Round II
Appendices To
Preliminary Report to
The Special Committee of Gas
Analyses Performed at $2.50 Per Share
A.G.Edwards & Sons, Inc.
INVESTMENT BANKING
May 4, 1998
Equity Purchase Price Calculation
Implied Equity Value of Oil's Assets
(units in thousands, $ in millions,
except per unit amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase Price of Oil's Equity Purchase Price of Oil's Equity
------------------------------ -----------------------------------------------------
Value of Securities Equity Value of Oil's Value of Oil's GP and
Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star
- ------------------------------------ ------------------------- ---------------------- ---------------------------
Issuance of Senior Subordinated
Units to Public Oil Shareholders 2,160 x $ 19.86
------------------
$42.9 $42.9 --
Distribution of General Partner
Units to Inside Oil Shareholders 127 x $ 21.46
-------------------
$2.7 -- $2.7
Distribution of Subordinated
Units to Inside Oil Shareholders 540 x $ 16.44
-------------------
$8.9 -- $8.9
Issuance of General Partner
Units to Inside Oil Shareholders 147 x $ 21.46
-------------------
$3.2 $3.2 --
Issuance of Senior Subordinated
Units to Inside Oil Shareholders 441 x $ 19.86
-------------------
$8.8 $8.8 --
Retire Subordinated Units 1,856 x $16.44
--------------------
($30.5) $30.5
$24.3 $42.1
----- -------------------------------------
Total $66.4 $66.4
Divided by 26,563 shares of Oil's Common stock = $ 2.50 per share
Page 1
PREMIUM PAID ANALYSIS
- ----------------------------------------------------------------------------------------------------------------------------------
Dollars
STOCK PRICE PREMIUM ANALYSIS(a) in thousands Notes
- ----------------------------------------- ---------------- --------------------------------------------------------
Equity purchase price of Oil $ 66,408 $2.50 share price x 26,563 shares.
Premium to stock price one day prior 53.8% $1.625 close on April 22, 1998.
Premium to stock price one month prior 60.0%
Premium to stock price three months prior 0.0%
Premium to stock price six months prior -20.0%
PURCHASE PRICE
- -----------------------------------------
Equity purchase price of heating oil $ 24,294
assets
Debt assumption value (b) 338,223
----------
Aggregate purchase price of heating oil $ 362,517
assets ==========
MULTIPLES
- ---------------------------------------- -----------
MULTIPLES NOTES
----------- ---------------------------------------------
1997 Revenue $ 548,141 0.7 x As a multiple of aggregate transaction value.
1997 EBITDA (c) 36,010 10.1 As a multiple of aggregate transaction value.
1997 EBIT (d) 6,264 57.9 As a multiple of aggregate transaction value.
1997 Net loss to common shares (d) ($ 19,338) NM As a multiple of equity value.
Equity (e) (177,033) NM As a multiple of equity value.
1997 Adjusted EBITDA (c) 43,040 8.4 x As a multiple of aggregate transaction value.
1998 EBITDA budget (c) 43,440 8.3 As a multiple of aggregate transaction value.
Adj. 1998 EBITDA budget (c) 38,440 9.4 As a multiple of aggregate transaction value.
1999P EBITDA (c) 45,858 7.9 As a multiple of aggregate transaction value.
-----------
_______________________________________________________
(a) Updated through April 22, 1998.
(b) Includes cost of debt at assumed redemption value, preferred stock at
assumed redemption value, transaction fees, and certain
off-balance sheet liabilities, net of excess cash.
(c) Calculated as gross profit minus SG&A expense and direct delivery
expense.
(d) Excludes restructuring charge, pension curtailment expense,
provision for supplemental benefits and corporate identity expense.
(e) As of 12/31/97.
Page 2
Transaction Multiple Analysis
Firm Valuation
--------------------------------------------------------------------------------------------------------------
Equity Purchase Price of Heating Oil Assets $ 24,294,340
----------------
+ Cost of Debt at Redemption Value 290,992,000
+ Cost of Preferred stock at Redemption Value 34,375,000
+ Transaction Fees 19,104,000
-- 338,223,100
+ Off-Balance Sheet Pension and Tax Liability 8,500,000
- Excess Cash
Oil's cash balance at 9/30/98 (a) 22,355,000
Required cash on hand (500,000)
Additional Surplus (b) (7,107,100) 14,747,900
----------------
----------------
Firm Value $362,517,440
================
_______________________________________________________________________________
(a) Includes cash collateral of $9,350,000.
