (vi) determine whether an MMP proposal or any alternative transaction was advisable and in the best interests of MGG and its public unitholders; and (vii) if applicable and as appropriate, make a recommendation to the Board with respect to an MMP proposal or any alternative transaction. On April 17, 2008, the MGG Conflicts Committee interviewed law firms and retained Morris, Nichols, Arsht & Tunnell LLP (“Morris Nichols”) as legal counsel to the MGG Conflicts Committee.

On April 10, 2008, the MMP Conflicts Committee interviewed TudorPickering, resolved to engage TudorPickering to act as its financial advisor and authorized its chairman to finalize the fee arrangement and engagement letter with TudorPickering.

From April 21, 2008 and through May 2, 2008, TudorPickering met numerous times with certain members of senior management to learn about MMP’s business, including senior management’s projections for MMP’s business.

On April 25, 2008, the MMP Conflicts Committee met to discuss the effect that a potential offer by the Interested Party to acquire MMP and its affiliates would have on the acquisition of MGG that the MMP Conflicts

 

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Committee was in the process of considering. The MMP Conflicts Committee and Richards Layton discussed the implications of the talks between senior management and the Interested Party on the proposed acquisition of MGG by MMP, although that discussion was limited because of the apparent preliminary nature of the Interested Party’s expression of interest. The MMP Conflicts Committee concluded that it should treat any offer received from the Interested Party to acquire MMP and its affiliates as a potential alternative to the acquisition of MGG.

On May 2, 2008, the MMP Conflicts Committee met to analyze and discuss various aspects of the proposed acquisition of MGG. At this meeting, after hearing a presentation from TudorPickering, the MMP Conflicts Committee discussed various potential benefits of the proposed acquisition of MGG. The potential benefits discussed included the elimination of the incentive distribution rights, improved marginal economics to common unitholders, a better alignment of management and common unitholder incentives, a simplified ownership and governance structure, and improved investor and rating agency perceptions of MMP. The MMP Conflicts Committee also discussed senior management’s financial projections and TudorPickering’s preliminary financial analysis. This discussion focused on the amount of accretion and dilution to the common unitholders of MMP under the base case, upside case, and downside case financial projections. The MMP Conflicts Committee also discussed potential alternatives to the proposed acquisition of MGG. The two potential alternatives discussed at the May 2, 2008 meeting were (i) attempting to negotiate a cap on the amounts to be paid on the incentive distribution rights and (ii) attempting to negotiate an adjustment to the triggers for payment on the incentive distribution rights. The MMP Conflicts Committee considered these alternatives from the point of view of the public common unitholders of MMP. The MMP Conflicts Committee also discussed the risk that a third party may be led to believe that the board of directors of MMP’s general partner had decided that MMP was for sale because of a potential offer by MMP to acquire MGG, but concluded that the harm that could be caused by such a misperception was likely low. The MMP Conflicts Committee also discussed whether any potential strategic rationale existed for the discussions between senior management and the Interested Party. The MMP Conflicts Committee did not reach any conclusion as to any potential transaction, but rather resolved to continue its analysis further over the coming weeks.

On May 7, 2008, the MMP Conflicts Committee met to consider the proposed acquisition of MGG. TudorPickering made a presentation to the MMP Conflicts Committee that contained similar preliminary financial analyses to those reviewed at the May 2, 2008 meeting, but that TudorPickering had updated to include additional information provided by the MMP Conflicts Committee at the May 2, 2008 meeting. TudorPickering also discussed other strategic parties that potentially might be interested in MGG, perhaps in combination with MMP, and the potential mix of cash and/or equity that the MMP Conflicts Committee might consider in an offer to acquire MGG. The MMP Conflicts Committee considered recommending to the board of directors of the general partner of MMP that it make an initial proposal to purchase MGG for $27.00 per MGG common unit, to be paid 70% in equity of MMP and 30% in cash. The MMP Conflicts Committee again discussed process issues with Richards Layton, and determined that the chairman of the MMP Conflicts Committee should discuss with the chairman of the board of directors of the general partner of MMP, whether the board of directors of the general partner of MMP would delegate to the MMP Conflicts Committee all of the authority to acquire MGG on behalf of MMP.

On May 9, 2008, by unanimous written consent, the board of directors of the general partner of MMP authorized and directed the MMP Conflicts Committee to, among other things, (i) consider and analyze a potential transaction involving the purchase of MGG, (ii) make proposals to MGG with respect to such an acquisition, (iii) negotiate such an acquisition, and (iv) if applicable, exercise the full authority of the board of directors of the general partner of MMP with respect to the approval of such an acquisition.

On May 11, 2008, the MGG Conflicts Committee met to discuss retaining a financial advisor to advise the MGG Conflicts Committee in connection with a potential transaction with MMP. At the meeting, several financial advisors were discussed as available options for the MGG Conflicts Committee.

On May 12, 2008, the MMP Conflicts Committee met to discuss a possible proposal to purchase MGG. TudorPickering presented updated preliminary financial analyses of the potential acquisition. The MMP

 

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Conflicts Committee discussed, among other things, the appropriate price for an offer, the offer price’s impact on accretion and dilution, the impact of leverage on MMP’s business, the market’s potential reaction and the MMP Conflicts Committee’s optimal negotiation strategy. The MMP Conflicts Committee determined that it would offer to purchase MGG at a price of $27.75 per MGG common unit, with 30% of the consideration to be paid in cash and 70% of the consideration to be paid in MMP common units. The MMP Conflicts Committee directed its chairman to contact the chairman of the MGG Conflicts Committee to convey the offer.

Later on May 12, 2008, the chairman of the MMP Conflicts Committee discussed the acquisition of MGG with the chairman of the MGG Conflicts Committee and proposed that MMP acquire the equity of MGG for $27.75 per MGG common unit, with the consideration paid 30% in cash and 70% in MMP common units, subject to the negotiation of appropriate documentation. At the time, the proposal represented approximately a 12.2% premium above the closing price of MGG common units on May 9, 2008. The MGG Conflicts Committee chairman was informed that this proposal represented a full priced offer from the MMP Conflicts Committee’s point of view.

The MGG Conflicts Committee met with senior management on May 14, 2008, to discuss MMP’s offer and the potential retention of a financial advisor.

On May 14, 2008, the MMP Conflicts Committee determined that, in light of the full delegation of authority to negotiate the acquisition of MGG by the board of directors of the general partner of MMP, the MMP Conflicts Committee should consult with Vinson & Elkins L.L.P. (“Vinson & Elkins”), counsel to MMP, with respect to the numerous non-Delaware law issues relating to a potential acquisition of MGG. Later that day, the MMP Conflicts Committee met to discuss various transactional issues and potential deal protection measures that MMP could take in connection with the acquisition offer. Included in this discussion was the consideration of (i) whether MMP would need a unitholder vote to approve the acquisition, and (ii) whether deal protection measures (including termination fees, escrows, options to acquire MGG equity, voting trusts, equity appreciation rights, amendments to various control rights held by MGG and options to acquire the equity in the general partner of MGG) were appropriate for the proposed acquisition of MGG.

Also on May 14, 2008, the MGG Conflicts Committee contacted the MMP Conflicts Committee and requested that the MMP Conflicts Committee provide the MGG Conflicts Committee with a written proposal of the terms for the proposed acquisition. In response, the MMP Conflicts Committee set forth its proposal in a letter and sent the letter to the MGG Conflicts Committee on May 16, 2008.

On May 16, 2008, the MGG Conflicts Committee met with two financial advisors, each of whom made presentations with respect to representing the MGG Conflicts Committee. Representatives of each financial advisor described, among other things, their expertise involving similar acquisitions, the process that they would engage in as financial advisor, their initial impressions of the proposed acquisition and their proposed fee structure. Based on the presentations, the MGG Conflicts Committee directed Morris Nichols to confirm that the MMP Conflicts Committee understood that the MGG Conflicts Committee would need to test the market prior to entry into an agreement with MMP. On that same day, Morris Nichols contacted Richards Layton to discuss the MGG Conflicts Committee’s ability to shop MMP offer. Morris Nichols expressed the view that, in connection with the acquisition, the MGG Conflicts Committee would need to effectively test the market for an alternative transaction. Richards Layton stated that the MMP Conflicts Committee understood the need of the MGG Conflicts Committee to test the market and believed that an effective market check could be conducted by the MGG Conflicts Committee on a post-signing basis.

On May 19, 2008, the MMP Conflicts Committee met to discuss the issues relating to providing access to confidential information of MMP. The MMP Conflicts Committee determined that because MMP was not for sale (i) it would only make an offer to acquire MGG that provided for an ability for MGG to check for other offers after it had signed an agreement with MMP, (ii) it would only allow third parties access to MMP’s confidential information if the third party signed a confidentiality agreement and a standstill agreement, and

 

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(iii) it would only make an offer to acquire MGG where, during the market check period, MGG could not solicit other offers, but could passively respond to third party bids. The MMP Conflicts Committee noted that MGG, as an independent public company, had the right to sell itself, but that it was not in MMP’s interests to have MGG engage in such an active, pre-signing solicitation process with the benefit of having an acquisition proposal from MMP in hand.

Following the MMP Conflicts Committee meeting of May 19, 2008, Richards Layton and Morris Nichols discussed the terms on which the MMP Conflicts Committee would agree to allow MGG to test the market for a superior offer. Morris Nichols expressed the view that the MGG Conflicts Committee could not commit not to engage in a pre-signing market check period to solicit alternative proposals. Richards Layton reiterated the determinations made by the MMP Conflicts Committee and the rationale for such determinations.

The MGG Conflicts Committee met on May 20, 2008 to discuss MMP’s reluctance to leave its offer in place if MGG conducted a pre-signing market check. After the meeting, Madison Dearborn Partners, LLC (“Madison Dearborn”), a 7% beneficial owner of MGG and a beneficial owner of MGG’s general partner, made an information request of MGG as a potential acquirer of MGG. Madison Dearborn also had representatives on the board of directors of MMP’s general partner and MGG’s general partner. Such representatives recused themselves from all discussions related to the economics of any strategic alternatives that occurred at all meetings of the boards of directors of MMP’s general partner and MGG’s general partner.

On May 21, 2008, the MGG Conflicts Committee met with senior management to discuss MMP’s offer and its stance on a pre-signing market check with respect to the offer. The MGG Conflicts Committee discussed retaining one of the two financial advisors it had interviewed to help evaluate the options available for MGG, but agreed to wait until after hearing from the MMP Conflicts Committee about process issues before deciding whether to hire a financial advisor.

On May 23, 2008, Morris Nichols contacted Richards Layton to discuss MMP’s solicitation restrictions in its offer to purchase MGG. The MMP Conflicts Committee did not change its position with regard to the pre-signing market check, and Richards Layton informed Morris Nichols that MMP would withdraw its offer if the MGG Conflicts Committee insisted on its need to conduct a pre-signing market check. The MGG Conflicts Committee met again that day to discuss its concern with the conditions established by the MMP Conflicts Committee.

On May 27, 2008, the MGG Conflicts Committee met again to discuss MMP’s offer. The MGG Conflicts Committee reiterated its decision not to hire a financial advisor until it determined that it would have the flexibility to conduct a pre-signing market check. After further discussion, the MGG Conflicts Committee decided that, before hiring a financial advisor, it must clarify its ability to test the market before signing an agreement with MMP.

On May 22, 2008 and May 28, 2008, the MMP Conflicts Committee met to discuss how to advance negotiations for the acquisition of MGG in light of MGG’s desire for a pre-signing market check while MMP maintained, without withdrawing, its acquisition proposal. The MMP Conflicts Committee resolved that its chairman should speak with the chairman of the MGG Conflicts Committee to propose that a form of acquisition agreement be sent to the MGG Conflicts Committee in an attempt to advance the negotiations. Shortly after the May 28, 2008 meeting, the chairman of the MMP Conflicts Committee discussed the process issues with the chairman of the MGG Conflicts Committee and, as a result of such discussion, Vinson & Elkins and Richards Layton prepared and presented a draft acquisition agreement to the MGG Conflicts Committee on June 3, 2008.

On June 3, 2008, Vinson & Elkins and Richards Layton discussed the draft acquisition agreement with Morris Nichols. The draft acquisition agreement allowed MGG to actively shop for competing bids for MGG for a 45 day period beginning on the date the acquisition agreement was signed. The draft acquisition agreement also contemplated that, under certain circumstances, MGG would be able to enter into a transaction with a third party

 

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and terminate the acquisition agreement; however, in doing so it would have to pay a termination fee to MMP. In addition, for MGG to accept a competing proposal under certain circumstances, MGG, as the sole member of the general partner of MMP, would be required to amend the limited liability company agreement of MMP’s general partner to eliminate the right of the general partner of MMP to veto certain acquisitions of assets by MMP or certain mergers involving MMP. Morris Nichols contacted Richards Layton and Vinson & Elkins on June 4, 2008, to discuss the MGG Conflicts Committee’s concerns regarding the acquisition agreement’s deal-protection provisions. Richards Layton and Vinson & Elkins informed Morris Nichols that the MMP Conflicts Committee would not allow a pre-signing market check while its proposal remained outstanding. Morris Nichols also contacted the CEO who said that, if a solution to the impasse between the two committees could not be reached, he wanted senior management to have a meeting with both committees and their respective counsel to see if the parties could work through the issue.

The MGG Conflicts Committee met on June 9, 2008, to discuss the acquisition agreement. It discussed whether to hire a financial advisor prior to rejecting MMP’s proposal to forgo any pre-signing market check of MMP’s offer. It also decided that a meeting of both committees and senior management would not be fruitful until the MMP Conflicts Committee agreed that such a pre-signing market check was on the table for discussion.

On June 10, 2008, the MMP Conflicts Committee met to discuss the status of negotiations to acquire MGG. As the parties could not agree on the manner and timing of how a market check would be conducted for MGG, the MMP Conflicts Committee resolved that its chairman should propose a face-to-face meeting with the MGG Conflicts Committee to attempt to resolve the issues related to MGG’s request for a pre-signing market check. The MMP Conflicts Committee further resolved that if the MGG Conflicts Committee was not interested in having such a face-to-face meeting, then the MMP Conflicts Committee should withdraw the proposal previously made to acquire MGG.

In a telephone conversation later that day, the chairman for the MGG Conflicts Committee informed the chairman of the MMP Conflicts Committee that it had reviewed the acquisition agreement carefully and decided that it needed to preserve the ability to engage in a pre-signing market check with full access to all MMP data, subject to a reasonable confidentiality agreement. The MMP Conflicts Committee was further informed that a post-signing market check was insufficient from the MGG Conflicts Committee’s point of view. The MGG Conflicts Committee also told the MMP Conflicts Committee that the two sides were so far apart on the issue of a pre-signing market check that a face-to-face meeting would not be beneficial. Morris Nichols contacted Richards Layton and Vinson & Elkins to see if the MMP Conflicts Committee was willing to compromise on the pre-signing market check while maintaining MMP’s proposal to acquire MGG outstanding. Although Richards Layton and Vinson & Elkins suggested some concessions, these concessions did not address the MGG Conflicts Committee’s main concerns.

Later on June 10, 2008, in a letter addressed to the MGG Conflicts Committee, the MMP Conflicts Committee withdrew its proposal to acquire MGG.

Thereafter, given that there was no longer any active consideration of a strategic transaction with MGG, the MMP Conflicts Committee terminated its engagement of TudorPickering pursuant to the terms of the engagement letter.

On June 11, 2008, the CEO informed the boards of directors of the general partner of MMP and the general partner of MGG that on June 10, 2008, certain members of senior management, including the CEO, met with the CEO and CFO of the Interested Party. The Interested Party had asked for the meeting so it could present its thoughts on a possible transaction involving both MMP and MGG.

Also on June 11, 2008, the MGG Conflicts Committee met to discuss the withdrawal of MMP’s offer to purchase MGG. The MGG Conflicts Committee agreed that it had no further role to play unless another conflict arose during consideration of strategic alternatives or the board of directors of the general partner of MGG decided to delegate to the MGG Conflicts Committee the power to assess strategic alternatives.

 

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On June 13, 2008, Madison Dearborn renewed its MGG information request that it previously had made on May 20, 2008. From mid-June 2008 through the end of October 2008, senior management responded to a series of due diligence requests and informational meetings with Madison Dearborn and/or consultants engaged by Madison Dearborn.

On June 19, 2008, the board of directors of the general partner of MMP met to discuss the expression of interest by the Interested Party regarding a potential transaction with MMP and MGG. Senior management reported that the expression of interest and discussions relating thereto were in the very preliminary stages and that no confidential information had been exchanged among the parties. In order for the board of directors of the general partner of MMP to more fully understand the merits of considering a possible transaction with the Interested Party, senior management made a presentation and led a discussion regarding (i) the state of MMP’s business, (ii) potential organic growth projects and opportunities for MMP, (iii) potential asset acquisitions by MMP, (iv) potential business combinations in the master limited partnership space and the drivers relating thereto, (v) MMP as a potential acquiror in possible business combinations, (vi) MMP as a potential target in possible business combinations, (vii) the valuation of MMP and MGG under the management forecast as well as under upside scenarios and downside scenarios, (viii) factors relating to a possible business combination with the Interested Party, including distributable cash flow yield, synergies and cost savings, incentive distribution rights, future cash flow growth rates and the relative size of the companies involved, (ix) an overview of the Interested Party, (x) potential benefits of a business combination with the Interested Party, and (xi) an analysis and discussion of the rationale, structure, financial impact and valuation aspects of a potential business combination among MMP, MGG and the Interested Party. The board of directors of the general partner of MMP determined based on the analysis provided by senior management, including the board’s view of relative distributable cash flow yields, cash flow stability and asset diversification, that there was some potential that a transaction of interest to MMP and the Interested Party could be developed. Accordingly, the board decided that it was appropriate to facilitate an exchange of information so that the Interested Party and the board could develop a more definitive position concerning their interest in a possible combination. Following this discussion, the board of directors of the general partner of MMP authorized senior management to enter into a confidentiality agreement with the Interested Party for the purpose of exchanging confidential information with the Interested Party and evaluating a potential business combination between MMP and the Interested Party.

Also on June 19, 2008, senior management made a similar presentation to the board of directors of the general partner of MGG regarding the expression of interest by the Interested Party, and that board had a discussion similar to the discussion had by the board of directors of the general partner of MMP. Following this discussion, the board of directors of the general partner of MGG authorized senior management to enter into a confidentiality agreement with the Interested Party for the purpose of exchanging confidential information with the Interested Party and evaluating a potential business combination between MGG and the Interested Party.

On June 25, 2008, senior management, acting on behalf of MMP and MGG, executed a confidentiality agreement with the Interested Party with respect to the sharing of confidential information in considering a possible negotiated transaction. During the period from approximately June 25, 2008 through July 28, 2008, senior management responded to and made a series of due diligence requests related to the financial projections, operations and commercial prospects for MMP and the Interested Party, respectively.

On July 16, 2008, the boards of directors of the general partner of MMP and the general partner of MGG met to engage in a strategic planning and review session with senior management and to discuss and consider the updated 2008 business plan and the long-range plan for MMP. At this strategic planning and review meeting, senior management made a presentation regarding the long-range plan for MMP, including a discussion of the key assumptions, an overview of operating margins, financial projections, summary of cash flow and various distribution scenarios. Following the strategic planning and review meeting, a joint meeting of the board of directors of the general partner of MMP and the board of directors of the general partner of MGG was held in order for senior management to update the two boards on the discussions had to date with the Interested Party and to make a presentation analyzing a potential business combination among MMP, MGG and the Interested

 

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Party. The presentation and analysis included a review of (i) the financial projections for MMP, MGG and the Interested Party under various assumptions, (ii) a review of the trading history of the units of MMP, MGG and the Interested Party, respectively, (iii) a financial overview of the Interested Party, (iv) an overview of a potential structure of a business combination among MMP, MGG and the Interested Party, (v) an analysis of potential accretion and dilution to MMP unitholders and MGG unitholders under various transaction scenarios, (vi) an analysis of returns to MMP unitholders and MGG unitholders under various scenarios, and (vii) a discussion of next steps with respect to the Interested Party. Based on the presentation of senior management and discussions relating thereto, the independent directors of the board of directors of the general partner of MMP expressed their preliminary view that a business combination with the Interested Party might be attractive to MMP unitholders at a price higher than $50 per MMP common unit.