(b) Assumes an Additional Surplus of $1.10 per new common unit issued is
funded by Oil.
Page 3
Transaction Multiple Analysis
Transaction Multiples for Firm Valuation
-----------------------------------------------------------------------
EBITDA
---------------------------------
Purchase Price Year Amount Multiple Paid
--------------- ------------------ ----------- -----------------
$362,517,440 1997 Adjusted $43,040,000 8.4x
$362,517,440 Adjusted 1998 Budget $38,440,000 9.4x
$362,517,440 1999 Projected $45,858,000 7.9x
Page 4
Transaction Multiple Analysis
Distribution of Value
- ------------------------------------------------------------------------------------------------------------------------------------
OIL
1997 Adjusted EBITDA
EBITDA Multiple Purchase Price
- -------------- ---------------- ----------------------
$43,040,000 8.4x $362,517,440
Ability to Further Consolidate Heating Oil Industry Core Business
- --------------------------------------------------- --------------------
Acquisition EBITDA $ 43,040,000
EBITDA Multiple Purchase Price EBITDA Decline Rate 7.75% (a)
- -------------- ---------------- ---------------------- WACC 7.80%
$6,315,789 4.75x $ 30,000,000
Decline Rate 7.75% (a)
WACC 7.80%
Perpetuity $ 40,617,940
Purchase Price $ 30,000,000
----------------------
Net Present Value of the Heating Oil Acq. $ 10,617,940
Value in perpetuity of Ability to
---------------------- --------------
Consolidate Heating Oil Industry $136,140,329 Value of Core Business $276,797,720
====================== ==============
------------------------------------------------------------------
- --------------------------------------------------------------------------------
Implied Total Valuation $412,938,049
% of Valuation attributable to core business 67.0%
% of Valuation attributable to consolidation opportunities 33.0%
- --------------------------------------------------------------------------------
(a) A.G. Edwards'estimate of the decline rate of EBITDA based on a 4.1%
attrition rate.
Page 5
Transaction Multiple Analysis
Transaction Multiples for Existing Heating Oil Business
- ------------------------------------------------------------------------------------------------------------------------------------
Revised EBITDA
-------------------------------------
Purchase Price (a) Year Amount Multiple Paid
- ----------------------- ---------------- ----------------- ---------------------
$243,000.133 1997 Adjusted $43,040,000 5.6x
$243,000,133 Adjusted 1998 Budget $38,440,000 6.3x
$243,000,133 1999 Projected $45,858,000 5.3x
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Represents A.G. Edwards' estimate of the portion of the $362.5 million price
being paid for Oil's heating oil business that can be attributable to its
core business. Calculation: $362.5 million x 66.9%.
Page 6
Accretion/Dilution Analysis
Variations in Margin Growth Rates and Acquisition Assumptions
------------------------------------------------------------------------------------------------------------------
$2.00 per share $2.50 per share
4.1% Attrition 4.1% Attrition
Gas $0.00 Margin growth $0.00 Margin growth
Stand-alone $30.0mm at 4.75x Acquisitions $30.0mm at 4.75x Acquisitions
--------------- -------------------------------- -------------------------------
DCF PER UNIT
1998E (a) $1.220 $1.770 $1.680
1998N (b) 1.930 2.500 2.370
l999P 2.090 2.780 2.630
ACCRETION / DILUTION
1998E (a) 45.1% 37.7%
1998N (b) 29.5% 22.8
1999P 33.0% 25.8%
COMMON UNIT COVERAGE
1998E (a) 0.90x l.00x 1.00x
1998N (b) 1.42 1.41 1.41
1999P 1.48 1.50 1.50
TOTAL UNIT COVERAGE
1998E (a) 0.55x 0.81x 0.76x
1998N (b) 0.88 1.14 1.08
1999P 0.95 1.21 1.15
LEVERAGED UNIT COVERAGE (c)
1998E (a) 0.94x l.00x l.00x
1998N (b) 1.21 1.18 1.18
1999P 1.24 1.22 1.22
------------------------------------------------------------------------------------------------------------------
(a) 1998 estimate assumes no acquisitions for either company, and is
adjusted to reflect actual results through 3/31/98.
(b) 1998 budgeted.
(c) Defined as (DCF + Int)/[((GP units + common units)* MQD) + Int)]
Page 7
Public Company Analysis
[_] A.G. Edwards compared certain financial and market information of
Gas on a historical and pro forma basis to that of certain public
master limited partnerships which A.G. Edwards deemed relevant
for the purposes of this analysis. A.G. Edwards reviewed the
trading multiples from a total of 6 public propane master limited
partnerships.
[_] The selected propane master limited partnerships are as
follows:
- AmeriGas Partners, L.P. - Heritage Propane
Partners, L.P.
- Cornerstone Propane Partners, L.P. - National Propane
Partners, L.P.
- Ferrellgas Partners, L.P. - Suburban Propane
Partners, L.P.
[_] No company used in the analysis is identical to Gas.
Public Comparable Companies (a)
-------------------------------------------------------------------------------------------------------------------
Public Public
Pro Forma Company Company
Gas Gas Medians Ranges
-------------------------------------------------------------------------------------------------------------------
Yield 10.0% 10.5% 9.6% 8.5% to 10.6%
Firm value/LTM EBITDA 12.7x (b) 10.5x (b) 12.5x 9.8x to 16.7x
Firm value/1998 normalized EBITDA 8.7x (c) 8.2x (c) 11.5x 10.3x to 13.7x
Equity Market Cap/LTM DCF 18.0x (d) 13.1x (d) 15.7x 9.4x to 25.5x
Equity Market Cap/1998 normalized DCF 9.7x (e) 8.3x (e) 13.9x 11.6x to 16.9x
LTM commnon unit coverage 0.9x (f) 1.0x (f) 1.4x 0.6x to 1.5x
1998E common unit coverage 1.5x (g) 1.5x (g) 1.4x 0.9x to 1.9x
LTM total unit coverage 0.6x (f) 0.8x (f) 0.7x 0.4x to l.0x
1998E total unit coverage 1.0x (g) 1.1x (g) 0.7x 0.7x to l.0x
1998E leveraged unit coverage 1.2x (g)(h) 1.2x (g)(h) 1.1x 0.9x to 1.3x
-------------------------------------------------------------------------------------------------------------------
(a) Public comparable companies include: APU, CNO, FGP, HPG, CNL and
SPH.
(b) Firm value/adjusted 1998 budget EBITDA.
(c) Firm value/1999 estimated EBITDA.
(d) Equity market cap/adjusted 1998 budget EBITDA.
(e) Equity market cap/l999 estimated DCF.
(f) Adjusted 1998 budget.
(g) 1999 estimates.
(h) Defined as (DCF + interest)/(((GP units + common units)*MQD)+
interest).