On July 22, 2008, the CEO informed the boards of directors of the general partner of MMP and the general partner of MGG that certain members of senior management, including the CEO and the CFO, had met with certain members of the senior management of the Interested Party on July 21, 2008. The primary purpose of the meeting was to discuss certain due diligence matters related to the business of both MMP and the Interested Party.

On July 29, 2008, senior management received a written indication of interest from the Interested Party proposing a simultaneous merger of MMP and MGG with the Interested Party. In the proposed merger, MMP’s unitholders would receive common units of the Interested Party for common units they held in an amount representing a 15.1% premium at current market prices. MGG’s unitholders would receive cash and common units of the Interested Party, with MGG’s unitholders having some flexibility to choose the mix of cash and common units subject to a proration to achieve a 75% cash and 25% common units mix, in an amount representing a premium of 15.3% at current market prices.

On August 1, 2008, the board of directors of the general partner of MMP met to consider the written indication of interest received from the Interested Party. The board determined that the incremental per unit distributable cash flow provided to MMP under the terms of the indication of interest was inadequate, particularly in relation to the cash flow that the Interested Party would receive in the proposed transaction. At that meeting, the board of directors of the general partner of MMP agreed that (i) senior management would tell the Interested Party that the offer was not sufficient to recommend to the board of directors of the general partner of MMP, (ii) senior management would not suggest to the Interested Party an offer that it would recommend to the board of directors of the general partner of MMP, (iii) senior management would not indicate that MMP was for sale, and (iv) if another offer was received that senior management believed was compelling, it would discuss that offer with the board of directors of the general partner of MMP before having further discussions with the Interested Party. Also on August 1, 2008, the board of directors of the general partner of MGG met in a separate meeting to consider the written indication of interest received from the Interested Party. The board determined that the incremental per unit distributable cash flow provided to MGG under the terms of the indication of interest was inadequate, particularly in relation to the cash flow that the Interested Party would receive in the proposed transaction. At that meeting, the board of directors of the general partner of MGG agreed that senior management should tell the Interested Party that the offer was not sufficient to recommend to the board of directors of the general partner of MGG, but that the board of directors of the general partner of MGG would be willing to consider an improved offer if the offer was deemed reasonable by senior management.

On August 14, 2008, the MGG Conflicts Committee reconvened to discuss the Interested Party’s interest in purchasing both MMP and MGG. The board of directors of the general partner of MGG wanted the MGG Conflicts Committee to express its view on responding to the potential transaction with the Interested Party as well as address a possible proposal from MMP to purchase MGG. The MGG Conflicts Committee sought the authority to, among other matters, hire a financial advisor, conduct a valuation, and shop MGG if it believed that such a course was in the best interests of the unitholders. The resolutions charging the MGG Conflicts Committee were revised to give it those powers.

 

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Also on August 14, 2008, the CEO called the CEO of the Interested Party to inform him that MMP had determined that the Interested Party’s proposal was not sufficient to warrant a response and that a higher value would be required before MMP and MGG would consider a proposal from the Interested Party.

On August 20, 2008, the CEO informed the MMP Conflicts Committee that the Interested Party was not willing to negotiate unless it received a counteroffer from MMP and MGG. The CEO suggested that the board of directors of the general partner of MMP meet to discuss a possible response to the Interested Party.

On August 25, 2008, the board of directors of the general partner of MGG met to consider the proposed resolution authorizing the MGG Conflicts Committee to retain an independent financial advisor, the merits of a potential business combination with the Interested Party, possible responses to the Interested Party’s expression of interest and the process for possible negotiations with the Interested Party. The chairman of the board of directors of the general partner of MGG explained that the proposed resolution had been revised to give the MGG Conflicts Committee authority to satisfy its due diligence requirements if an offer to acquire only MGG and not MMP was received. He noted that the proposed resolution would be redistributed for review and approval. In addition, at this meeting senior management provided an update to its long range plan assumptions, the impact of those changes to the implied value of MGG common units and the pro forma impact of a combination with the Interested Party. With respect to possible responses to the Interested Party’s expression of interest, senior management suggested a non-binding counteroffer be submitted in order to continue the negotiations with the Interested Party. The board of directors of the general partner of MGG asked for guidance from the MGG Conflicts Committee with respect to possible responses to the Interested Party’s expression of interest.

The MGG Conflicts Committee met on August 27, 2008, to discuss hiring a financial advisor to aid it in its strategic process, including addressing the possible negotiation with the Interested Party. The MGG Conflicts Committee agreed to hire Lazard, subject to negotiation of an engagement letter.

On August 30, 2008, the MGG Conflicts Committee met with senior management to discuss the strategic process it would undertake.

On September 2, 2008, the resolutions delegating authority to the MGG Conflicts Committee were revised to give it the authority to, among other matters, hire a financial advisor, conduct a valuation and investigate and possibly solicit third party offers for MGG if it believed that such a course was in the best interests of the MGG unitholders. The resolutions provided that if an offer to acquire MGG was received that was contingent on an acquisition of MMP, the MGG Conflicts Committee was to recommend a course of action to the full board of directors of the general partner of MGG.

On September 2, 2008, the MMP Conflicts Committee met to consider discussions between senior management and the Interested Party about a proposed business combination among MMP, MGG and the Interested Party. It was noted that the CEO had previously informed the board of directors of the general partner of MMP that the Interested Party had proposed a price for acquiring MMP, that the board had concluded that the price proposed by the Interested Party was not compelling enough for MMP to consider initiating a process for a possible sale of MMP and that the CEO believed that it was in MMP’s interest to have senior management continue negotiations with the Interested Party and to make a counter-proposal putting forward a price at which MMP would be interested in a business combination. The MMP Conflicts Committee discussed considerations regarding, among other things, the attractiveness of a sale transaction at that time to MMP’s unitholders, the process by which maximum value could be obtained in a sale of MMP, the merits of a sale transaction in which the Interested Party would be the acquiror, potential conflict of interests that may be present in a transaction in which an acquiror were to acquire both MMP and MGG, and the role of the MMP Conflicts Committee in a sale process. At the end of this discussion, the MMP Conflicts Committee determined that it should inform the CEO, in advance of a meeting of the board of directors of the general partner of MMP scheduled for September 8, 2008, that (i) senior management should present information and analyses substantiating the merits of pursuing a

 

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sale transaction with the Interested Party at such meeting and (ii) the members of the MMP Conflicts Committee currently were of the view that for various reasons, including the current state of uncertainty in the financial markets, no counter-proposal to the Interested Party should be made by MMP at that time.

The MGG Conflicts Committee met on September 4, 2008, to discuss its retention of Lazard as financial advisor to the MGG Conflicts Committee. At that time, senior management was also looking for guidance from the MGG Conflicts Committee as to how to respond to the Interested Party’s offer. However, the MGG Conflicts Committee agreed that it could not establish a protocol on how to respond until it first discussed the Interested Party’s offer with Lazard.

On September 8, 2008, the board of directors of the general partner of MMP met to consider the merits of a potential business combination with the Interested Party, possible responses to the Interested Party’s expression of interest, the process for possible negotiations with the Interested Party, a proposed board resolution to expand the authority of the MMP Conflicts Committee with respect to dealings with the Interested Party and other potential proposals for the acquisition of both MMP and MGG, and the potential acquisition of MGG by MMP. At this meeting, senior management provided an analysis that included a discussion of the long range plan for MMP, the estimated value of MMP under various assumptions, a discussion of certain financial data related to the Interested Party (including share price, Adjusted EBITDA, income and projected cash flow), a discussion of possible terms for an acquisition of MMP and MGG by the Interested Party, a projection of potential changes to distributable cash flow per unit to the unitholders of a new entity composed of MMP, MGG and the Interested Party under various assumptions, and a projection of the overall valuation of a new entity composed of MMP, MGG and the Interested Party under various assumptions. With respect to possible responses to the Interested Party’s expression of interest senior management suggested countering with a price of around $50 per MMP common unit in order to encourage further discussions. The board asked for guidance from the MMP Conflicts Committee with respect to possible responses to the Interested Party’s expression of interest.

On September 9, 2008, the MMP Conflicts Committee met to consider possible responses to the Interested Party’s expression of interest and related process issues. After extensive discussion and consideration, the MMP Conflicts Committee determined that the process to be employed should include, among other things, the following elements: (i) senior management could have discussions with the Interested Party, but no binding commitments as to MMP could be made given that any deal would require approval of the MMP Conflicts Committee and/or the board of directors of the general partner of MMP; and (ii) if the Interested Party were to react positively to a proposed price around $50 per MMP common unit or higher, then the MMP Conflicts Committee would engage a financial advisor and thoroughly analyze the merits of such a potential transaction and a sale process generally.

Also on September 9, 2008, the MGG Conflicts Committee formally retained Lazard as financial advisor. Senior management requested the MGG Conflicts Committee to authorize a response to the Interested Party’s offer. Senior management suggested countering with around $27 per MGG unit price, which represented a premium of around 41% above the closing price of MGG common units on September 10, 2008. In conversations throughout the day, the MGG Conflicts Committee discussed senior management’s plan to make a nonbinding counteroffer, and the MGG Conflicts Committee concluded that it should not make a counteroffer until after it discussed the Interested Party’s offer and other alternatives with Lazard.

On September 11, 2008, the MGG Conflicts Committee met to discuss senior management’s proposal to make a counteroffer to the Interested Party. Lazard advised against making a counteroffer because Lazard had yet to conduct its analysis of the transaction. The MGG Conflicts Committee agreed that MGG should not proceed with a counteroffer at that time.

On September 24, 2008, the CEO informed the chairman of the MMP Conflicts Committee in an email that he had dinner on September 18, 2008 with the CEO of the Interested Party. The CEO reported that the Interested Party was still interested in pursuing a potential acquisition of MMP and MGG. The CEO also suggested to the chairman of the MMP Conflicts Committee that at MMP’s then current price, a counteroffer to the Interested

 

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Party that resulted in a $44.46 unit price for MMP would provide a 35% premium, as compared to the 33.4% premium represented by the $50 unit price for MMP at the time that price was recommended by senior management.

On September 25, 2008, the MGG Conflicts Committee met to hear an interim presentation from Lazard on the strategic alternatives available to MGG.

On September 26, 2008, the MMP Conflicts Committee met to consider further the analysis provided by senior management at the September 8, 2008 meeting of the board of directors of the general partner of MMP regarding certain alternative strategic options. After discussing and considering the pros and cons of the various strategic options, the MMP Conflicts Committee concluded that the uncertainty in the financial markets was not conducive to pursuing a potential business combination with the Interested Party at the time.

On October 2, 2008, the MMP Conflicts Committee met to consider further issues relating to strategic alternatives and senior management’s views with respect to such strategic alternatives. After initial discussion, the CEO was invited to the meeting. The MMP Conflicts Committee informed the CEO that it did not believe that pursuing a business combination with the Interested Party was an attractive option for MMP at that time but that pursuing a possible acquisition of all the equity interests in MGG was an attractive option for MMP. The CEO stated his belief that both the potential transaction with the Interested Party and the potential acquisition by MMP of MGG should be explored and considered simultaneously. After further discussion and consideration, the Committee expressed its general agreement for senior management to talk with the Interested Party regarding a proposed transaction provided that no commitments were made on behalf of MMP, the MMP Conflicts Committee or the board of directors of the general partner of the Partner with respect to any such transaction.

On October 6, 2008, the MGG Conflicts Committee met to hear Lazard’s formal presentation of the strategic options available to MGG and its valuation analysis. Lazard guided the MGG Conflicts Committee through its valuation analysis and explained the advantages and disadvantages of the various strategic options the MGG Conflicts Committee could pursue. At the conclusion of the meeting, the MGG Conflicts Committee decided that it would not recommend making a counteroffer to the Interested Party’s offer until it looked more closely at alternative transactions, such as a transaction with MMP.

On October 8, 2008, the board of directors of the general partner of MMP authorized and directed the MMP Conflicts Committee to, among other things, (i) consider and analyze a potential transaction involving the purchase of equity of MGG, (ii) make proposals to MGG with respect to such an acquisition, (iii) negotiate such an acquisition, (iv) if applicable, exercise the full authority of the Board with respect to the approval of such an acquisition, and (v) review, evaluate, investigate, and if applicable, make a recommendation to the board of directors of the general partner of MMP with respect to an offer from a third party to simultaneously purchase the equity of MMP and MGG.

On October 9, 2008, the MMP Conflicts Committee met to consider the steps to take in light of the October 8, 2008 delegation by the board of directors of the general partner of MMP to the MMP Conflicts Committee. The MMP Conflicts Committee resolved to re-engage TudorPickering as its financial advisor.

Following the meeting of October 9, 2008, the chairman of the MMP Conflicts Committee learned that Madison Dearborn had also informally reiterated its possible interest in purchasing MGG. The chairman of the MMP Conflicts Committee reported on this at a MMP Conflicts Committee meeting held on October 13, 2008.

On October 13, 2008, senior management met with Lazard to review Lazard’s analysis of the Interested Party’s potential acquisition of MMP and MGG, including potential values that could be included in a response to the Interested Party. At the conclusion of this meeting, the MGG Conflicts Committee joined the meeting briefly for a summary of the meeting. The MGG Conflicts Committee asked senior management to refrain from responding to the Interested Party until the MGG Conflicts Committee had a chance for further discussions with Lazard.

 

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From October 9, 2008 and through October 20, 2008, TudorPickering met with certain members of senior management to gather updated information regarding MMP and MGG.

On October 17, 2008, the MGG Conflicts Committee met to again discuss Lazard’s analysis of MGG’s strategic alternatives. The discussion at the meeting focused on the Interested Party’s offer and a potential offer from MMP. The MGG Conflicts Committee determined that it would benefit the process if senior management refrained from responding to the Interested Party until Monday, October 20, 2008, and that Lazard should be involved in negotiations with the Interested Party if they occurred. After the meeting, Lazard discussed its analysis with senior management and gave senior management a copy of its presentation.

On October 20, 2008, TudorPickering made a presentation to the MMP Conflicts Committee containing updated preliminary financial analyses of a potential acquisition of MGG. The MMP Conflicts Committee directed TudorPickering to expand its financial analyses to include financial analyses reflecting an all equity acquisition at various hypothetical premiums.

Later on October 20, 2008, the MMP Conflicts Committee met to continue discussing a potential acquisition of MGG. TudorPickering presented an expanded preliminary financial analysis reflecting an all equity acquisition at various hypothetical premiums. The MMP Conflicts Committee resolved that an all equity offer with a low premium would be the most attractive approach from MMP’s perspective because economic conditions created an increasing risk to the future financial performance of MMP. The MMP Conflicts Committee then discussed process issues related to the acquisition, including the possibility that the MGG Conflicts Committee would insist on a pre-signing market check.

On October 22, 2008, the MMP Conflicts Committee met to discuss making an offer to acquire MGG. TudorPickering presented updated preliminary financial analyses of a potential acquisition of MGG. Also, the MMP Conflicts Committee discussed process issues related to the offer, including the logistics of making an offer to the MGG Conflicts Committee.

Later on October 22, 2008, the MMP Conflicts Committee and the MGG Conflicts Committee met at dinner to discuss the possible acquisition of MGG by MMP. The committees reviewed the proposed acquisition and determined that the committees’ respective financial advisors should meet to discuss an appropriate valuation for the acquisition.

On October 23, 2008, the MMP Conflicts Committee met to discuss the terms of the proposed acquisition of MGG. The MMP Conflicts Committee instructed TudorPickering to discuss its preliminary financial analyses of a potential acquisition of MGG with Lazard. The MMP Conflicts Committee instructed TudorPickering that TudorPickering was not authorized to make a formal offer or to accept an offer. However, the MMP Conflicts Committee directed TudorPickering to indicate to Lazard that the MMP Conflicts Committee preliminarily was considering an exchange ratio of 0.59 MMP common units for each MGG common unit.

On October 24, 2008, senior management sent a letter to the Interested Party enclosing a non-binding term sheet regarding potential simultaneous acquisitions by the Interested Party of both MMP and MGG in exchange for common units of the Interested Party.

During the week of October 27, 2008, TudorPickering and Lazard met several times to discuss the financial forecasts prepared by senior management and their respective preliminary financial analyses of a potential acquisition of MGG by MMP.

On October 30, 2008 and October 31, 2008, the MMP Conflicts Committee met three times to discuss the status of negotiations between senior management and the Interested Party with respect to a business combination involving MMP, MGG and the Interested Party. The MMP Conflicts Committee reviewed the non-binding term sheet that senior management had sent to the Interested Party on October 24, 2008. The MMP

 

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Conflicts Committee also discussed the effect this offer might have on its negotiation with MGG, including the timing of such an offer, and its need to be kept informed of all discussions with the Interested Party in light of the negotiations between MMP and MGG. During the following month, the MMP Conflicts Committee communicated with senior management about its need to be included in any discussions with the Interested Party.

On November 3, 2008, the MMP Conflicts Committee met to discuss the specific terms of an offer to acquire MGG. The MMP Conflicts Committee reviewed preliminary financial analyses that TudorPickering had prepared to share with Lazard in connection with an offer that the MMP Conflicts Committee determined to make to acquire MGG. The MMP Conflicts Committee determined that (i) its initial offer should be 0.59 MMP common units for each MGG common unit, (ii) some or all of the MGG Conflicts Committee members should become members of the board of directors of MMP, and (iii) MGG should be provided a post-signing market check period.

On November 6, 2008, TudorPickering and Lazard met to discuss the parameters of an offer by MMP to acquire MGG. At the direction of the MMP Conflicts Committee, TudorPickering presented to Lazard an exchange ratio of 0.59 MMP common units for each MGG common unit, which represented a 5.7% premium to MGG’s then current market price. Lazard responded that it approached the valuation of MGG differently and did not believe the exchange ratio was going to be appropriate for MGG unitholders. The offer proposed included all the current independent directors of MGG serving on the board of the resulting combined company. MMP offer also included a post-signing go-shop period. TudorPickering and Lazard continued to discuss their respective preliminary financial analyses of a potential acquisition of MGG by MMP throughout the following weeks.

Also on November 6, 2008, the MMP Conflicts Committee met to discuss TudorPickering’s meeting with Lazard. The MMP Conflicts Committee also discussed its need to continue to be kept fully informed as to any negotiations or discussions between senior management and the Interested Party in light of the ongoing talks between MMP and MGG and conveyed this need to senior management.

On November 11, 2008, the MMP Conflicts Committee contacted the MGG Conflicts Committee to discuss the possibility of scheduling a meeting prior to the meeting scheduled for November 25, 2008. The MMP Conflicts Committee wanted to discuss MMP’s most recent offer. However, the MGG Conflicts Committee believed it was best to wait until the scheduled November 25, 2008 meeting to discuss MMP’s offer.

On November 12, 2008, at the request of the Interested Party, members of senior management had a dinner meeting with members of management of the Interested Party. There was no discussion of consideration, nor did the Interested Party’s management give their reaction to the term sheet sent to them by senior management on October 24, 2008.