Page 8
Public Company Analysis
($ in millions, except per unit data)
- ------------------------------------------------------------------------------------------------------------------------------------
Closing Implied Implied Common
Price on Market Value Firm Distribution Units/
Company Ticker (4/22/98) of Equity Value per Unit Yield Total Units
- ------------------------------------------------------------------------------------------------------------------------------------
Gas (a) $21.938 $139.4 $232.0 $2.20 10.0% 60.3%
AmeriGas Partners L.P. APU 25.938 1,108.6 1,867.2 2.20 8.5% 52.8%
Cornerstone Propane Partners, L.P. (d) CN0 22.688 455.7 671.7 2.16 9.5% 66.5%
Ferrellgas Partners L.P. (e) FGP 20.875 666.6 1,192.3 2.00 9.6% 47.0%
Heritage Propane Partners L.P. HPG 23.125 197.8 371.8 2.00 8.6% 55.8%
National Propane Partners L.P. NPL 20.313 232.9 375.6 2.10 10.3% 59.6%
Suburban Propane Partners L.P. (f) SPH 18.813 551.4 942.0 2.00 10.6% 75.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Mean 9.5% 59.5%
Median 9.6% 57.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Pro Forma $ 21.938 $ 300.7 (g) $ 599.5 (h) $ 2.30 10.5% 75.1%
- ----------------------------------------------------------------------------------------------------------------------------------
LTM Distributable Cash Flow/ FY98E Distributable Cash Flow/
---------------------------- -------------------------------
Distribution to Distribution FY98E Distribution to Distribution
Company Common Units to Total Units DCF/unit Common Units to Total Units
- ----------------------------------------------------------------------------------------------------------------------------------
Gas 0.9x (b) 0.6x (b) $ 2.09 (c) 1.5x (c) 1.0x (c)
AmeriGas Partners L.P. 1.5x 0.8x 2.14 1.9x l.0x
Cornerstone Propane Partners, L.P. 0.6x 0.4x 1.47 1.1x 0.7x
Ferrellgas Partners L.P. 1.4x 0.7x 1.34 1.4x 0.7x
Heritage Propane Partners L.P. 1.3x 0.8x 2.01 1.8x 1.0x
National Propane Partners L.P. 0.9x 0.5x 1.60 1.3x 0.8x
Suburban Propane Partners L.P. 1.4x 1.0x 1.41 0.9x 0.7x
- ------------------------------------------------------------------------------------------------------------------------------------
Mean 1.2x 0.7x 1.4x 0.8x
Median 1.4x 0.7x 1.4x 0.7x
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma 1.0x (b) 0.8x (b) 2.64 (c) 1.5x 1.1x (c)
- ----------------------------------
1998 estimates per A.G. Edwards' research, except for Gas, Oil, and Pro Forma.
Implied Firm Value equals common, subordinated and GP units, multiplied by the
market price of common units plus debt, less cash.
(a) Pro Forma for the Pearl Gas acquisition and the common unit offering.
Fiscal 1997 maintenance capital expenditure used as LTM figure.
(b) For Gas and Pro Forma only, LTM DCF figures are adjusted 1998 budget DCF
estimates.
(c) For Gas and Pro Forma only, FY98E DCF figures are 1999 DCF estimates.
(d) Financial information pro forma for common unit offering. Maintenance
capital expenditures assumed to be 8% of EBITDA due to lack of disclosure.
(e)Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of
disclosure.
(f) Financial figures exclude $5.1 million gain from sale of minority interest.
(g) 13,708 units x $21.375.
(h) $300.7 in equity plus $318.989 pro forma debt, less $10.839 cash and $9.350
in cash collateral.
Page 9
PUBLIC COMPANY ANALYSIS
LTM 1998E LONG TERM LTM FIRM VALUE/
LEVERAGED LEVERAGED DEBT/ EBITDA/ LTM
UNIT COVERAGE (A) UNIT COVERAGE (A) FIRM VALUE INT. EXP. EBITDA
--------------------------------------------------------------------------------------------
GAS 0.9x (b) 1.2x (c) 41.4% 2.3x (d) 12.7x (d)
AmeriGas Partners, L.P. 1.2x 1.3x 37.3% 2.2x 12.6x
Cornerstone Propane Partners, L.P. 0.8x 1.0x 35.1% 2.1x 16.7x
Ferrellgas Partners, L.P. 1.2x 1.1x 41.5% 2.1x 12.5x
Heritage Propane Partners, L.P. 1.lx 1.3x 46.0% 2.6x 10.9x
National Propane Partners, L.P. 0.9x 1.1x 36.8% 3.2x 16.3x
Suburban Propane Partners, L.P. 1.2x 0.9x 45.5% 2.9x 9.8x
- ---------------------------------------------------------------------------------------------------------------------------------
MEAN 1.1x 1.1x 40.4% 2.5x 13.1x
MEDIAN 1.1x 1.1x 39.4% 2.4x 12.5x
- ---------------------------------------------------------------------------------------------------------------------------------
PRO FORMA 1.0x (b) 1.2x (c) 53.2% 2.1x (d) l0.5x (d)
FIRM VALUE/ EQUITY EQUITY
1998E MARKET CAP/ MARKET CAP/
EBITDA LTM DCF 1998E DCF
-----------------------------------------------
GAS 8.7x (e) 18.0x (f) 9.7x (g)
AmeriGas Partners, L.P. 12.1x 15.5x 14.1x
Cornerstone Propane Partners, L.P. 13.7x 25.5x 16.9x
Ferrellgas Partners, L.P. 12.0x 15.8x 15.9x
Heritage Propane Partners, L.P. 10.6x 15.7x 11.6x
National Propane Partners, L.P. 11.Ox 18.0x 13.0x
Suburban Propane Partners, L.P. 10.3x 9.4x 13.6x
- ----------------------------------------------------------------------------------------
MEAN 11.6x 16.6x 14.2x
MEDIAN 11.5x 15.7x 13.9x
- ----------------------------------------------------------------------------------------
PRO FORMA 8.2x (e) 13.1x (f) 8.3x (g)
- -------------------------------------------------------------
EBITDA is defined as net income (loss) before extraordinary items plus
interest, income taxes, depreciation and amortization, impairment expense,
and other non-recurring and non-operating items.