In the ten days following the November 3, 2008 meeting of the MMP Conflicts Committee, MMP Conflicts Committee members learned that Riverstone Holdings LLC (“Riverstone”) and Madison Dearborn, were planning to distribute all of the MGG common units that were being held by MGG Midstream Holdings, L.P., an entity owned by Riverstone, Madison Dearborn and members of senior management, to the respective owners. The number of MGG common units to be distributed constituted approximately 14% of the MGG common units. On November 13, 2008, the MMP Conflicts Committee met to discuss whether MMP should offer to purchase such MGG common units for cash from Riverstone and Madison Dearborn at a 10% discount to market price. The MMP Conflicts Committee discussed the economics of the proposed acquisition and possible unintended consequences of the proposed acquisition and determined that it would not make an offer to purchase those units.

On November 23, 2008, the MGG Conflicts Committee met to discuss MMP’s offer and its upcoming meeting with the MMP Conflicts Committee. The MGG Conflicts Committee discussed the best approach toward deal protection in light of MMP’s proposal and market conditions at such time.

 

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On November 25, 2008, the MMP Conflicts Committee and the MGG Conflicts Committee met to discuss the potential acquisition of MGG by MMP. The respective committees and their respective advisors had a long discussion regarding partnership governance issues, valuation issues, process issues, and related issues concerning a potential transaction involving MMP and MGG.

Also on November 25, 2008, the MMP Conflicts Committee discussed various structuring issues, including that the optimal structure might not involve an acquisition of MGG by MMP, but rather a transformation of the incentive distribution rights in MMP, held indirectly by MGG, and the general partner interest in MMP, held indirectly by MGG, into MMP common units, and then undertaking a series of steps that would result in the distribution of all such MMP common units to the MGG unitholders. The end result of the simplification would be that MGG would cease to exist and the current owners of MGG common units would own MMP common units.

On December 1, 2008, MGG entered into a contribution agreement with its general partner and the sole member of its general partner, MGG Midstream Holdings, L.P., pursuant to which, among other things, MGG’s general partner became (i) an indirect wholly owned subsidiary of MGG in exchange for approximately $115,000 in cash to MGG Midstream Holdings, L.P. and (ii) the general partner interest in MGG was transformed to a non-economic general partner interest, without consideration and without any further action. The 8.8 million MGG common units held by MGG Midstream Holdings, L.P., which represented approximately 14% of MGG’s outstanding common units, were distributed to the owners of MGG Midstream Holdings, L.P., including Madison Dearborn, Riverstone and members of senior management. No new common units were issued as a result of the contribution agreement. MGG’s partnership agreement and the limited liability company agreement of MGG’s general partner were each amended to allow its unitholders to nominate and vote in the election of the directors to the board of directors of MGG’s general partner.

On December 3, 2008, the board of directors of the general partner of MGG adopted a rights plan by which MGG could prevent a hostile takeover for a short duration in order to negotiate on behalf of MGG’s limited partners.

On December 4, 2008, the board of directors of the general partner of MMP adopted a rights plan similar to the one adopted by the board of directors of the general partner of MGG the previous day, which plan had previously been reviewed and discussed with the MMP Conflicts Committee.

On December 11, 2008, senior management was informed by the Interested Party, and senior management in turn informed the MMP Conflicts Committee that the Interested Party did not plan to reply to senior management’s October 24, 2008 non-binding term sheet regarding potential simultaneous acquisitions of MMP and MGG by the Interested Party in the near future. The Interested Party indicated that it retained an interest in discussing a possible combination and may decide to explore such a transaction when the economic crisis settled down.

On December 17, 2008, the MGG Conflicts Committee met to discuss MMP’s and MGG’s most recent financial results and their impact on the potential transaction with MMP. Neither committee had received all of the updated financial figures for MMP and MGG because MMP was in the middle of its annual operating plan development process. The MGG Conflicts Committee decided that it would make a counteroffer after Lazard had time to review the latest financials. The MGG Conflicts Committee also discussed deal protection and determined to negotiate for the ability of MGG to terminate the transaction if it received a proposal that it determined is better for its unitholders and to negotiate for no termination fee payable except in connection with a change in recommendation in absence of a superior proposal.

On December 22, 2008, the MGG Conflicts Committee met to discuss the most recent financial projections from senior management. Senior management had provided the information Lazard needed and Lazard was able to advise the MGG Conflicts Committee on a counteroffer to MMP’s offer. The MGG Conflicts Committee

 

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discussed an appropriate exchange ratio in the counteroffer. Having decided that a go-shop provision in a transaction such as this was not necessary, the MGG Conflicts Committee determined to negotiate instead for a “window-shop” provision with minimal barriers. After the meeting, the MGG Conflicts Committee contacted the MMP Conflicts Committee and presented a non-binding counteroffer with a 0.65 exchange ratio that was subject to change based on new financial information being provided by senior management.

On December 24, 2008, the MMP Conflicts Committee met to discuss the MGG Conflicts Committee’s proposal that the exchange ratio be 0.65 MMP common units for each MGG common unit. TudorPickering presented updated preliminary financial analyses of a potential simplification. TudorPickering’s presentation included and utilized senior management’s most recent revised projections for MMP. The MMP Conflicts Committee also reviewed the factors and reasons regarding why the simplification continued to be in the best interests for MMP’s unitholders and MGG’s unitholders.

On December 29, 2008, the MGG Conflicts Committee met to discuss a possible meeting with the MMP Conflicts Committee to discuss the potential transaction. After the meeting, the chairman of the MGG Conflicts Committee contacted the chairman of the MMP Conflicts Committee to see if the two sides could come to an understanding on the exchange ratio.

Also on December 29, 2008, John P. DesBarres, a member of the MMP Conflicts Committee, passed away.

On December 31, 2008, the MMP Conflicts Committee, consisting of Messrs. Montague and O’Brien (and having a vacancy as a result of the death of Mr. DesBarres), determined that TudorPickering should attempt to reach general agreement with Lazard on an exchange ratio that would be acceptable to the MMP Conflicts Committee and the MGG Conflicts Committee.

During the final week of December 2008 and the first week of January 2009, Lazard and TudorPickering met to discuss and consider their respective financial analyses of a potential transaction.

On January 6, 2009, the MGG Conflicts Committee met to discuss the latest developments in the negotiations surrounding the exchange ratio.

On January 7, 2009, the MMP Conflicts Committee met to discuss financial and structuring issues relating to the proposed simplification. The MMP Conflicts Committee determined that the structure of the simplification should not involve an acquisition of the MGG common units, but rather a transformation of the incentive distribution rights in MMP, held indirectly by MGG, and the general partner interest in MMP, held indirectly by MGG, into MMP common units, followed by a series of steps that would result in the distribution of all such MMP common units to the MGG unitholders.

Later on January 7, 2009, the MMP Conflicts Committee and the MGG Conflicts Committee met and discussed accretion/dilution ratios, MMP’s cash flow requirements, the operational rationale of the transaction, timing issues for the transaction, deal protection issues, and various other issues. The respective committees also discussed extensively what the appropriate transformation ratio should be in the simplification. The MGG Conflicts Committee stated its position that the transformation ratio should be 0.65. The MMP Conflicts Committee stated that it would not be willing to accept a ratio of more than 0.62 MMP common units for each MGG common unit. At the completion of this meeting, the MMP Conflicts Committee and the MGG Conflicts Committee agreed that their respective financial advisors should meet to explore potential alternative structures that might assist the committees in reaching agreement on an acceptable transformation ratio.

On January 8, 2009, Lazard met with TudorPickering to discuss the previous day’s meeting between the two committees. TudorPickering reiterated the statement of the MMP Conflicts Committee that a 0.62 transformation ratio was its best offer. That same day, Lazard met with senior management. Senior management stated that determining the increase in growth assumed to result from any lower cost of equity capital is subjective and cannot be calculated by senior management. Senior management also stated that an important benefit of the

 

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simplification would be the simplification of the organizational structure of the two partnerships which could potentially expand MMP’s investor base and facilitate potential future strategic initiatives. The CEO noted that, in his view, an important consideration of the MGG Conflicts Committee should be the attractiveness of the MMP common units to investors after the simplification since the consideration being received by MGG would be 100% MMP common units. He also stated that while the simplification would potentially limit the upside for MGG unitholders, it also would provide downside protection which perhaps has a heightened value in the current economic environment. Senior management stated that it was in favor of the committees continuing to work on reaching agreement and consummating the simplification as soon as possible.

On January 9, 2009, the MGG Conflicts Committee met to discuss Lazard’s meetings with TudorPickering and senior management. Lazard reviewed for the MGG Conflicts Committee what had occurred at its meetings, and the MGG Conflicts Committee proceeded to discuss the latest developments in the negotiations. The MGG Conflicts Committee concluded that it would support a 0.62 transformation ratio if it could get concessions on deal protection. The MGG Conflicts Committee agreed it would meet with the MMP Conflicts Committee to see if the two parties could agree to a 0.62 transformation ratio with minimal deal protection. The MGG Conflicts Committee also decided to hire additional counsel if an agreement as to an exchange ratio could be reached.

Also on January 9, 2009, the chairman of the MGG Conflicts Committee contacted the chairman of the MMP Conflicts Committee and indicated that the MGG Conflicts Committee would support a transformation ratio of 0.62 MMP common units for each MGG common unit, subject to certain deal protection terms.

Later on January 9, 2009, Lazard sent a term sheet to TudorPickering that proposed (i) a 100% equity transformation of MGG common units into MMP common units with a transformation ratio of 0.62, (ii) that the board of directors of the general partner of MMP would become comprised of three members of the board of directors of the general partner of MGG, three members of the board of directors of the general partner of MMP, one representative of senior management and one representative of Madison Dearborn, and (iii) certain deal protection terms.

On January 12, 2009, the MMP Conflicts Committee and the MGG Conflicts Committee met with certain members of senior management to discuss MMP’s latest financial projections. The two committees preliminarily agreed to a 0.62 transformation ratio. Also on January 12, 2009, Lazard received the latest financial projections from senior management. The new projections, which resulted from the completion of the annual planning process, indicated improved cash flow relative to earlier projections.

On January 14, 2009, the MGG Conflicts Committee met to discuss senior management’s updated projections and the impact the new projections would have on the transformation ratio in the transaction. The MGG Conflicts Committee concluded that it should seek a meeting with the MMP Conflicts Committee to negotiate a change in the transformation ratio and agreed to propose a transformation ratio of 0.635. After the meeting, Lazard prepared information for the MGG Conflicts Committee, which explained why the exchange ratio should be changed.

On January 15, 2009, TudorPickering and Lazard discussed the updated financial projections received from senior management, which included a decrease in operating expenses resulting from the elimination of certain budgeted but unfilled operating positions, lower compensation expenses in the form of merit increases and benefits load factors, a reduction in maintenance capital expenditures and the elimination of certain operations. Lazard expressed to TudorPickering that the MGG Conflicts Committee would likely conclude that a transformation ratio of 0.62 was not appropriate in light of the increases in distributable cash flow reflected in the latest projections.

On January 15, 2009, the MMP Conflicts Committee met to discuss senior management’s latest financial projections and how to proceed with the proposed simplification. The MMP Conflicts Committee determined that in light of the new projections, it would have to increase the transformation ratio from 0.62 in order to reach agreement with the MGG Conflicts Committee.

 

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Also on January 15, 2009, on behalf of the MGG Conflicts Committee, Morris Nichols contacted Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”) about representing the MGG Conflicts Committee.

On January 16, 2009, the MMP Conflicts Committee and the MGG Conflicts Committee discussed senior management’s latest financial projections for MMP, accretion and dilution and the merits of the simplification. The MGG Conflicts Committee proposed that each common unit of MGG be transformed into 0.635 MMP common units. Upon further negotiation, the MMP Conflicts Committee and the MGG Conflicts Committee agreed that the transaction should be implemented at a transformation ratio of 0.6325 MMP common units for each MGG common unit. On that same day, Akin Gump was retained as counsel for the MGG Conflicts Committee.

From January 21, 2009 and through March 3, 2009, Vinson & Elkins distributed drafts of the simplification agreement and the other documents related to the simplification, and Vinson & Elkins, Akin Gump, Richards Layton and Morris Nichols continued to negotiate, revise and finalize those drafts.

On January 21, 2009, Morris Nichols, Akin Gump, Vinson & Elkins and Richards Layton had a meeting to preliminarily discuss the simplification agreement and the simplification.

The MGG Conflicts Committee met on January 28, 2009 to discuss the simplification and the simplification agreement. After the meeting, Akin Gump distributed a markup of the simplification agreement to the MGG Conflicts Committee for its review.

On February 3, 2009, the MMP Conflicts Committee met to discuss the transformation ratio in light of further negative adjustments to senior management’s forecasts and an updated view from senior management as to the expected savings from a combined entity as a result of the simplification. The MMP Conflicts Committee discussed the advantages and disadvantages of an adjustment in the transformation ratio and determined not to seek an adjustment at that time.

On February 3, 2009, senior management held its fourth quarter 2008 earnings teleconference in which it received questions, including regarding a possible combination of MMP and MGG. Senior management stated that a combination was something that they had considered and would continue to consider. Vinson & Elkins sent a revised simplification agreement back to the MGG Conflicts Committee’s advisors.

On February 4, 2009, the MGG Conflicts Committee met to discuss the diligence session Akin Gump and Lazard were going to hold with senior management later that day. During the diligence session, senior management answered questions about the general financial and operational condition of MMP and the simplification and its impact on MMP. The MGG Conflicts Committee reconvened later in the day to review the diligence session.

From February 6, 2009 through February 24, 2009, the MMP Conflicts Committee met six times to discuss the terms of the documents related to the simplification and the ongoing negotiation of the deal protection terms for the simplification. The MMP Conflicts Committee discussed appropriate deal protection terms, termination rights, the standards necessary in a confidentiality agreement and the length of the appropriate standstill period.

From February 6, 2009 through February 24, 2009, the MGG Conflicts Committee met six times to discuss the terms of the documents related to the simplification and the ongoing negotiation of the deal protection terms for the simplification. The MGG Conflicts Committee discussed appropriate deal protection terms, third party negotiations, termination rights, confidentiality agreement terms and the appropriate standstill terms.

From February 6, 2009 and through February 24, 2009, the chairman of the MMP Conflicts Committee discussed deal protection terms with the chairman of the MGG Conflicts Committee. Throughout this period, the chairmen of the respective committees discussed the relative merits and consequences of the proposed deal

 

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protection terms. Also during this period, Vinson & Elkins and Richards Layton on behalf of MMP and Akin Gump and Morris Nichols on behalf of MGG had discussions regarding the deal protection terms, third party negotiations, termination rights, and confidentiality and standstill protections.

During such period, the MMP Conflicts Committee and the MGG Conflicts Committee and their respective advisors continued the exchange of draft agreements. After much discussion, the two sides agreed that many of the areas of disagreement between the two committees could be addressed through drafting. Vinson & Elkins and Richards Layton stated that there was no intent to preclude MGG from negotiating with a third party and terminating in order to accept an offer from a third party and they were open to a solution that would address the MGG Conflicts Committee’s concerns, if the solution worked within the substantive parameters of the current draft simplification agreement. The MGG Conflicts Committee agreed that Akin Gump and Morris Nichols should make drafting changes to the simplification agreement that best addressed its concerns regarding third party negotiations, access to MMP’s information for purposes of third-party due diligence, and the ability of the MGG Conflicts Committee to terminate the simplification agreement and sign an alternative agreement.

On February 23, 2009, senior management informed both committees that the Interested Party requested a dinner meeting with senior management. The MMP Conflicts Committee and the MGG Conflicts Committee expressed their respective views that further contact with the Interested Party would not be in the best interests of MMP or MGG. Senior management declined the dinner request based on this feedback.

On February 24, 2009, the MMP Conflicts Committee met twice to discuss the transformation ratio that the MMP Conflicts Committee and the MGG Conflicts Committee tentatively had agreed to on January 16, 2009. TudorPickering presented updated preliminary financial analyses of a potential simplification. After extensive discussion, the MMP Conflicts Committee determined to continue to move forward with the 0.6325 transformation ratio.

Later in the day, Vinson & Elkins and Richards Layton distributed a mark-up of the simplification agreement as a response to the comments sent the day before by Akin Gump and Morris Nichols. The chairman of the MMP Conflicts Committee contacted the MGG Conflicts Committee chairman to tell him that this latest draft simplification agreement represented his committee’s final stance on the substance of the proposal and that the MGG Conflicts Committee should tell the MMP Conflicts Committee, by the end of the day on February 25, 2009, if it accepted the simplification agreement. Akin Gump also distributed mark-ups of the other agreements and documentation necessary to effect the simplification.

On February 25, 2009, the MGG Conflicts Committee met with its advisors to discuss the most recent draft of the simplification agreement that Vinson & Elkins and Richards Layton distributed and which contained changes that were, in part, responsive to the MGG Conflicts Committee’s concerns. Akin Gump and Morris Nichols went over the simplification agreement with the MGG Conflicts Committee, focusing on the most recent changes. The MGG Conflicts Committee also discussed the Interested Party’s inquiry about scheduling a meeting with certain members of senior management. Lazard advised that, because the negotiations regarding the simplification were in their last stages and because the Interested Party was not likely to make a serious proposal before the simplification was announced, the meeting with the Interested Party should be postponed. Since the announcement of the simplification, no substantive discussion or meeting with the Interested Party has taken place. After the MGG Conflicts Committee meeting adjourned, Akin Gump contacted Vinson & Elkins to discuss the open issues in the simplification agreement.

Later on February 25, 2009, the MMP Conflicts Committee met with its advisors to discuss the few proposed changes to the simplification agreement conveyed by Akin Gump to Vinson & Elkins. After discussion, these proposed changes were approved by the MMP Conflicts Committee. The MMP Conflicts Committee next discussed timing and next steps with respect to the simplification.

The MGG Conflicts Committee reconvened its meeting later on February 25, 2009, to discuss the most recent negotiations between Vinson & Elkins and Akin Gump. The MGG Conflicts Committee concluded that

 

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the simplification agreement, as it was currently drafted, likely would be acceptable, assuming a reasonable resolution of other material terms contained in any related documents. The chairman of the MGG Conflicts Committee then contacted the chairman of the MMP Conflicts Committee to inform him that the MGG Conflicts Committee was comfortable with the most recent changes to the simplification agreement.

On March 2, 2009, the MGG Conflicts Committee and the MMP Conflicts Committee had a meeting with the CEO. He stated that, because of his role as CEO for both the general partner of MMP and the general partner of MGG and because of the ongoing desire to avoid the appearance of a conflict of interest, he did not think it was appropriate for him to vote on the simplification agreement and simplification at either board. The MGG Conflicts Committee met later in the day to discuss this development and other recent developments in the process leading to the approval of the simplification. The MGG Conflicts Committee also discussed the approval process for the simplification and determined that it would support the board of the general partner of MGG delegating all approvals necessary for the simplification to the MGG Conflicts Committee.

On March 2, 2009, the board of directors of the general partner of MMP clarified and expanded the authority of the MMP Conflicts Committee by authorizing and directing the MMP Conflicts Committee to, among other things, (i) consider and analyze the simplification, (ii) make proposals to MGG with respect to the simplification, (iii) negotiate the simplification, (iv) if applicable, exercise the full authority of the board of directors of the general partner of MMP (without any further approval of the Board) with respect to the approval of and declaring the advisability of the simplification, and (v) take any further steps or actions that the MMP Conflicts Committee deemed necessary or appropriate in connection with the simplification.

On March 2, 2009, the MMP Conflicts Committee met to review the proposed simplification. During the meeting, Richards Layton and Vinson & Elkins advised the MMP Conflicts Committee with respect to certain legal matters and reviewed the agreements documenting the simplification. TudorPickering then presented updated preliminary financial analyses of the potential simplification.

On March 3, 2009, the board of directors of the general partner of MGG, by unanimous written consent, authorized and directed the MGG Conflicts Committee to, among other things, (i) exercise the full authority of the board of directors of the general partner of MGG (without any further approval of the Board) with respect to the approval of and declaring the advisability of the simplification and (ii) take any further steps or actions that the MGG Conflicts Committee deemed necessary or appropriate in connection with the simplification.

On March 3, 2009, Vinson & Elkins, Richards Layton, Akin Gump and Morris Nichols met again to discuss any issues that had to be addressed before both Committees met to vote on the simplification. Both committees and their advisors met with senior management for a bring-down due diligence session.

Also on March 3, 2009, the MGG Conflicts Committee met to vote on the simplification. Akin Gump and Morris Nichols updated the MGG Conflicts Committee with respect to recent developments regarding the simplification agreement. Akin Gump presented an executive summary of the simplification. Lazard presented its analysis of the simplification and its written fairness opinion. Lazard opined that, as of March 3, 2009, the consideration to be paid to MGG’s unitholders (other than MMP, the general partner of MMP, the general partner of MGG or their respective affiliates) pursuant to the simplification was fair, from a financial point of view, to the holders of MGG Common Units (other than MMP, the general partner of MMP, the general partner of MGG or their respective affiliates). The MGG Conflicts Committee unanimously adopted resolutions approving and authorizing the simplification, declaring the advisability of the simplification, and recommending that the common unitholders of MGG approve and adopt the documents evidencing the simplification.

Also on March 3, 2009, the MMP Conflicts Committee met to review the proposed simplification. During the meeting, Richards Layton and Vinson & Elkins updated the MMP Conflicts Committee with respect to changes to the simplification agreement and related documents made since the March 2, 2009 meeting. TudorPickering then presented its financial analyses of the proposed simplification and delivered its oral opinion

 

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(subsequently confirmed in writing) to the MMP Conflicts Committee that, as of March 3, 2009, and based upon and subject to the factors and assumptions set forth in its opinion, the transformation to be effected pursuant to the simplification agreement was fair from a financial point of view to the holders of the common units of MMP (other than affiliates of MMP who are holders of common units of MGG). Finally, the MMP Conflicts Committee unanimously adopted resolutions, among other things, (i) approving and declaring the advisability of the documents evidencing the simplification and the steps and actions contemplated by those documents, and (ii) recommending that the common unitholders of MMP approve and adopt the documents evidencing the simplification.

Later on March 3, 2009, MMP and MGG issued a joint press release announcing a definitive agreement to simplify the capital structure of MMP by transforming the incentive distribution rights and general partner interest in MMP into MMP common units to be followed by the other steps of the simplification.

On March 16, 2009, the MGG Conflicts Committee received a written acquisition proposal from a publicly traded master limited partnership (the “Second Interested Party”) offering to purchase all the outstanding common units of both MGG and MMP. The proposal included, among other things, the following items:

 

   

a proposal to pay MGG’s unitholders a total value of $20.50 per each MGG’s common unit, consisting of common units of the Second Interested Party and/or cash;

 

   

subject to the closing of the acquisition of MGG, a proposal to pay MMP unitholders a fixed exchange ratio of common units of the Second Interested Party for each outstanding common unit of MMP that represented a 10% premium to the 10-day average ratio of the prices of the common units of MMP and the Second Interested Party for the period prior to the offer; and

 

   

an expiration date of 5:00 p.m. Central time on March 23, 2009, except that if MGG confirmed that the proposal was of interest and could possibly lead to a MGG Change in Recommendation (as defined in the simplification agreement), then the proposal would extend to and expire at 5:00 p.m. Central time on April 17, 2009.

On the same day, the MGG Conflicts Committee provided a copy of the Second Interested Party’s proposal to the MMP Conflicts Committee and its legal advisors.

On March 17, 2009, the MMP Conflicts Committee met to discuss the acquisition proposal from the Second Interested Party. During the meeting, TudorPickering presented an overview of the proposal from the Second Interested Party with respect to a potential acquisition of MMP and MGG and a preliminary overview of the business, operations and financial data of the Second Interested Party. Following discussion and consultation with TudorPickering, Vinson & Elkins and Richards Layton, the MMP Conflicts Committee determined that it should meet again the following day to consider further the potential merits of the proposal.

On March 18, 2009, the MMP Conflicts Committee met to discuss further the acquisition proposal from the Second Interested Party. During the meeting, TudorPickering presented its preliminary financial analyses with respect to the proposal from the Second Interested Party concerning a potential acquisition of MMP and MGG. TudorPickering’s presentation included an expanded overview of the business, operations and financial data of the Second Interested Party. TudorPickering’s presentation also included a preliminary analysis of the pro forma impact of a potential acquisition of MMP and MGG by the Second Interested Party on the estimated distributable cash flow to the holders of MMP common units, MGG common units and the common units of the Second Interested Party on a per common unit basis for the years 2009 and 2010. TudorPickering based its analysis on the Forecasts (as described under “—Opinion of Tudor, Pickering, Holt & Co.—Financial Advisor to the MMP Conflicts Committee”), adjusted to reflect NYMEX crude oil strip prices as of February 27, 2009, with respect to MMP and MGG, and on Wall Street equity research consensus estimates with respect to the Second Interested Party.

The MMP Conflicts Committee discussed at length with TudorPickering, Vinson & Elkins and Richards Layton the potential merits of the proposal from the Second Interested Party from the point of view of MMP and its limited

 

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partners, the potential merits of the simplification, the fact that MMP is not for sale, and whether the proposal from the Second Interested Party provided any compelling basis to put MMP up for sale in the current economic environment. After extensive discussion, the MMP Conflicts Committee determined that it was not interested on behalf of MMP in pursuing the proposal from the Second Interested Party because the proposal from the Second Interested Party did not provide any compelling reason for MMP to commence a sale process. The MMP Conflicts Committee further determined that the chairman of the MMP Conflicts Committee should send a letter to the MGG Conflicts Committee stating that the MMP Conflicts Committee remains of the view that this is not an opportune time to consider the sale of MMP and that, if this view were to change, the MMP Conflicts Committee would not deem itself to be bound by the transformation ratio in the simplification agreement in terms of determining any relative valuation of MMP and MGG, respectively, in connection with any potential sale process involving both MMP and MGG.

On March 18, 2009, the MGG Conflicts Committee met to discuss the acquisition proposal from the Second Interested Party. After consultation with, and taking into account the advice of, Lazard, Akin Gump and Morris Nichols, the MGG Conflicts Committee determined that the acquisition proposal could possibly lead to it changing its recommendation on the simplification. On that same day, the MGG Conflicts Committee received the letter from the chairman of the MMP Conflicts Committee regarding the proposal from the Second Interested Party. Following receipt of this letter, Lazard contacted TudorPickering to discuss the acquisition proposal.

On March 19, 2009, Lazard met with senior management to discuss the Second Interested Party’s acquisition proposal. Senior management stated that the Second Interested Party’s business would complement MMP’s operating business but did note that there could be some antitrust issues created by the combination. The MGG Conflicts Committee met later that day to discuss the acquisition proposal and the MMP Conflicts Committee’s response to it. Prior to the meeting, Lazard distributed discussion materials that provided an analysis of the acquisition proposal. Lazard informed the MGG Conflicts Committee that the Second Interested Party’s acquisition proposal was likely based on projections that were not accurate and that the proposed transaction would, therefore, be difficult to consummate. After further consultation with Lazard, Akin Gump and Morris Nichols, the MGG Conflicts Committee decided to inform the Second Interested Party that, because its acquisition proposal is contingent on acquiring both MGG and MMP and because the MMP Conflicts Committee had determined that MMP is not for sale, the proposed acquisition could not move forward. The MGG Conflicts Committee also agreed that the Second Interested Party’s acquisition proposal should be pursued further if the Second Interested Party expressed an interest in restructuring its proposed acquisition as an acquisition of MGG alone.

After the MGG Conflicts Committee meeting on March 20, 2009, Lazard contacted the financial advisors to the Second Interested Party to inform them that, because the acquisition proposal was for both MGG and MMP, and the fact that MMP’s Conflict Committee had sent the MGG Conflicts Committee a letter informing the MGG Conflicts Committee that it was not for sale, the proposed acquisition could not go forward. The financial advisors to the Second Interested Party also confirmed that the transaction proposed was for both entities and indicated that it would need to check with the Second Interested Party to determine whether the Second Interested Party would be interested in purchasing MGG alone. On Monday, March 23, 2009, the financial advisors to the Second Interested Party called Lazard to inform them that the Second Interested Party was not interested in changing its previous proposal for both entities at that time.

Recommendation of the MMP Conflicts Committee and Its Reasons for the Simplification

At a meeting of the MMP Conflicts Committee held on March 3, 2009, the MMP Conflicts Committee, comprised of directors who are deemed to be independent, received a presentation from its financial advisor concerning the financial analyses of the proposed simplification, and reviewed with its legal counsel the terms of the simplification agreement and the other related agreements. At the meeting, the MMP Conflicts Committee considered the benefits of the simplification as well as the associated risks and has unanimously determined that the simplification agreement and the matters contemplated thereby, including MMP’s amended and restated partnership agreement, are fair and reasonable to MMP, and in the best interests of, MMP and its unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates) and has approved and

 

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declared the advisability of the simplification agreement and the matters contemplated thereby, including MMP’s amended and restated partnership agreement. Accordingly, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote to approve the simplification agreement and the matters contemplated thereby and MMP’s amended and restated partnership agreement.

In reaching its decision on the simplification, the MMP Conflicts Committee consulted with its legal and financial advisors and considered the following factors that supported the approval of the simplification:

 

   

the fact that MMP will no longer have any issued and outstanding incentive distribution rights as a result of the simplification;

 

   

the significant reduction in MMP’s equity cost of capital because MMP will no longer have any issued and outstanding incentive distribution rights as a result of the simplification;

 

   

the enhancement of MMP’s ability to compete for new acquisitions following the simplification as a result of its reduced equity cost of capital;

 

   

the fact that the simplification is expected to be long-term accretive to MMP’s distributable cash flow per common unit in MMP;

 

   

the fact that the simplification is expected to result in a long-term increase in the growth rate of and accretion to MMP’s distributable cash flow per common unit, thereby improving total return due to both valuation and distribution growth;

 

   

the potential to realize the anticipated benefits of the simplification prior to the dates assumed by the MMP Conflicts Committee;

 

   

the probability that MMP and MGG will be able to complete the simplification, including their ability to obtain any necessary unitholder approvals;

 

   

the fact that the simplification will likely result in a capital structure and governance structure of MMP that is more easily understood by the investing public;

 

   

the fact that the simplification will eliminate potential conflicts of interest that may arise as a result of a person being an officer of the general partner of MMP and of the general partner of MGG and as a result of a person being a member of the board of directors of the general partner of MMP and a member of the board of directors of the general partner of MGG;

 

   

the fact that having a greater number of outstanding common units in MMP is expected to increase the public float and trading liquidity of the market for MMP common units;

 

   

the terms of the simplification agreement permit the MMP Conflicts Committee to change or withdraw the recommendation of the simplification (and to terminate the simplification agreement upon a change in recommendation) if the MMP Conflicts Committee has concluded in good faith, after consultation with its outside legal advisors and financial consultants, that the failure to make such a change in recommendation would not be fair to or in the best interests of the holders of MMP common units;

 

   

the written opinion of TudorPickering, dated as of March 3, 2009, that, as of that date and based upon and subject to the factors and assumptions set forth in the opinion, the transformation to be effected pursuant to the simplification agreement is fair from a financial point of view to the holders of MMP common units (other than affiliates of MMP who are holders of MGG common units);

 

   

the elimination of certain control rights that MGG possesses with respect to MMP as the sole member of the general partner of MMP; and

 

   

the terms of the simplification as set forth in the relevant agreements, including without limitation, MMP’s amended and restated partnership agreement, the amended and restated limited liability company agreement of MMP’s general partner, the simplification agreement and the contribution agreement.

 

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The MMP Conflicts Committee also considered the following factors that weighed against the approval of the simplification:

 

   

the potential delay in timing with respect to some anticipated benefits of the simplification;

 

   

the fact that the simplification is expected to be near-term dilutive to MMP’s distributable cash flow per common unit in MMP;

 

   

the fact that the simplification might not be completed as a result of a failure to satisfy the conditions contained in the simplification agreement, including the failure to receive applicable unitholder approvals;

 

   

the possibility that the value of the common units in MMP resulting from the transformation and being transferred to the limited partners of MGG could be more than the value of the assets and other benefits that MMP will receive in connection with the simplification;

 

   

the risk that potential benefits sought in the simplification might not be fully realized;

 

   

there can be no assurance that the capital requirements necessary to fund the continued growth of MMP can be funded through the simplified capital structure;

 

   

the bases on which the MMP Conflicts Committee made its determination, including assumptions associated with consumption of products transported by MMP’s pipelines, the price of commodities and cost of capital, are uncertain;

 

   

the terms under which the MGG Conflicts Committee may change its recommendation to holders of MGG common units to approve the simplification agreement and the matters contemplated thereby and terminate the simplification agreement;

 

   

that MMP likely would be responsible for the payment of both MMP’s and MGG’s out-of-pocket expenses in connection with the simplification;

 

   

that the simplification might not be completed in a timely manner;

 

   

the fact that MMP is assuming liabilities of MGG and of the subsidiary of MMP’s general partner that currently owns the incentive distribution rights and of the entity that owns all of the limited partner interests of such subsidiary; and

 

   

certain members of management of MMP may have interests that are different from those of the holders of common units in MMP.

In the view of the MMP Conflicts Committee, these factors did not outweigh the advantages of the simplification. The MMP Conflicts Committee also reviewed a number of procedural factors relating to the simplification, including, without limitation, the following factors:

 

   

that because of the possible conflicts of interest associated with the negotiations between MMP and MGG leading to agreement with respect to the simplification, the MMP Conflicts Committee was delegated (i) the power and authority to consider, analyze and approve, on behalf of MMP and the board of directors of the general partner of MMP, a simplification of MMP’s capital structure; and (ii) the power and authority to consider and analyze potential offers from third parties relating to the purchase of MMP and MGG, and, if applicable, make a recommendation to the board of directors of the general partner of MMP with respect to such third party offer;

 

   

that the delegation of power to the MMP Conflicts Committee included the authority to deny the approval, or recommend against the approval, as applicable, of the simplification;

 

   

that the MMP Conflicts Committee consists of directors who are not affiliated with MGG or its general partner;

 

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that the terms and conditions of the proposed simplification were determined through arm’s-length negotiations between the MMP Conflicts Committee and the MGG Conflicts Committee and their respective representatives and advisors;

 

   

that the MMP Conflicts Committee was given authority to select and compensate its legal, financial and other advisors in the discretion of the MMP Conflicts Committee;

 

   

that the MMP Conflicts Committee retained and was advised by independent legal counsel experienced in advising on matters of this kind;

 

   

that the MMP Conflicts Committee retained and was advised by independent investment bankers experienced with publicly traded limited partnerships to assist in evaluating the fairness of the simplification; and

 

   

that the MMP Conflicts Committee received the fairness opinion of TudorPickering that, as of March 3, 2009, and based upon and subject to the factors and assumptions set forth in the opinion, the transformation to be effected pursuant to the simplification agreement was fair from a financial point of view to the holders of MMP common units (other than affiliates of MMP who are holders of MGG common units).

The foregoing discussion of the factors considered by the MMP Conflicts Committee is not intended to be exhaustive, but it does set forth the principal factors considered by the MMP Conflicts Committee.

The MMP Conflicts Committee reached its unanimous conclusion to recommend the simplification agreement and MMP’s amended and restated partnership agreement in light of various factors described above and other factors that each member of the MMP Conflicts Committee believed were appropriate.

In view of the wide variety of factors considered by the MMP Conflicts Committee in connection with its evaluations of the complexity of these matters, the MMP Conflicts Committee did not consider it practical, and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decisions and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determinations. Rather, the MMP Conflicts Committee made its recommendations based on the totality of the information presented to it and the investigations conducted by it. In considering the factors discussed above, individual directors may have given different weight to different factors. Each member of the MMP Conflicts Committee received the standard meeting fee of $1,500 for each board of director and MMP Conflicts Committee meeting they attended related to the consideration of strategic alternatives and the simplification.

It should be noted that this explanation of the reasoning of the MMP Conflicts Committee and all other information presented in this section is forward-looking in nature and, therefore, should be read along with the factors discussed under the heading “Forward-Looking Statements.”

For the reasons set forth above, the MMP Conflicts Committee has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby, including MMP’s amended and restated partnership agreement, and unanimously recommends that MMP unitholders vote “FOR” the approval of the simplification agreement and the matters contemplated thereby and “FOR” the approval of MMP’s amended and restated partnership agreement. In addition, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” any proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of either of the foregoing proposals.

Recommendation of the MGG Conflicts Committee and Its Reasons for the Simplification

At a meeting of the MGG Conflicts Committee held on March 3, 2009, the MGG Conflicts Committee, comprised of directors who are deemed to be independent, received presentations concerning, and reviewed with

 

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its legal counsel and independent financial advisor the terms of, the simplification agreement and the other related agreements. At the meeting, the MGG Conflicts Committee considered the benefits of the simplification as well as the associated risks and has unanimously determined that the simplification agreement and the matters contemplated thereby, including (i) the proposal to (a) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (b) to direct MMP’s general partner to implement all such matters; (ii) the contributions; and (iii) the liquidation, are fair and reasonable to, and in the best interests of, MGG’s unitholders (other than MMP’s general partner, MGG’s general partner or their respective affiliates). The MGG Conflicts Committee has also approved and declared the advisability of the simplification agreement and the matters contemplated thereby, including the proposal to direct MGG to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that require the approval of MGG and to direct MMP’s general partner to implement all such matters, the contributions and the liquidation. Accordingly, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote to approve the simplification agreement and the matters contemplated thereby, the proposal to direct MGG to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that require the approval of MGG and to direct MMP’s general partner to implement all such matters, the contributions and the liquidation.

In reaching its decision on the simplification, the MGG Conflicts Committee consulted with its legal and financial advisors and considered the following factors that supported the approval of the simplification:

 

   

the fact that MGG unitholders will maintain their public equity stake and participate in the expected benefits of the operations of MMP, including any future unit price appreciation and/or distribution increases;

 

   

the fact that, after the simplification, MMP will no longer have any issued and outstanding incentive distribution rights, and, as a result, MMP’s equity cost of capital will be reduced, which will enhance MMP’s ability to compete in future acquisitions involving equity financing;

 

   

the fact that having a common equity currency for the combined MMP and MGG partnership could facilitate future acquisitions and mergers;

 

   

the fact that the simplification is expected to initially be accretive to the distributable cash flow received by MGG unitholders;

 

   

the fact that the value of the consideration to be issued in the simplification represented a 25% premium to the closing price of MGG’s common units on March 2, 2009;

 

   

the fact that the simplification will likely result in a capital structure and governance structure that is more easily understood by the investing public;

 

   

the probability that MMP and MGG will be able to consummate the simplification, including their ability to obtain any necessary unitholder approvals;

 

   

the fact that the simplification will eliminate potential conflicts of interest that may arise as a result of a person being an officer of the general partner of MMP and of the general partner of MGG and as a result of a person being a member of the board of directors of the general partner of MMP and a member of the board of directors of the general partner of MGG;

 

   

the fact that the simplification will eliminate the duplication of services required to maintain two public limited partnerships;

 

   

the terms of the simplification agreement permit the MGG Conflicts Committee to change or withdraw the recommendation of the simplification (and to terminate the simplification agreement upon a change in recommendation) if the MGG Conflicts Committee has concluded in good faith, after consultation with its outside legal advisors and financial consultants, that the failure to make such a change in recommendation would not be fair to or in the best interests of the holders of MGG common units;

 

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the written opinion of Lazard, dated as of March 3, 2009, that, as of that date and based on and subject to the assumptions made, procedures followed, matters considered and limitations of review set forth in the opinion, the consideration to be paid to the holders of MGG common units (other than MMP, MMP’s general partner, MGG’s general partner or their respective affiliates) pursuant to the simplification was fair, from a financial point of view, to the holders of MGG common units (other than MMP, MMP’s general partner, MGG’s general partner or their respective affiliates);

 

   

information concerning the businesses, assets, liabilities, results of operations, financial conditions and competitive positions and prospects of MMP and MGG, in each case, before and after the simplification;

 

   

the fact that the simplification will mitigate the risk of underperformance associated with MMP’s underlying businesses to MGG unitholders;

 

   

the current and prospective environment in which MGG operates;

 

   

the holders of MGG common units, generally, should not recognize any income or gain, for U.S. federal income tax purposes, solely as a result of the receipt of MMP common units pursuant to the simplification; and

 

   

the terms of the simplification as set forth in the relevant agreements, including without limitation, MMP’s amended and restated partnership agreement, the simplification agreement, the contribution agreement and the plan of liquidation.

The MGG Conflicts Committee also considered the following factors that weighed against the approval of the simplification:

 

   

the increase in distributions on MMP’s equity issuance will reduce near-term distribution coverage on the units to be received in the simplification;

 

   

there can be no assurance that the capital requirements necessary to fund the continued growth of MMP can be funded through the simplified capital structure;

 

   

the bases on which the MGG Conflicts Committee made its determination, including assumptions associated with consumption of products transported by MMP’s pipelines, the price of commodities and cost of capital, are uncertain;

 

   

the possibility that the MMP common unit price could diminish prior to closing, reducing the premium available to MGG unitholders;

 

   

the risk that potential benefits sought in the simplification might not be fully realized;

 

   

the risk that no substantial synergy will be realized through the simplification;

 

   

the risk that the simplification might not be completed in a timely manner;

 

   

the terms under which the MMP Conflicts Committee may change its recommendation to holders of MMP common units to approve the simplification agreement and terminate the simplification agreement;

 

   

the fact that the simplification might not be consummated as a result of a failure to satisfy the conditions contained in the simplification agreement, including the failure to receive applicable unitholder approvals;

 

   

the elimination of certain control rights that MGG possesses with respect to MMP as the sole member of the general partner of MMP;

 

   

the limitations on MGG’s ability to solicit other offers;

 

   

the fact that the simplification will eliminate certain benefits associated with the incentive distribution rights in the event of out-performance of MMP’s underlying business;

 

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the possibility, under certain circumstances, that MGG could be required to reimburse MMP for MGG’s expenses associated with the simplification or pay the expenses incurred by MMP in connection with the simplification; and

 

   

certain members of management of MGG may have interests that are different from those of the holders of common units in MGG.

In the view of the MGG Conflicts Committee, these factors did not outweigh the advantages of the simplification. The MGG Conflicts Committee also reviewed a number of procedural factors relating to the simplification, including, without limitation, the following factors:

 

   

that because of the possible conflicts of interest associated with the negotiations between MMP and MGG leading to agreement with respect to the simplification, the MGG Conflicts Committee was delegated (i) the power and authority to consider, analyze and approve, on behalf of MGG and the board of directors of the general partner of MGG, the simplification and (ii) the power and authority to consider and analyze potential offers from third parties relating to the purchase of MGG, and, if applicable, make a recommendation to the board of directors of the general partner of MGG with respect to such third party offers;

 

   

that the delegation of power to the MGG Conflicts Committee included the authority to deny the approval, or recommend against the approval, as applicable, of the simplification;

 

   

that the MGG Conflicts Committee consists of directors who are not affiliated with MMP or its general partner and who are not executive officers of the general partner of MGG;

 

   

that the terms and conditions of the proposed simplification were determined through arm’s-length negotiations between the MMP Conflicts Committee and the MGG Conflicts Committee and their respective representatives and advisors;

 

   

that the MGG Conflicts Committee was given authority to select and compensate its legal and financial advisors in the discretion of the MGG Conflicts Committee;

 

   

that the MGG Conflicts Committee retained and was advised by independent legal counsel experienced in advising on matters of this kind;

 

   

that the MGG Conflicts Committee retained and was advised by independent financial advisors experienced with publicly traded limited partnerships to assist in evaluating the fairness of the simplification; and

 

   

that the MGG Conflicts Committee received the written opinion of Lazard, dated as of March 3, 2009, with respect to the simplification.

The foregoing discussion of the factors considered by the MGG Conflicts Committee is not intended to be exhaustive, but it does set forth the principal factors considered by the MGG Conflicts Committee.

The MGG Conflicts Committee reached its unanimous conclusion to recommend the simplification agreement, the proposal to direct MGG to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that require the approval of MGG and to direct MMP’s general partner to implement all such matters, the contributions and the liquidation in light of various factors described above and other factors that each member of the MGG Conflicts Committee believed were appropriate.

In view of the wide variety of factors considered by the MGG Conflicts Committee in connection with its evaluations of the complexity of these matters, the MGG Conflicts Committee did not consider it practical, and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors they considered in reaching its decisions and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determinations. Rather, the MGG Conflicts Committee made its recommendations based on the totality of the information presented to it and the investigations conducted by it. In considering the factors discussed above, individual directors may have

 

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given different weight to different factors. Each member of the MGG Conflicts Committee received the standard meeting fee of $1,500 for each board of director and MGG Conflicts Committee meeting they attended related to the consideration of strategic alternatives and the simplification.

It should be noted that this explanation of the reasoning of the MGG Conflicts Committee and all other information presented in this section is forward-looking in nature and, therefore, should be read along with the factors discussed under the heading “Forward-Looking Statements.”

For the reasons set forth above, the MGG Conflicts Committee has unanimously approved and declared the advisability of the simplification agreement and the matters contemplated thereby, including the proposal to direct MGG to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that require the approval of MGG and to direct MMP’s general partner to implement all such matters, the contributions and the liquidation, and unanimously recommends that MGG unitholders vote “FOR” the approval of the simplification agreement and the matters contemplated thereby, “FOR” the approval of the proposal to direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and to direct MMP’s general partner to implement all such matters, “FOR” the approval of the contributions and “FOR” the approval of the liquidation. In addition, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” any proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of either of the foregoing proposals.

Financial Projections Provided to Financial Advisors

In connection with the proposed simplification, management of MMP’s general partner and MGG’s general partner prepared projections that included future financial and operating performance. The projections were prepared for MMP on a stand-alone basis and on a combined basis giving effect to the proposed simplification. The projections were provided to TudorPickering and Lazard in connection with their independent financial analyses and in the preparation of their fairness opinions. The projections were also presented to the MMP Conflicts Committee and the MGG Conflicts Committee. The projections were reviewed and approved by the MMP Conflicts Committee to reflect certain assumptions by the MMP Conflicts Committee. The MGG Conflicts Committee reviewed the financial projections prepared by management of the general partners of MMP and MGG with Lazard and discussed the appropriate use of such projections by Lazard in its analysis of the transformation. The following projected information is included in this joint proxy statement/prospectus only because this information was provided to the financial advisors, the MMP Conflicts Committee and/or the MGG Conflicts Committee, as applicable, in connection with the simplification.

The following projections are a summary of the projections provided to the financial advisors, the MMP Conflicts Committee and the MGG Conflicts Committee, and include only summary projections through 2013. The summary projections set forth below summarize the most recent projections provided to the financial advisors and/or the MMP Conflicts Committee and the MGG Conflicts Committee, as applicable, prior to execution of the simplification agreement. The inclusion of the following summary projections in this joint proxy statement/prospectus should not be regarded as an indication that either MMP or MGG or their respective representatives considered or consider the projections to be a reliable or accurate prediction of future performance or events, and the summary projections set forth below should not be relied upon as such.

The summary projections set forth below were not prepared with a view to compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. In addition, the summary projections are not presented in accordance with generally accepted accounting principles (“GAAP”). The projections, including the summary projections in this joint proxy statement/prospectus, have been prepared by, and are the responsibility of, management of MGG and MMP. Neither Ernst & Young LLP, nor any other independent registered public accounting firm, have compiled,

 

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examined or performed any procedures with respect to the prospective financial information contained in the projections and, accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto. The Ernst & Young LLP reports incorporated by reference in this joint proxy statement/prospectus relate to historical financial information of MMP and MGG. Such reports do not extend to the projections and should not be read to do so.

The internal financial forecasts (upon which the projected information is based) of MMP and MGG are, in general, prepared solely for internal use to assist in various management decisions, including with respect to capital budgeting. Such internal financial forecasts are inherently subjective in nature, susceptible to interpretation and accordingly such forecasts may not be achieved. The internal financial forecasts also reflect numerous assumptions made by management, including the categories of material assumptions that may not be realized and are subject to significant uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of the preparing party. Accordingly, there can be no assurance that the assumptions made in preparing the internal financial forecasts upon which the foregoing projected financial information was based will prove accurate. There will be differences between actual and forecasted results, and the differences may be material. The risk that these uncertainties and contingencies could cause the assumptions to fail to be reflective of actual results is further increased due to the length of time in the future over which these assumptions apply. The assumptions in early periods have a compounding effect on the projections shown for the later periods. Thus, any failure of an assumption to be reflective of actual results in an early period would have a greater effect on the projected results failing to be reflective of actual events in later periods. You should consider the risks identified in MMP’s and MGG’s most recent Annual Reports on Form 10-K, which are incorporated by reference into this joint proxy statement/prospectus, and the matters discussed elsewhere in this joint proxy statement/prospectus under “Forward-Looking Statements.”

In developing the projections, senior management of the general partner of MMP and of the general partner of MGG made numerous material assumptions with respect to MMP and MGG, including:

 

   

organic growth opportunities and the amounts and timing of related costs and potential economic returns;

 

   

the availability and cost of capital;

 

   

the cash flow from existing assets and business activities, including assumptions related to shipments on MMP’s refined petroleum products pipeline system and annual tariff rate adjustments for this pipeline system which are impacted by the annual U.S. Producer Price Index;

 

   

the prices of crude oil, the impact it has on the broader refined petroleum products market and prices and the impact it has on MMP’s commodity related activities; most significantly its petroleum products blending activity; and

 

   

other general business, market and financial assumptions.

All of these assumptions involve variables making them difficult to predict, and most are beyond the control of MMP and MGG. Although senior management of the general partner of MMP and of the general partner of MGG believes that there was a reasonable basis for the projections and underlying assumptions, any assumptions for near-term projected cases remain uncertain, and the risk of inaccuracy increases with the length of the forecasted period.

Projections for MMP and MGG were prepared based on the assumption that MMP would invest $100 million per year on organic growth projects for 2009 and 2010 and $75 million per year for 2011 through 2013, such investments being in addition to projects that are already in progress at the time the projections were prepared. However, such projections prepared by management of the general partner of MMP and the general partner of MGG do not include any sensitivities for acquisitions by MMP. Among other financial information, senior management of the general partner of MMP and of the general partner of MGG prepared projections of distributable cash flow (allocable to MMP’s common units and allocable to MGG), distributable cash flow per

 

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MMP common unit, distributable cash flow available to MGG in total and per MGG common unit, and distributable cash flow following the simplification (both in total and on a per-unit basis), all of which are presented in the table below. The projections were provided to the MMP Conflicts Committee and the MGG Conflicts Committee in mid-February and were based on management assumptions as of that time. Distributable cash flow and distributable cash flow per unit as set forth in the table below may not be indicative of distributions to be declared or paid in the future.

 

     Projections

($ in millions, except per unit amounts)

   2009E    2010E    2011E    2012E    2013E

MMP

              

Total distributable cash flow

   $ 306.4    $ 334.6    $ 353.5    $ 363.6    $ 381.4

Allocable to MMP common units

   $ 201.3    $ 215.5    $ 225.1    $ 230.2    $ 239.3

Allocable to MGG

   $ 105.1    $ 119.1    $ 128.4    $ 133.4    $ 142.1

Distributable cash flow per MMP common unit

   $ 3.01    $ 3.21    $ 3.35    $ 3.42    $ 3.55

MGG

              

Distributable cash flow (1)

   $ 101.8    $ 115.8    $ 124.9    $ 129.8    $ 138.5

Distributable cash flow per MGG common unit

   $ 1.63    $ 1.85    $ 1.99    $ 2.07    $ 2.21

MMP and MGG Combined (2)

              

Distributable cash flow (3)

   $ 303.3    $ 331.5    $ 350.2    $ 360.2    $ 378.0

Distributable cash flow per MMP common unit

   $ 2.85    $ 3.11    $ 3.28    $ 3.37    $ 3.53

Per 0.6325 common unit (for MGG comparison)

   $ 1.80    $ 1.97    $ 2.07    $ 2.13    $ 2.23

 

(1) Includes an average of $3.4 million per year for MGG’s general and administrative expenses.

 

(2) Assumes the simplification occurred on January 1, 2009.

 

(3) Includes incremental MMP general and administrative expenses of $2.4 million and $0.9 million of incremental interest expense related to financing costs for fees associated with the simplification.

The projections are forward-looking statements and are subject to risks and uncertainties. Accordingly, the assumptions made in preparing the projections may not prove to be reflective of actual results, and actual results may be materially different than those contained in the projections. On May 6, 2009, MMP’s senior management provided an update to MMP’s projected 2009 distributable cash flow. Please see “Summary—Recent Developments—Updated 2009 Guidance.” Neither MMP nor MGG intends to make publicly available any update or other revisions to the projections to reflect circumstances existing after the date of the projections. Neither Ernst & Young LLP nor any of its representatives assumes any responsibility for the validity, reasonableness, accuracy or completeness of the projected financial information, and neither MMP nor MGG has made any representations to MMP unitholders or MGG unitholders regarding such information. The inclusion of the projections in this joint proxy statement/prospectus should not be regarded as an indication that the financial advisors, the MMP Conflicts Committee or the MGG Conflicts Committee considered the projections predictive of actual/future events or that the projections should be relied on for that purpose. In light of the uncertainties inherent in any projected data, MMP unitholders and MGG unitholders are cautioned not to rely on the foregoing projections.

Opinion of Tudor, Pickering, Holt & Co.—Financial Advisor to the MMP Conflicts Committee

At a meeting of the MMP Conflicts Committee held on March 3, 2009, TudorPickering rendered its opinion to the MMP Conflicts Committee that, as of March 3, 2009, and based upon and subject to the factors and assumptions set forth in the opinion, the transformation to be effected pursuant to the simplification agreement was fair from a financial point of view to the holders of the MMP common units, other than affiliates of MMP who are holders of the MGG common units.

The opinion speaks only as of the date it was delivered and not as of the time the simplification will be completed or any other time. The opinion does not reflect any circumstances, developments or events that may

 

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occur or have occurred since March 3, 2009, which could significantly alter the value of MMP or MGG or the trading prices of their respective common units, which are among the factors on which TudorPickering’s opinion was based.

The full text of the TudorPickering opinion, dated as of March 3, 2009, which sets forth, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by TudorPickering in rendering its opinion, is attached as Annex E to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the TudorPickering opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion. The holders of the MMP common units are urged to read the TudorPickering opinion carefully and in its entirety. TudorPickering provided its opinion for the information and assistance of the MMP Conflicts Committee in connection with its consideration of the simplification. The TudorPickering opinion does not constitute a recommendation to any holder of MMP common units as to how such holder should vote with respect to the simplification or any other matter.

TudorPickering’s opinion and its presentation to the MMP Conflicts Committee were among many factors taken into consideration by the MMP Conflicts Committee in approving the simplification agreement and making its recommendation regarding the simplification.

In connection with rendering its opinion described above and performing its related financial analyses, TudorPickering reviewed the following, among other things:

 

   

the simplification agreement;

 

   

the form of the amended and restated partnership agreement;

 

   

the form of contribution agreement;

 

   

annual reports to unitholders and Annual Reports on Form 10-K of MMP for the five years ended December 31, 2008;

 

   

Annual Reports on Form 10-K of MGG for the three years ended December 31, 2008;

 

   

certain Quarterly Reports on Form 10-Q of MMP and MGG;

 

   

certain other communications from MMP and MGG to their respective unitholders;

 

   

certain internal financial information and forecasts for MMP and MGG prepared by the senior management of MMP, as reviewed and approved by the MMP Conflicts Committee (the “Forecasts”);

 

   

certain future capital investment sensitivities to the Forecasts prepared by TudorPickering at the direction of, and as reviewed and approved by, the MMP Conflicts Committee on the basis of certain financial projections and assumptions provided to TudorPickering by the MMP Conflicts Committee (the “Capital Investment Sensitivities”);

 

   

certain publicly available research analyst reports with respect to the future financial performance of MMP and MGG, which TudorPickering discussed with the senior management of MMP and the MMP Conflicts Committee;

 

   

certain future crude oil price sensitivities to the Forecasts prepared by TudorPickering at the direction of, and as reviewed and approved by, the MMP Conflicts Committee (the “Crude Oil Price Sensitivities”);

 

   

certain cost savings and operating synergies projected by the senior management of MMP to result from the simplification, as reviewed and approved by the MMP Conflicts Committee (the “Synergies”).

The Capital Investment Sensitivities included two sensitivity cases. The first case, which is referred to below as Capital Investment Sensitivity Case I, assumes an incremental investment, effective January 1, 2009, of

 

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$500 million with earnings based on an assumed 8.0x EBITDA multiple. Capital Investment Sensitivity Case I is assumed to be financed entirely with new debt with a 9.0% interest rate. The second case, which is referred to below as Capital Investment Sensitivity Case II, assumes an acquisition, effective January 1, 2009, for $131 million to be financed entirely with debt available under MMP’s revolving credit facility. The estimated incremental earnings resulting from this acquisition are based on forecasts prepared by the senior management of MMP.

The Crude Oil Price Sensitivities included the following:

 

     2009E    2010E    2011E    2012E    2013E

2/27/09 Strip Reduced by 15 Percent (1)

   39.99    47.41    51.53    54.50    56.73

Current Strip (2/27/09)

   47.05    55.78    60.62    64.12    66.74

Last 90-Day Average Strip

   53.90    59.56    64.85    68.02    70.29

Wall Street Consensus (2)

   53.01    68.37    78.90    85.89    82.85

 

(1) Amounts reflect adjustments for crude oil prices as quoted on the New York Mercantile Exchange on February 27, 2009, reduced by 15%.

 

(2) Crude oil commodity consensus data as of February 27, 2009. (Thomson Financial)

TudorPickering also held discussions with members of the senior management of MMP and the MMP Conflicts Committee regarding their assessment of the strategic rationale for, and the potential benefits of, the simplification and the past and current business operations, financial condition and future prospects of MMP and MGG. In addition, TudorPickering reviewed the reported price and trading activity for MMP common units and MGG common units, compared certain financial and stock market information for MMP and MGG with similar information for certain other companies the securities of which are publicly traded, compared the financial terms of the simplification agreement with the financial terms of certain recent business combinations in the midstream sector of the energy industry, including business combinations involving master limited partnerships, and performed such other studies and analyses, and considered such other factors, as TudorPickering considered appropriate.

For purposes of its opinion, TudorPickering assumed and relied upon, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, accounting, legal, tax and other information provided to, discussed with or reviewed by or for it, or publicly available. In that regard, TudorPickering assumed with the MMP Conflict Committee’s consent (i) that the Forecasts and Synergies were reasonably prepared on a basis reflecting the best estimates available at that time and judgments of the senior management of MMP and the MMP Conflicts Committee, (ii) that such Forecasts and Synergies will be realized in the amounts and within the time periods contemplated thereby and (iii) that any future capital investments by MMP will achieve financial results consistent with the financial assumptions underlying the Capital Investment Sensitivities. TudorPickering also assumed that all governmental, regulatory and other consents or approvals necessary for the consummation of the simplification will be obtained without any adverse effect on MMP, any of the other parties to the simplification agreement, the holders of MMP common units or the expected benefits of the simplification in any meaningful way to TudorPickering’s analysis. In addition, TudorPickering has not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of MMP, MGG or any of their respective subsidiaries, and has not been furnished with any such evaluation or appraisal.

TudorPickering’s opinion is necessarily based upon the economic, monetary, market and other conditions as in effect on, and the information made available to it as of, March 3, 2009. TudorPickering has not assumed and has disclaimed expressly any responsibility or obligation to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of its opinion.

The estimates contained in TudorPickering’s analyses and analyses based upon forecasts of future results are not necessarily indicative of future results, which may be significantly more or less favorable than suggested

 

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by such analyses. In addition, analyses relating to the value of businesses or assets neither purports to be appraisals nor do they necessarily reflect the prices at which businesses or assets may actually be sold. Accordingly, as TudorPickering’s analyses and estimates are based upon numerous factors and events beyond the control of the parties and their respective advisors, they are inherently subject to substantial uncertainty, and none of TudorPickering, MMP or any other person assumes responsibility if future results are materially different from those forecast.

TudorPickering’s opinion does not address the relative merits of the simplification as compared to any alternative transaction that might be available to MMP, nor does it address the underlying business decision of MMP to engage in the simplification. TudorPickering’s opinion relates solely to the fairness, from a financial point of view, to the holders of MMP common units, other than affiliates of MMP who are holders of the MGG common units, of the transformation to be effected pursuant to the simplification agreement. TudorPickering does not express any view on, and its opinion does not address, any other term or aspect of the simplification agreement, the amended and restated partnership agreement, the contribution agreement or the simplification, including, without limitation, any consideration received in connection with the simplification by the holders of MMP common units, including officers, directors or employees of MMP, in their capacities as holders of the MGG common units, the fairness of the simplification to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of MMP or any other party to the simplification agreement; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of MMP or any other party to the simplification agreement, or any other class of such persons, in connection with the simplification, whether relative to the transformation to be effected pursuant to the simplification agreement or otherwise. TudorPickering has not been asked to consider, and its opinion does not address, the price at which MMP common units will trade at any time. TudorPickering did not render any legal, regulatory, tax or accounting advice to the MMP Conflicts Committee in connection with the simplification.

The following is a summary of the material analyses employed and factors considered by TudorPickering in rendering its opinion to the MMP Conflicts Committee on March 3, 2009. The following summary, however, does not purport to be a complete description of the financial analyses performed by TudorPickering, nor does the order of analyses described represent relative importance or weight given to those analyses by TudorPickering. Some of the summaries of the financial analyses described below include information presented in tabular format. The tables must be read together with the full text of each summary and alone are not a complete description of TudorPickering’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 27, 2009 and is not necessarily indicative of current market conditions.

For purposes of its analysis, TudorPickering defined EBITDA as net income plus provision (benefit) for income taxes, interest expense (less interest income), depreciation and amortization. Total distributable cash flow to MMP’s and MGG’s unitholders, collectively, represents EBITDA, less net interest expense and maintenance capital expenditures, whereas distributable cash flow to MMP and to MGG, individually, represents the allocation to the unitholders of each entity of distributable cash flow after taking into consideration the incentive distribution rights (“IDRs”) owned indirectly by MGG. Similarly, distributed cash flow to MMP and to MGG represents the allocation to the unitholders of each entity of distributions after taking into consideration estimated distribution coverage ratios as determined by the senior management of MMP, and the IDRs owned indirectly by MGG. For distributable cash flow and distributions attributed to MGG, TudorPickering deducted management’s estimates of the general and administrative expenses of MGG.

Historical Exchange Ratio and Simplification Premium Analyses

TudorPickering derived selected implied historical exchange ratios by dividing the closing price of an MGG common unit by the closing price of an MMP common unit, in each case as of February 27, 2009, and by dividing the average closing price of an MGG common unit by the average closing price of an MMP common

 

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unit during selected trading periods from February 10, 2006, the date of the initial public offering (“IPO”) of MGG common units, through February 27, 2009. TudorPickering then derived implied premiums received by the holders of the MGG common units pursuant to the simplification agreement on a per common unit basis by dividing the 0.6325 transformation ratio contemplated under the simplification agreement by the respective selected implied historical exchange ratios. TudorPickering then derived the implied premium of the implied price received by the holders of MGG common units pursuant to the simplification agreement on a per common unit basis to the closing price of a MGG common unit on February 27, 2009 and the average price of an MGG common unit during selected periods from February 10, 2006 through February 27, 2009. The implied price received by the holders of MGG common units pursuant to the simplification agreement was derived by multiplying the transformation ratio of 0.6325 MMP common units per MGG common unit by the February 27, 2009 closing price per MMP common unit of $31.80.

The following table sets forth the results of these analyses:

 

     Unit Price    Implied
Exchange
Ratio
   Implied
Premium
at 0.6325
    Premium of
Implied Price
at 0.6325
 
     MMP    MGG        

February 27, 2009 closing

   $ 31.80    $ 15.92    0.501x    26.3 %   26.3 %

1-Month Average

   $ 33.45    $ 15.73    0.470x    34.5 %   27.9 %

3-Month Average

   $ 31.78    $ 15.08    0.475x    33.3 %   33.4 %

6-Month Average

   $ 31.79    $ 16.24    0.511x    23.9 %   23.9 %

1-Year Average

   $ 35.33    $ 19.60    0.555x    14.0 %   2.6 %

Average since MGG’s IPO

   $ 38.48    $ 23.01    0.598x    5.8 %   (12.6 )%

Discounted Cash Flow Analysis of MMP

TudorPickering performed discounted cash flow analyses to calculate the implied values of MMP common units. TudorPickering performed a discounted cash flow analysis of projected distributable cash flow to MMP, after taking into consideration the general partner’s 1.9826% general partner interest in MMP and the IDRs for the years 2009 through 2013 and applied a terminal year cash flow multiple to estimated 2014 distributed cash flow to MMP. TudorPickering then divided the resulting equity value by the number of MMP common units outstanding as of February 27, 2009 to calculate the implied value per MMP common unit.

TudorPickering performed separate discounted cash flow analyses based on the following scenarios: (i) the Forecasts, (ii) the Forecasts with Capital Investment Sensitivity Case I and (iii) the Forecasts with Capital Investment Sensitivity Case II. TudorPickering performed each of these analyses using the Crude Oil Price Sensitivities and both on a stand-alone basis and pro forma for the simplification. The range of discount rates used for the stand-alone and pro forma analyses were 9% to 13% and 10% to 14%, respectively. The range of terminal year cash flow multiples used for the stand-alone and pro forma analyses were 10x to 14x and 11x to 15x, respectively.

TudorPickering also calculated, for each of the discounted cash flow scenarios, the implied range of accretion/dilution to MMP common units resulting from the simplification relative to MMP common units on a stand-alone basis based, for each such scenario, on the medians for such scenario of the implied pro forma and stand-alone discounted cash flow ranges for the 2/27/09 Strip Reduced by 15 Percent and the Wall Street Consensus, as described above in the discussion of the Crude Oil Price Sensitivities.

 

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Below is a table summarizing the results of these analyses:

 

     MMP Common Unit Implied Value Range    Discounted Cash Flow
Accretion/(Dilution)
 
     Stand-alone    Pro Forma   
     Median of
2/27/09 Strip
Reduced by 15
Percent
   Median of
Wall Street
Consensus
   Median of
2/27/09 Strip
Reduced by 15
Percent
   Median of
Wall Street
Consensus
   Low     High  

Forecasts

   $ 37.96    $ 40.28    $ 37.95    $ 40.92    (0.0 )%   1.6 %

Forecasts, with Capital Investment Sensitivity Case I

   $ 40.15    $ 42.47    $ 40.78    $ 43.75    1.6 %   3.0 %

Forecasts, with Capital Investment Sensitivity Case II

   $ 38.88    $ 41.21    $ 39.14    $ 42.11    0.7 %   2.2 %

Selected Transactions Analysis—Oil and Gas Midstream Industry

Using publicly available information and third-party research, TudorPickering calculated multiples of transaction value to estimated EBITDA for the forward year, based on the purchase prices paid in selected publicly announced transactions involving companies in the oil and gas midstream industry. The selected transactions were chosen because the target companies were deemed to be similar to MMP in one or more respects, including nature of the business, size and geographic concentration. TudorPickering then multiplied the high and low values from the range of selected transaction multiples by MMP’s projected 2009 EBITDA, based on the Forecasts. TudorPickering then subtracted MMP’s total outstanding debt, net of cash, as of December 31, 2008 and the trading value of the MGG common units as of February 27, 2009 from each valuation and divided the resulting equity value of MMP by the number of MMP common units outstanding as of February 27, 2009 to calculate the implied value ranges for MMP on a per common unit basis.

The following tables set forth the selected transactions reviewed and the results of these analyses:

 

Acquirer

  

Seller

Duncan Energy Partners L.P.

   Enterprise Product Partners L.P.

El Paso Pipeline Partners, L.P.

   El Paso Corporation

Kinder Morgan Energy Partners, L.P.

   Knight, Inc.

TC Pipelines, LP

   El Paso Corporation

TransCanada Corporation

   El Paso Corporation

TC Pipelines, LP

   Sierra Pacific Resources, Inc.

Energy Transfer Partners, L.P.

   General Electric Company; Southern Union Company

Plains All American Pipeline, L.P.

   Pacific Energy Partners, L.P.; LB Pacific, LP

Plains All American Pipeline, L.P.

   BP p.l.c.

TC Pipelines, LP

   ONEOK Partners, L.P.

Atlas Pipeline Partners, L.P.

   OGE Energy Corp.

TransCanada Corporation

   National Energy & Gas Transmission, Inc.

Enbridge Inc.

   Shell US Gas & Power LLC; Royal Dutch Shell plc

 

Selected Transactions
Transaction Value to Forward
Year EBITDA Multiple
   MMP Common Unit Implied
Valuation Range
6.8x    13.0x    $ 14.69    $ 55.49

Comparable Master Limited Partnership Trading Analysis

TudorPickering reviewed and compared certain financial, operating and stock market information for 21 master limited partnerships (“MLPs”), including: Boardwalk Pipeline Partners, LP, Buckeye Partners, L.P.,

 

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Duncan Energy Partners L.P., El Paso Pipeline Partners, L.P., Enbridge Energy Partners, L.P., Energy Transfer Partners, L.P., Enterprise Products Partners L.P., Genesis Energy, L.P., Holly Energy Partners, L.P., Inergy, L.P., Kinder Morgan Energy Partners, L.P., Martin Midstream Partners L.P., NuStar Energy L.P., ONEOK Partners, L.P., Plains All American Pipeline, L.P., Spectra Energy Partners, LP, Sunoco Logistics Partners L.P., TC PipeLines, LP, TEPPCO Partners, L.P., TransMontaigne Partners L.P. and Williams Pipeline Partners L.P. TudorPickering selected these MLPs because they are publicly traded partnerships with operations that, for purposes of analysis, may be considered similar to the operations of MMP in one or more respects.

For each of the comparable MLPs, TudorPickering calculated the multiple of enterprise value to estimated EBITDA for the year ended December 31, 2009 using third-party research estimates and publicly available information. For each comparable MLP, TudorPickering first calculated the equity value by multiplying the number of common units and subordinated units, as appropriate, outstanding as of the most recently reported date by the closing price per common unit on February 27, 2009, then divided by one minus the percentage of cash flows received by each partnership’s respective general partner interest and incentive distribution rights, as applicable, based on the most recent quarterly distribution paid, to derive the total implied equity value of each partnership. TudorPickering then calculated each partnership’s enterprise value by adding the book value of any other securities outstanding and the total outstanding debt balance, net of cash, as of the most recently reported date. TudorPickering then divided the resulting estimated enterprise value for each partnership by their respective estimated EBITDA for the year ended December 31, 2009 to calculate the multiple of enterprise value to EBITDA. TudorPickering multiplied the high and low values from the range of comparable MLP multiples by MMP’s estimated 2009 EBITDA based on the Forecasts to calculate the implied enterprise value range for MMP. TudorPickering then subtracted MMP’s total outstanding debt, net of cash, as of September 30, 2008 and the closing value of the MGG common units as of February 27, 2009 from each valuation and divided the resulting equity value by the number of MMP common units outstanding as of February 27, 2009 to determine the implied value range for MMP on a per common unit basis.

The following table sets forth the results of these analyses:

 

Comparable MLP Enterprise
Value to 2009E EBITDA
Multiple
  MMP Common Unit
Implied Valuation Range
6.2x   13.9x   $ 10.69   $ 61.10

Discounted Cash Flow Analysis of MGG

TudorPickering performed discounted cash flow analyses to calculate the implied values of MGG’s 100% indirect ownership of the IDRs and 1.9826% general partner interest in MMP, less its partnership expenses, as estimated by management of MGG. TudorPickering performed a discounted cash flow analysis of projected distributable cash flow to MGG for the years 2009 through 2013 and applied a terminal year cash flow multiple to estimated 2014 distributed cash flow. TudorPickering performed separate discounted cash flow analyses based on the following scenarios: (i) the Forecasts, (ii) the Forecasts with Capital Investment Sensitivity Case I and (iii) the Forecasts with Capital Investment Sensitivity Case II. TudorPickering performed each of these analyses using the Crude Oil Price Sensitivities. The range of discount rates used for the analyses was 10% to 15%. The range of terminal year cash flow multiples used for the analyses was 11x to 17x.

TudorPickering then calculated the range of implied values of MMP common units to be received for each MGG common unit in connection with the simplification agreement by multiplying the range of implied values of an MMP common unit, pro forma for the simplification, under each MMP discounted cash flow scenario, by the 0.6325 transformation ratio contemplated under the simplification agreement.

 

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The following table sets forth the results of these analyses:

 

     Implied Value Range of
MGG Common Unit
   Implied Value Range of
MMP Common Units
Received
     Low    High    Low    High

Forecasts

   $ 18.79    $ 33.64    $ 20.07    $ 30.75

Forecasts, with Capital Investment Sensitivity Case I

   $ 20.70    $ 36.83    $ 21.54    $ 32.90

Forecasts, with Capital Investment Sensitivity Case II

   $ 19.62    $ 34.93    $ 20.44    $ 31.11

Selected Transactions Analysis—Oil and Gas Midstream Industry General Partners and General Partner Holding Companies

Using publicly available information, TudorPickering calculated multiples of transaction value to certain financial data, based on the purchase prices paid in selected publicly announced transactions involving general partners or general partner holding companies in the oil and gas midstream industry. The selected transactions were chosen because the target companies were deemed to be similar to MGG in one or more respects, including structure, the nature of the underlying business, size and geographic concentration. For each of the selected transactions, TudorPickering calculated multiples of implied equity value of general partner interests and IDRs (excluding the value of any limited partnership interests owned by each respective general partner entity) to projected cash flow attributable to such IDRs and general partner interests for the forward year, based on the percentage of incremental cash flow that such general partner was entitled to receive in respect of its general partner interest and IDRs at the time of the acquisition. TudorPickering separated the selected transactions into two groups based on whether the general partners received greater than 40% of incremental distribution increases coming from the underlying partnership. TudorPickering considered only those transactions where the general partners were entitled to receive greater than 40% of incremental distribution increases coming from the underlying partnership in calculating the high, low and median selected transaction multiples. TudorPickering then multiplied the high and low values from the range of selected transaction multiples by the projected cash flow, based on the Forecasts, to be distributed to MGG in 2009 in respect of the general partner interest and IDRs in MMP, less partnership expenses, and then divided the resulting implied values for MGG by the number of MGG common units outstanding as of February 27, 2009 to calculate the range of implied values of MGG on a per common unit basis. TudorPickering then calculated the range of implied values of MMP common units to be received for each MGG common unit in connection with the simplification by multiplying the range of implied values of an MMP common unit, pro forma for the simplification, under the MMP discounted cash flow scenario based on the Forecasts, by the 0.6325 transformation ratio contemplated under the simplification agreement.

The following table sets forth the selected transactions reviewed and the results of these analyses:(1)

 

Acquirer

  

Target

MarkWest Energy Partners, L.P.    MarkWest Hydrocarbons, Inc.
General Electric Capital Corporation    Regency GP LP

ArcLight Capital Partners LLC; Kelso & Company, L.P.; Lehman Brothers Holdings Inc.

   Buckeye GP Holdings L.P.
Plains All American Pipeline, L.P.    Pacific Energy Partners, L.P.
Enterprise GP Holdings L.P.    TEPPCO GP, Inc.
Valero LP    Kaneb Services LLC
ONEOK, Inc.    Northern Border GP
Enterprise Products Partners L.P.    GulfTerra Energy Co LLC
Magellan Midstream Partners, L.P.    Williams Energy Partners LP

 

(1) Includes selected transactions that were reviewed but not considered in calculating the selected transaction multiples

 

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Selected Transactions
Transaction Value to Forward
Year GP/IDR Cash Distributions
Received
  MGG Common Unit
Implied Valuation Range
  MMP Common Units Received
Implied Valuation Range
Range   Median   Low   High       Low           High    
9.5x - 24.7x   17.9x   $ 16.20   $ 42.11   $ 9.29   $ 35.10

Comparable Company Trading Analysis—Publicly Traded General Partners of MLPs

TudorPickering reviewed and compared certain financial, operating and stock market information of MGG to corresponding information of eight publicly traded general partners of MLPs, including: Atlas Pipeline Holdings , L.P.; Buckeye GP Holdings L.P.; Crosstex Energy, Inc.; Energy Transfer Equity, L.P.; Enterprise GP Holdings L.P.; Hiland Holdings GP, LP; Inergy Holdings , L.P. and NuStar GP Holdings , LLC. TudorPickering excluded from its analysis all MLPs that had significantly reduced distributions, and were therefore considered distressed, including Atlas Pipeline Holdings, LP, Crosstex Energy, Inc. and Hiland Holdings GP, LP.

For each of the comparable general partners, TudorPickering calculated the multiple of projected cash flow distributions for the year ended December 31, 2009 (attributable to IDRs and general partner interests) to the implied value of the general partner interest and IDRs held by such general partner. TudorPickering calculated the implied value of the general partner interest and IDRs for each comparable general partner by multiplying the number of common units outstanding for the general partner as of the most recently reported date by the closing common unit price on February 27, 2009 and subtracting the total outstanding debt, net of cash, as of the most recently reported date as well as the market value, as of February 27, 2009, of any common or subordinated units of the related master limited partnership held by the general partner. TudorPickering utilized third-party research estimates and publicly available information to calculate these multiples.

TudorPickering multiplied the high and low values from the multiples by the projected cash flow, based on the Forecasts, to be distributed to MGG in 2009 in respect of its general partner interest and its IDRs in MMP, less partnership expenses, and then divided the resulting implied values of MGG by the number of MGG common units outstanding as of February 27, 2009 to calculate the range of implied values for MGG on a per common unit basis. TudorPickering then calculated the range of implied values of MMP common units to be received for each MGG common unit in connection with the simplification by multiplying the range of implied values of an MMP common unit, pro forma for simplification, under the MMP discounted cash flow scenarios based on the Forecasts, by the 0.6325 transformation ratio contemplated under the simplification agreement.

 

Comparable Companies Equity
Value of General Partner Interest
and IDRs to 2009E Cash GP/IDR
Distributions Received Multiple
  MGG Common Unit
Implied Valuation Range
  MMP Common Units Received
Implied Valuation Range
Range   Median   Low   High       Low           High    
8.6x - 11.8x   10.1x   $ 14.66   $ 20.12   $ 6.76   $ 38.65

Pro Forma Analysis

TudorPickering analyzed the pro forma impact of the simplification on the estimated distributable cash flow to the holders of MMP common units on a per common unit basis for the years 2009 through 2013 based on the following scenarios: (i) the Forecasts, (ii) the Forecasts with Capital Investment Sensitivity Case I and (iii) the Forecasts with Capital Investment Sensitivity Case II. TudorPickering performed each of these analyses based on the Crude Oil Price Sensitivities. Under the Forecasts scenario, the simplification results in dilution in distributable cash flow per MMP common unit through 2013. For the Forecasts with Capital Investment Sensitivity Case I scenario, the Simplification results in dilution in distributable cash flow per MMP common unit through either 2012 or 2013, depending on the particular Crude Oil Price Sensitivity used. For the Forecasts with Capital Investment Sensitivity Case II scenario, the simplification results in dilution in distributable cash flow per MMP common unit through 2013.

 

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The preparation of a fairness opinion is a complex, analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, TudorPickering used several analytical methodologies and did not attribute any particular weight to any particular methodology or factor considered by it. Moreover, each analytical methodology has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, TudorPickering believes that no one single method of analysis necessarily should be regarded as critical to the overall conclusion reached by TudorPickering and that its analyses must be considered as a whole. Selecting portions of TudorPickering’s analyses and of the factors considered by it, without considering all analyses and factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying TudorPickering’s opinion. The conclusion reached by TudorPickering as to fairness, therefore, is based on the application of TudorPickering’s own experience and judgment as to all analyses and factors considered by TudorPickering, taken as a whole.

No company or transaction used in the analyses above is identical to MMP, MGG or the simplification. Accordingly, these analyses must take into account differences in the financial and operating characteristics of the selected companies, differences in the structure and timing of the selected transactions and other factors that would affect the public trading value and acquisition value of the companies considered.

The financial terms of the transformation were determined through arms’-length negotiations between the MMP Conflicts Committee and the MGG Conflicts Committee and were approved by each of these committees. TudorPickering participated in certain negotiations leading to the determination of the transformation ratio and provided advice to the MMP Conflicts Committee during these negotiations. TudorPickering did not, however, recommend any specific financial terms of the transformation to the MMP Conflicts Committee or assert that any specific financial terms of the transformation constituted the only appropriate financial terms of the transformation.

TudorPickering and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. TudorPickering also engages in securities trading and brokerage, private equity activities, equity research and other financial services, and in the ordinary course of these activities, TudorPickering and its affiliates may from time to time acquire, hold or sell, for their own accounts and for the accounts of their customers, (i) equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of MMP, any of the other parties to the simplification agreement and any of their respective affiliates and (ii) any currency or commodity that may be involved in the simplification and the other matters contemplated by the simplification agreement. In addition, TudorPickering and its affiliates and certain of its employees, including members of the team performing services in connection with the simplification, as well as certain private equity funds associated or affiliated with TudorPickering in which they may have financial interests, may from time to time acquire, hold or make direct or indirect investments in or otherwise finance a wide variety of companies, including MGG and its affiliates.

TudorPickering may provide investment banking and other financial services to MMP or to any of the other parties to the simplification agreement or their respective equity holders, unitholders, affiliates or portfolio companies in the future. In connection with such investment banking or other financial services, TudorPickering may receive compensation.

The MMP Conflicts Committee selected TudorPickering to act as its financial advisor, and to render a fairness opinion, in connection with the simplification because of TudorPickering’s expertise, reputation, familiarity and experience with the energy industry, including recent business combinations in the midstream sector of the energy industry and recent business combinations involving MLPs. Pursuant to the terms of the

 

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engagement letters dated April 23, 2008 and October 9, 2008, between TudorPickering and the MMP Conflicts Committee, MMP paid TudorPickering a retainer of $125,000 upon signing of the April 23rd engagement letter and will continue to pay an additional retainer payment of $125,000 upon each quarterly anniversary thereafter. Additionally, MMP paid TudorPickering a fee of $1,000,000 upon delivery of TudorPickering’s fairness opinion. MMP has also agreed to pay TudorPickering an additional fee of $3,000,000, reduced by any retainer and fairness opinion fees paid, upon closing of the simplification. In addition, MMP has agreed to reimburse TudorPickering for its reasonably incurred out-of-pocket expenses resulting from or arising out of the engagement, including fees and expenses of its legal counsel. MMP has also agreed to indemnify TudorPickering, its affiliates and their respective officers, directors, partners, agents, employees and controlling persons against various liabilities, including certain liabilities under the federal securities laws.

Opinion of Lazard Frères & Co. LLC—Financial Advisor to the MGG Conflicts Committee

The MGG Conflicts Committee retained Lazard to act as financial advisor to and render an opinion to the MGG Conflicts Committee as to the fairness, from a financial point of view, to holders of MGG common units of the Consideration (as defined in such opinion) (the “Consideration”) to be paid to such holders in the simplification. On March 3, 2009, Lazard rendered its opinion to the MGG Conflicts Committee, that, as of such date, and based upon and subject to the assumptions made, procedures followed, matter considered, and qualifications and limitations set forth therein, the Consideration to be paid to holders of MGG common units (other than MMP, MMP’s general partner or MGG’s general partner, which, together with their respective affiliates, we collectively refer to in this section as “excluded holders”) in the simplification was fair, from a financial point of view, to such holders. Consideration, for the purposes of the Lazard opinion, means the 0.6325 MMP common units for each MGG common unit that holders of MGG common units will receive as a result of the simplification.

The full text of Lazard’s written opinion, dated March 3, 2009, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Lazard in connection with its opinion is attached to this joint proxy statement/prospectus as Annex F and is incorporated into this joint proxy statement/prospectus by reference. The description of Lazard’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Lazard’s written opinion attached as Annex F. We encourage you to read Lazard’s opinion and this section carefully and in their entirety.

Lazard’s opinion was directed to the MGG Conflicts Committee for the information and assistance of the MGG Conflicts Committee in connection with its evaluation of the simplification and only addressed the fairness, from a financial point of view, to the holders of MGG common units of the Consideration to be paid to certain holders of MGG common units in the simplification as of the date of Lazard’s opinion. The MGG Conflicts Committee did not request Lazard to consider, and Lazard’s opinion did not address, the relative merits of the simplification as compared to any other transaction or business strategy in which MGG might engage or the merits of the underlying decision by MGG to engage in the simplification. Lazard’s opinion was not intended to and does not constitute a recommendation to any holder of MGG common units as to how such holder should vote or act with respect to the simplification or any matter relating thereto. Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of Lazard’s opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of Lazard’s opinion. Lazard’s opinion did not express any opinion as to the prices at which common units of MGG or MMP may trade at any time subsequent to the announcement of the simplification.

 

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The following is a summary of Lazard’s opinion. We encourage you to read Lazard’s written opinion carefully in its entirety.

In connection with its opinion, Lazard:

 

   

Reviewed the financial terms and conditions of a draft of the simplification agreement dated March 1, 2009;

 

   

Analyzed certain publicly available historical business and financial information relating to MGG and MMP;

 

   

Reviewed various financial forecasts and other data provided to Lazard by MGG relating to the business of MGG and financial forecasts and other data provided to Lazard by MMP relating to the business of MMP;

 

   

Analyzed financial forecasts of MGG and MMP, respectively, under various commodity price scenarios and business assumption cases;

 

   

Held discussions with members of the senior management of MGG and MMP with respect to the businesses and prospects of MGG and MMP, respectively;

 

   

Reviewed public information with respect to certain other companies Lazard believed to be generally relevant in evaluating the businesses of MGG and MMP, respectively;

 

   

Reviewed the financial terms of certain business combinations involving companies Lazard believed to be generally relevant in evaluating the businesses of MGG and MMP, respectively;

 

   

Reviewed historical unit prices and trading volumes of the common units of MGG and MMP, respectively;

 

   

Reviewed the potential pro forma financial impact of the simplification based on financial forecasts with respect thereto as provided to Lazard by senior management of MGG and MMP; and

 

   

Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of MGG or MMP or concerning the solvency or fair value of MGG or MMP, and Lazard was not furnished with such valuation or appraisal. At the direction of the MGG Conflicts Committee, for purposes of its analyses, Lazard used the financial forecasts provided to it by senior management of MGG and MMP on January 12, 2009. With respect to the financial forecasts that Lazard reviewed, Lazard assumed, with the consent of MGG, that they had been reasonably prepared on basis reflecting the best currently available estimates and judgments of the senior management of MGG and MMP as to the future financial performance of MGG and MMP. Lazard assumed no responsibility for and expressed no view as to such forecasts or the assumptions on which they were based.

In rendering its opinion, Lazard was not authorized to, and Lazard did not, solicit indications of interest from third parties regarding a potential transaction with MGG.

In rendering its opinion, Lazard assumed, with the consent of the MGG Conflicts Committee, that the simplification would be consummated on the terms described in the simplification agreement, without any waiver or modification of any material terms or conditions of the simplification agreement. Lazard also assumed, with the consent of the MGG Conflicts Committee, that obtaining the necessary regulatory or third party approvals and consents for the simplification would not have an adverse effect on MGG or MMP. Lazard further assumed that (i) the simplification will not result in the termination of MMP as a partnership for U.S. federal income tax purposes, (ii) the simplification will not result in any gain or loss to the holders of MGG common units for U.S. federal income tax purposes and (iii) the terms of any management, administrative or other services

 

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provided by MGG’s general partner or its affiliates to MMP or any of its affiliates, taken as a whole, will be no less favorable to MMP and its affiliates than the terms in place prior to consummation of the simplification. Lazard’s opinion did not address any legal, tax, regulatory or accounting matters, as to which Lazard understood that MGG obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects of the simplification (other than the Consideration to the extent expressly specified in Lazard’s opinion). In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the simplification, or class of such persons, relative to the Consideration or otherwise.

The following is a brief summary of the material financial analyses and reviews that Lazard deemed appropriate in connection with rendering its opinion. The brief summary of Lazard’s analyses and reviews provided below is not a complete description of the analyses and reviews underlying Lazard’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to summary description. Considering selected portions of the analyses and reviews or the summary set forth below, without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Lazard’s opinion.

In arriving at its opinion, Lazard considered the results of all of its analyses and reviews and did not attribute any particular weight to any factor, analysis or review considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses and reviews.

For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of MGG and MMP. No company, business or transaction used in Lazard’s analyses and reviews as a comparison is identical to MGG, MMP or the simplification, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Lazard’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.

Lazard’s Financial Analyses

The following is a summary of the financial analyses and reviews performed by Lazard in connection with providing its opinion to the MGG Conflicts Committee on March 3, 2009 and presented on that date.

The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazard’s analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.

Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 2, 2009 and is not necessarily indicative of current market conditions.

 

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Valuation Analyses

Discounted Cash Flow Analysis. Lazard performed a discounted cash flow analysis analyzing the present value of MGG and MMP, without giving effect to the proposed simplification, based on financial projections for the ten year period beginning on January 1, 2009. The financial projections were prepared by the senior management of MMP and MGG and, provided to Lazard on January 12, 2009. Lazard analyzed the financial projections as provided by senior management of MMP and MGG based on several crude oil futures pricing scenarios, including (i) constant $40 crude oil pricing over the forecast period, (ii) constant $60 crude oil pricing over the forecast period, (iii) constant $80 crude oil pricing over the forecast period; (iv) projected crude oil pricing provided by MMP and MGG senior management on January 12, 2009 as part of the financial forecast; and (v) updated crude oil futures pricing as of February 24, 2009. In addition, Lazard analyzed the financial projections based on a modified set of business and financing assumptions, including an additional assumed $50 million in growth capital expenditures in each of the years included in the projected financials and an assumed $500 million acquisition to be completed during 2009, under the various crude pricing scenarios detailed above to determine the financial impact.

For the MGG common units, Lazard based its discounted cash flow analysis on the projected distributions, including associated general partner general and administrative expenses, per MGG common unit and an estimated multiple applied to potential distributable cash flow, including associated general partner general and administrative expenses, per MGG common unit in the terminal year. Lazard assumed equity discount rates of approximately 10.0% - 13.0% based on the equity cost of capital of selected comparable publicly traded general partners of master limited partnerships and a terminal multiple range of approximately 10.5x - 13.5x. The terminal multiple range was determined based on the inverse of an assumed range of cost of equity returns and a three percent long-term distribution growth rate.

For the MMP common units, Lazard based its discounted cash flow analysis on the projected distributions per MMP common unit and an estimated multiple applied to potential distributable cash flow per MMP common unit in the terminal year. Lazard assumed equity discount rates of approximately 9.0% - 12.0% based on the equity cost of capital of selected comparable publicly traded master limited partnerships and a terminal multiple range of approximately 10.0x - 11.5x. The terminal multiple range was determined based on the inverse of an assumed range of cost of equity returns and a one percent long-term distribution growth rate.

Based on the foregoing, Lazard determined a reference range per MGG common unit of approximately $21.50 to $25.00 per common unit and a reference range per MMP common unit of approximately $36.25 and $39.50 per common unit. The implied reference ranges per common unit for MGG and MMP were then used to derive an implied transformation ratio range of 0.596x to 0.635x. The low end of the transformation ratio range was calculated by dividing the low end of the MGG per common unit reference range by the low end of the MMP per common unit reference range. The high end of the transformation ratio range was calculated by dividing the high end of the MGG per common unit reference range by the high end of the MMP per common unit reference range.

Comparable Companies Analysis. Lazard utilized publicly available information to calculate equity market capitalization multiples of distributable cash flow estimated for 2009 and 2010 and distributions for the fourth quarter 2008 annualized and estimated for 2009 and 2010 for five publicly traded general partners of master limited partnerships. Estimated distributable cash flow and distributions were based on research analyst estimates. The equity market capitalization data for the general partner entities was adjusted to exclude the public market value of any limited partner units held in the associated master limited partnership. The distributable cash flow and distributions of the general partner entities were also adjusted to exclude contributions resulting from the limited partnership units held in the associated master limited partnership and incorporated the general and administrative expenses associated with each general partner.

 

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The following sets forth the general partner entities reviewed based on the comparability of the operating and financial characteristics of these entities to those of MGG:

 

   

Enterprise GP Holdings L.P.

 

   

Energy Transfer Equity, L.P.

 

   

Buckeye GP Holdings L.P.

 

   

NuStar GP Holdings, LLC

 

   

Atlas Pipeline Holdings, L.P.

The maximum, mean, median and minimum multiples for the five publicly traded general partner entities are set forth below. The table also includes benchmark multiple ranges selected by Lazard based on a review of the comparable company multiples:

 

Measure

  Maximum   Mean   Median   Minimum    Benchmark
Range

Implied GP Value/2009E GP Distributable Cash Flow

  8.4x   7.0x   7.2x   5.3x    7.0x    9.0x

Implied GP Value/2010E GP Distributable Cash Flow

  9.0x   6.8x   6.9x   5.0x    6.0x    8.0x

Implied GP Value/Q4 2008 GP Distribution

  10.5x   8.2x   10.1x   4.8x    9.0x    10.5x

Implied GP Value/2009E GP Distribution

  10.5x   9.5x   10.0x   7.5x    8.5x    10.5x

Implied GP Value/2010E GP Distribution

  9.6x   7.8x   8.2x   5.8x    8.0x    9.5x

Lazard applied the benchmark multiples corresponding to estimated 2009 and 2010 distributable cash flow and distributions for the fourth quarter of 2008 annualized and estimated for 2009 and 2010 for MGG to determine the implied unit price reference ranges. Lazard determined an implied reference range of approximately $13.00 to $15.00 per MGG common unit based on this analysis. In determining the implied exchange ratio reference range for this analysis, the implied MGG per unit price reference range of $13.00 to $15.00 was divided by the closing common unit price of MMP on March 2, 2009 of $29.65 per unit, resulting in an implied exchange ratio range of approximately of 0.438x to 0.506x.

Comparable Transaction Analysis. Lazard reviewed selected publicly available information for 20 transactions involving general partners of master limited partnerships between October 1997 and January 2009. In selecting the representative general partner transactions, Lazard focused on the nine transactions that involved a general partner that had reached the highest level of incentive distribution rights and received greater than 15% of total distributions made by the underlying master limited partnership as these transactions were deemed most relevant given the current and forecasted economic split of distributions received by MGG.

Using publicly available information, Lazard calculated equity purchase price multiples for 2009 and 2010 estimated distributions to MGG. Estimated distributable cash flow and distributions were based on research analyst estimates.

 

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Lazard analyzed the following general partner transactions:

 

Acquiror

  

Target

  

Announcement Date

Harold Hamm (Majority Owner)    Hiland Holdings GP, LP    15 Jan 09(1)
ArcLight /Kelso & Co.    Buckeye GP Holdings L.P.    21 Oct 08(1)
Occidental Petroleum Corp.    Plains All American Pipeline, L.P.    2 Jul 08(1)
MarkWest Energy Partners, L.P.    MarkWest Hydrocarbon, Inc.    5 Sep 07(1)
General Electric    Regency Energy (HM Capital)    19 Jun 07     
Plains All American    LB Pacific (Pacific Energy Partners)    12 Jun 06     
ArcLight, Kelso and Lehman Brothers    Buckeye GP Holdings L.P.    3 Apr 07(1)
EPCO    TEPPCO Partners, L.P.    24 Feb 05(1)
EPCO    GulfTerra Energy Partners, L.P.    14 Jan 05     
Valero L.P.    Kaneb Pipe Line Partners, L.P.    1 Nov 04     
Lehman Brothers    Pacific Energy Partners, L.P.    29 Oct 04     
ONEOK, Inc.    Northern Plains (Northern Border)    16 Sep 04     
Riverstone    Glenmoor, Ltd. (Buckeye)    5 Mar 04(1)
Vulcan Energy Corporation    Plains Resources Inc.    19 Feb 04     
Enterprise Products Partners, L.P.    GulfTerra Energy Partners, L.P.    15 Dec 03(1)
Goldman Sachs    GulfTerra Energy Partners, L.P.    3 Oct 03(1)
Madison Dearborn/Riverstone    Williams Energy Partners, L.P.    21 Apr 03(1)
Investor Group/Management    Plains All American Pipeline, L.P.    9 May 01(1)
KN Energy, Inc.    Kinder Morgan, Inc.    8 Jul 99(1)
Kinder Morgan Energy Partners, L.P.    Santa Fe Pacific Pipeline Partners, L.P.    18 Oct 97     

 

(1) Indicates transaction in which general partner entity economic interest in total distributions of the associated master limited partnership exceeded fifteen percent and had reached the highest level of incentive distribution rights.

The maximum, mean, median and minimum multiples for the general partner transactions are set forth below. The table also includes benchmark multiple ranges selected by Lazard based on a review of the implied multiples in the selected transactions. Lazard applied the benchmark multiples to MGG’s 2009 and 2010 estimated distributions, including associated general partner general and administrative costs, to determine the implied reference unit price ranges for MGG.

 

Measure

   Maximum    Mean    Median    Minimum    Benchmark
Range

GP Purchase Price/Current Year’s Distributions

   33.5x    17.0x    14.4x    11.2x    13.0x    17.0x

GP Purchase Price/Next Year’s Distributions

   22.4x    13.6x    11.6x    8.4x    11.0x    15.5x

Lazard also performed a premium analysis for the same universe of transactions, which compared the implied transaction multiple for the target company with the same multiple of the underlying master limited partnership at the time of announcement. The maximum, mean, median and minimum implied premiums to the corresponding multiple for the underlying master limited partnerships and the resulting adjusted multiples for the general partner transactions are set forth below. The table also includes benchmark multiple ranges selected by Lazard based on a review of the implied multiples in the selected transactions.

 

Measure

  Maximum     Mean     Median     Minimum     Benchmark
Range
 

Implied Premium to Current Year’s MLP Multiple

  125.0 %   14.6 %   3.2 %   (11.4 )%   (11.4 )%   3.2 %

Implied Premium to Next Year’s MLP Multiple

  19.0 %   (1.5 )%   (2.0 )%   (22.7 )%   (22.7 )%   (2.0 )%

Adjusted General Partnership Current Year’s Multiple

  22.5 x   11.5 x   10.3 x   8.9 x   9.0 x   10.5 x

Adjusted General Partnership Next Year’s Multiple

  11.7 x   9.7 x   9.7 x   7.6 x   8.0 x   9.5 x

 

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Lazard applied the benchmark multiples to MGG’s 2009 and 2010 estimated distributions, including associated general partner general and administrative costs, to determine the implied unit price ranges for MGG.

Lazard calculated an implied reference range of approximately $13.25 to $26.00 per MGG common unit based the benchmark multiple ranges determined by this analysis. In determining the implied exchange ratio reference range for this analysis, the implied MGG reference range price of $13.25 to $26.00 per unit was divided by the closing common unit price of MMP on March 2, 2009 of $29.65 per unit, resulting in an implied exchange ratio range of approximately of 0.447x to 0.877x.

Other Reviews

Accretion / Dilution Analysis. Lazard analyzed the pro forma financial effect of the proposed simplification for the fiscal years ended 2009 through 2013 using the projections of MMP and MGG as described in the “—Financial Projections Provided to Financial Advisors” section above utilizing (i) crude oil futures pricing provided by MMP and MGG senior management on January 12, 2009 as part of the financial forecast and (ii) updated crude oil futures pricing as of February 24, 2009. This analysis indicated that the simplification should be accretive to estimated distributable cash flow and estimated distributions per MGG common unit in each year assuming both crude oil futures pricing scenarios. This analysis assumed that the simplification was completed on January 1, 2009.

Implied Premium Analysis. Lazard calculated the premiums implied by comparing the per unit implied Consideration, for the specified historical periods, to the holders of MGG common units based on the 0.6325x exchange ratio offered by MMP and the MMP closing common unit price for the specified historical periods. The specified periods of historical per unit trading data for MGG and MMP analyzed were (i) between March 3, 2008 and March 2, 2009 and (ii) since February 10, 2006, the date of MGG’s initial public offering with respect to average closing prices. The calculated results are as follows:

 

     Historical Market Price    Offer Premium
at 0.6325x
 

Period

       MGG            MMP       

1-Day Prior (March 1, 2009)

   $ 15.92    $ 31.80    26 %

20-Days Prior

   $ 15.55    $ 34.24    39 %

2-Months Prior

   $ 14.70    $ 32.51    40 %

3-Months Prior

   $ 12.52    $ 28.11    42 %

20-Day Average

   $ 15.70    $ 33.04    33 %

2-Month Average

   $ 15.72    $ 33.11    33 %

3-Month Average

   $ 15.13    $ 31.82    33 %

52-Week High

   $ 25.96    $ 44.24    8 %

52-Week Low

   $ 11.28    $ 18.85    6 %

Average Since IPO

   $ 23.00    $ 38.46    6 %

Lazard further reviewed premiums associated with acquisition transactions for which at least a portion of the consideration consisted of equity (stock or units) from the following time periods: (i) energy / oil and gas transactions from January 2007 through June 2008, (ii) energy / oil and gas master limited partnerships from October 1997 through September 2007, (iii) all transactions completed from September 2007 through September 2008 and (iv) all transactions completed from October 2008 through January 2009. Based on these premiums, the resulting implied exchange ratio range is approximately 0.531x to 0.708x.

Historical Yield Analysis. Lazard reviewed the historical maximum, mean, median and minimum distribution yields for MGG and MMP common units and the distribution yield spreads between MGG and MMP common units subsequent to MGG’s initial public offering. Lazard further utilized publicly available information to review similar metrics for five publicly traded general partners and their associated master limited partnerships. Lazard determined a reference range per MGG common unit using (i) MGG’s distribution per unit for the fourth quarter of 2008 annualized, (ii) maximum, mean and minimum distribution yield spreads between

 

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general partners and limited partnerships, and (iii) MMP’s distribution yield based on the closing common unit price of MMP on March 2, 2009 of $29.65 per unit and MMP’s distribution per unit for the fourth quarter of 2008 annualized. The low end and high end of the implied reference range was then divided by the closing common unit price of MMP of $29.65 per unit to derive an implied exchange ratio range of approximately 0.522x to 0.810x.

Analyst Price Targets. Using publicly available information, Lazard reviewed research analyst price targets for MGG and MMP common units. Lazard divided MGG research analyst price targets by their respective MMP research analyst price targets to derive implied exchange ratios. Based on the foregoing, Lazard determined an implied exchange ratio range of approximately 0.575x to 0.789x utilizing the low end and high end of these results.

Historical Trading Ratio Analysis. Lazard analyzed the historical trading ratios as the closing price of MGG common units divided by the corresponding closing price of MMP common units for the specified periods from March 2, 2008 to March 2, 2009 and calculated the following results:

 

Period

   Trading Ratio

Current (March 2, 2009)

   0.5059x

20-Day Average

   0.4761x

3-Month Average

   0.4758x

6-Month Average

   0.5089x

1-Year Average

   0.5507x

1-Year Maximum

   0.6475x

1-Year Minimum

   0.4379x

Miscellaneous

In connection with Lazard’s services as the financial advisor to the MGG Conflicts Committee, MGG agreed to pay Lazard an aggregate fee of $4,000,000, $1,250,000 of which was payable upon the delivery of Lazard’s opinion and $2,750,000 of which is contingent upon the consummation of the simplification. MGG also agreed to reimburse Lazard for certain expenses incurred in connection with Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against certain liabilities that may arise from or relate to Lazard’s engagement, including certain liabilities under U.S. federal securities laws.

Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for estate, corporate and other purposes. In addition, in the ordinary course of their respective businesses, affiliates of Lazard Frères & Co. LLC and LFCM Holdings LLC (an entity indirectly owned in large part by managing directors of Lazard Frères & Co. LLC) may actively trade securities of MGG and/or securities of MMP for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. In the past, Lazard Capital Markets LLC (a subsidiary of LFCM Holdings LLC) acted as a co-manager with respect to the issuance of $250 million of 6.4% Senior Notes of MMP due 2037 for which it was paid a customary fee (a portion of which was paid by Lazard Capital Markets LLC to Lazard Frères & Co. LLC). The issuance of Lazard’s opinion was approved by an authorized committee of Lazard Frères & Co. LLC.

Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other services. Lazard was selected to act as financial advisor to the MGG Conflicts Committee because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions, as well as its familiarity with the business of MGG.

The MGG Conflicts Committee and the MMP Conflicts Committee determined the Consideration to be paid to the holders of MGG common units in the simplification through arm’s-length negotiations, and the MGG

 

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Conflicts Committee approved the Consideration. Lazard conducted the analyses and reviews summarized above for the purpose of providing an opinion to the MGG Conflicts Committee as to the fairness, from a financial point of view, to the holders of MGG common units (other than excluded holders) of the Consideration to be paid to such holders in the simplification. Lazard did not recommend any specific consideration to the MGG Conflicts Committee or any other person or indicate that any given consideration constituted the only appropriate consideration for the simplification.

Lazard’s opinion was one of many factors considered by the MGG Conflicts Committee. Consequently, the summary of the analyses and reviews provided above should not be viewed as determinative of the opinion of the MGG Conflicts Committee with respect to the Consideration or of whether the MGG Conflicts Committee would have been willing to recommend a different transaction or determine that a different Consideration was fair. Additionally, Lazard’s opinion is not intended to confer any rights or remedies upon any employee or creditor of MGG.

 

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FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, including information included or incorporated by reference in this joint proxy statement/prospectus, contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, intentions, future performance and business of each of MMP and MGG and other statements that are not historical facts, as well as certain information relating to the simplification, including, without limitation:

 

   

statements relating to the benefits of the simplification;

 

   

statements relating to the financial results of MMP following the simplification; and

 

   

statements preceded by, followed by or that include the words “believes,” “anticipates,” “plans,” “predicts,” “expects,” “envisions,” “hopes,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should,” “confident,” “could” or similar expressions.

These forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the factors discussed under “Risk Factors” beginning on page 21, as well as the following factors:

 

   

the possibility that MMP and MGG may be unable to obtain unitholder or regulatory approvals required for the simplification;

 

   

the possibility that the businesses may suffer as a result of uncertainty surrounding the simplification;

 

   

the possibility that the industry may be subject to future regulatory or legislative actions;

 

   

other uncertainties in the industry;

 

   

environmental risks;

 

   

competition;

 

   

the ability of the management of MMP’s general partner to execute its plans for MMP following the simplification to meet its goals;

 

   

general economic conditions, whether internationally, nationally or in the regional and local market areas in which MMP is doing business, may be less favorable than expected; and

 

   

other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors may negatively impact the businesses, operations or pricing of MMP and MGG.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by MMP and MGG. Please read “Where You Can Find More Information” beginning on page 151.

Forward-looking statements speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference in this joint proxy statement/prospectus. All subsequent written and oral forward-looking statements concerning the simplification or other matters addressed in this joint proxy statement/prospectus and attributable to MMP or MGG or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, neither MMP nor MGG undertakes any obligation to update forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events.

 

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THE PARTIES TO THE SIMPLIFICATION AGREEMENT

Magellan Midstream Partners, L.P.

MMP is a publicly traded Delaware limited partnership principally engaged in the transportation, storage and distribution of refined petroleum products.

As of May 15, 2009, MMP’s assets consisted of:

 

   

an 8,700-mile petroleum products pipeline system, including 49 petroleum products terminals serving the mid-continent region of the United States;

 

   

seven petroleum products terminal facilities located along the United States Gulf and East Coasts, referred to as marine terminal facilities, and 27 petroleum products terminals located principally in the southeastern United States; and

 

   

an 1,100-mile ammonia pipeline system serving the mid-continent region of the United States.

The executive offices of MMP are located at One Williams Center, Tulsa, Oklahoma 74172. The telephone number is (918) 574-7000.

Magellan Midstream Holdings, L.P.

MGG is a publicly traded Delaware limited partnership that owns the general partner of MMP and possesses certain control rights with respect to MMP as the sole member of the general partner of MMP. MGG’s only cash-generating asset is its ownership interest in the general partner of MMP, which owns the following:

 

   

the general partner interest in MMP, which entitles MGG to receive approximately 2% of the cash distributed by MMP; and

 

   

directly and indirectly, all of the equity interests in a subsidiary that owns 100% of the incentive distribution rights in MMP, which incentive distribution rights entitle the holders thereof to receive increasing percentages, up to a maximum of 48%, of any incremental cash distributed by MMP per limited partner unit as certain target distribution levels are reached in excess of $0.28875 per MMP unit in any quarter.

The executive offices of MGG are located at One Williams Center, Tulsa, Oklahoma 74172. The telephone number is (918) 574-7000.

Relationship of the Parties

MGG and MMP are already closely related. MGG currently owns all of the limited liability company interests of MMP’s general partner. MMP’s general partner currently owns an approximate 2% general partner interest in MMP and, through subsidiaries, all of MMP’s incentive distribution rights. MMP’s general partner will retain the right to manage MMP after the simplification. However, because MMP’s general partner will be a wholly owned subsidiary of MMP following the completion of the simplification, the limited liability company agreement of MMP’s general partner is being amended and restated to eliminate the control rights that MGG currently possesses with respect to MMP as the sole member of the general partner of MMP.

Distributions by MMP have increased from $0.28125 per common unit for the quarter ended June 30, 2001 (its first full quarter of operations after its initial public offering) to $0.71 per common unit for the quarter ended March 31, 2009; and as a result, distributions from MMP to MGG with respect to the approximate 2% general partner interest in MMP have increased from approximately $0.1 million for the quarter ended June 30, 2001 to approximately $1.4 million for the quarter ended March 31, 2009; and with respect to the incentive distribution rights, distributions have increased from zero for the quarter ended June 30, 2001 to approximately $22.1 million for the quarter ended March 31, 2009. In total, the total distributions from MGG’s investment in MMP have increased from approximately $0.1 million for the quarter ended June 30, 2001 to approximately $23.5 million for the quarter ended March 31, 2009.

 

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Moreover, certain directors and executive officers of MGG’s general partner are also directors and executive officers of MMP’s general partner. Messrs. Wellendorf and Eilers serve as members of both MGG’s general partner’s board and MMP’s general partner’s board. The officers of MGG’s general partner are also officers of MMP’s general partner, and the employees of MGG’s general partner are responsible for the operations of MMP.

 

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INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING

MMP’s general partner’s board is using this joint proxy statement/prospectus to solicit proxies from the holders of MMP common units for use at the MMP special meeting. MGG’s general partner’s board is using this joint proxy statement/prospectus to solicit proxies from the holders of MGG common units for use at the MGG special meeting. In addition, this joint proxy statement/prospectus constitutes a prospectus covering MMP common units to be received by MGG unitholders pursuant to the simplification. The companies are first mailing this joint proxy statement/prospectus and accompanying proxy to MMP unitholders and MGG unitholders on or about                      , 2009.

 

    

MMP Special Meeting

  

MGG Special Meeting

Time, Place and Date

            a.m., local time, on                     , 2009 at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma             a.m., local time, on                     , 2009 at the Williams Resource Center, One Williams Center, Tulsa, Oklahoma

Admission to Special

Meetings

   All MMP unitholders are invited to attend the MMP special meeting. Persons who are not MMP unitholders may attend only if invited by MMP. If you own units in “street” or “nominee” name, you must bring proof of ownership (e.g., a current broker’s statement) in order to be admitted to the MMP special meeting.    All MGG unitholders are invited to attend the MGG special meeting. Persons who are not MGG unitholders may attend only if invited by MGG. If you own units in “street” or “nominee” name, you must bring proof of ownership (e.g., a current broker’s statement) in order to be admitted to the MGG special meeting.

Purpose of the Special

Meetings

  

1. To consider and vote upon the approval of the simplification agreement and the matters contemplated thereby;

 

2. To consider and vote upon the approval of MMP’s amended and restated partnership agreement;

 

3. To consider and vote upon any proposal that may be presented to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals; and

 

4. To consider and vote upon any proposal to transact such other business as may properly come before the MMP special meeting and any adjournment or postponement thereof.

  

1. To consider and vote upon the approval of the simplification agreement and the matters contemplated thereby;

 

2. To consider and vote upon the proposal to (a) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG; and (b) direct MMP’s general partner to implement the matters described in (a) above;

 

3. To consider and vote upon the approval of the contributions;

 

4. To consider and vote upon the approval of the liquidation;

 

5. To consider and vote upon any proposal that may be presented to

 

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MMP Special Meeting

  

MGG Special Meeting

     

adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals; and

 

6. To consider and vote upon any proposal to transact such other business as may properly come before the MGG special meeting and any adjournment or postponement thereof.

Recommendations of the

Conflicts Committees

  

The MMP Conflicts Committee, comprised of directors who are deemed to be independent of the interests of MMP and MMP’s general partner, has considered the benefits of the simplification as well as the associated risks and has unanimously approved the simplification agreement and the matters contemplated thereby and MMP’s amended and restated partnership agreement and unanimously recommends that MMP unitholders vote “FOR” the proposal to: (a) approve the simplification agreement and the matters contemplated thereby; and (b) approve MMP’s amended and restated partnership agreement.

 

In addition, the MMP Conflicts Committee unanimously recommends that MMP unitholders vote “FOR” any proposal to adjourn the MMP special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

  

The MGG Conflicts Committee, comprised of directors who are deemed to be independent of the interests of MGG and MGG’s general partner, has considered the benefits of the simplification as well as the associated risks and has unanimously approved the simplification agreement and the matters contemplated thereby, the proposal to direct MMP’s general partner to approve MMP’s amended and restated partnership agreement, the contributions and the liquidation, and unanimously recommends that MGG unitholders vote “FOR” the proposal to: (a) approve the simplification agreement and the matters contemplated thereby; (b) direct MGG, as the sole member of MMP’s general partner, to approve MMP’s amended and restated partnership agreement and all other matters under the simplification agreement that, pursuant to the limited liability company agreement of MMP’s general partner, require the approval of MGG and direct MMP’s general partner to implement all such matters; (c) approve the contributions; and (d) approve the liquidation.

 

In addition, the MGG Conflicts Committee unanimously recommends that MGG unitholders vote “FOR” any proposal to adjourn the MGG special meeting to a later date, if necessary, to solicit additional proxies in the event that there are insufficient votes in favor of any of the foregoing proposals.

 

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MMP Special Meeting

  

MGG Special Meeting

Vote Necessary

  

The affirmative vote of the holders of at least a majority of the outstanding MMP common units entitled to vote as of the record date (excluding MMP common units owned by MMP’s general partner and its affiliates) is required to approve each of the proposals described above.

 

MMP common units owned by MMP’s general partner and its affiliates will not be counted towards the vote at the MMP special meeting.

 

If a quorum is not present, the affirmative vote of the holders of a majority of MMP’s common units entitled to vote as of the record date present in person or represented by proxy at the MMP special meeting would be necessary to approve the adjournment of the MMP special meeting, if necessary, to solicit additional proxies.

  

The affirmative vote of the holders of at least a majority of the outstanding MGG common units entitled to vote as of the record date is required to approve each of the proposals described above.

 

If a quorum is not present, the affirmative vote of the holders of a majority of the MGG common units entitled to vote as of the record date present in person or represented by proxy at the MGG special meeting would be necessary to approve the adjournment of the MGG special meeting, if necessary, to solicit additional proxies.

Record Date

                       , 2009                        , 2009

Outstanding Units Held

   As of May 15, 2009, there were approximately 67.0 million MMP common units outstanding (including 280,500 common units held by MMP’s general partner and its affiliates).    As of May 15, 2009, there were approximately 62.7 million MGG common units outstanding.

Unitholders Entitled to Vote

   MMP unitholders entitled to vote at the MMP special meeting are MMP unitholders of record at the close of business on                     , 2009. Each MMP common unit is entitled to one vote, except that MMP common units owned by MMP’s general partner and its affiliates will not be counted towards the vote.    MGG unitholders entitled to vote at the MGG special meeting are MGG unitholders of record at the close of business on                     , 2009. Each MGG common unit is entitled to one vote.

Quorum Requirement

  

A quorum of MMP unitholders is necessary to hold a valid special meeting. The presence in person or by proxy at the MMP special meeting of holders of a majority of MMP common units entitled to vote as of the record date at the MMP special meeting is a quorum.

 

Abstentions and broker non-votes count as present for establishing a quorum. An abstention occurs when

  

A quorum of MGG unitholders is necessary to hold a valid special meeting. The presence in person or by proxy at the MGG special meeting of holders of a majority of the outstanding MGG common units entitled to vote as of the record date at the MGG special meeting is a quorum.

 

Abstentions and broker non-votes count as present for establishing a

 

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MGG Special Meeting