(a) Defined as (DCF + interest)/(((GP units + common units)*MQD)+interest).
(b) For Gas and Pro forma only, LTM leveraged unit coverage figures
use adjusted 1998 budget estimates.
(C) For Gas and Pro Forma only, 1998E leveraged unit coverage figures
use 1999 estimates.
(d) For Gas and Pro Forma only, LTM EBITDA figures are adjusted 1998
budget estimates.
(e) For Gas and Pro Forma only, 1998E EBITDA figures are 1999 estimates.
(f) For Gas and Pro Forma only, LTM DCF figures are adjusted 1998 budget
DCF estimates.
(g) For Gas and Pro Forma only, 1998E DCF figures are 1999 DCF
estimates.
Page 10
DISCOUNTED CASH FLOW ANALYSIS
PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ IN MILLIONS)
- ---------------------------------------------------------------------------------------------------
TOTAL TOTAL
MARKET TOTAL IMPLIED TOTAL DEBT AS
LEVERED VAL. UNIT UNITS MARKET DEBT/ % OF
BETA DEBT PRICE AT OUT. VALUE OF TOTAL TOTAL UNLEVERED
COMPARABLE COMPANY (A) (BK=MKT) (4/22/98) (MIL) EQUITY EQUITY CAPITAL BETA
- ---------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.52 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.306
Cornerstone Propane
Partners, L.P. 0.41 235.8 22.688 19.7 455.7 51.7% 34.1% 0.270
Ferrellgas Partners,
L.P. 0.39 537.2 20.875 31.3 666.6 80.6% 44.6% 0.216
Heritage Propane
Partners, L.P. 0.44 176.9 23.125 8.4 197.8 89.4% 47.2% 0.232
National Propane
Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.34 96.0 21.938 6.2 139.4 68.9% 40.8% 0.201
Suburban Propane
Partners, L.P. 0.38 428.2 18.813 28.7 551.4 77.6% 43.7% 0.214
---------------------------
Comparable group's average unlevered Pro forma capitalization--
beta: 0.23 at market (b)
Pro forma debt-to-equity ratio (b): 106.1% Total debt $319.0 51.5%
Pro forma debt as a percent of total
capital (b): 51.5% Total equity 300.7 48.5%
----- ----
Comparable group's beta relevered for ----------------------------
pro forma capital structure: 0.384 $619.7 100.0%
=======
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK PREMIUM RANGE (D)
- ----------------------------------------------- -----------------------------
11.3% 12.3% 13.3%
-------------------
Pro forma theoretical levered beta: 0.384
Assumed % of equity in Pro forma capital structure
(b): 48.5%
Risk-free rate of return (c): 5.7%
Pro forma cost of equity range (at various market
risk premiums): 10.0% 10.4% 10.8%
==== ==== ====
Pro forma assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 51.5%
Pro forma estimated cost of debt (e): 8.2%
Pro forma estimated after-tax cost of debt: 5.3% 5.3% 5.3% 5.3%
------ ---- ----
Pro forma weighted average cost of capital range 7.6% 7.8% 8.0%
(f): ------ ---- ----
--------------------
- ------
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten-year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Pro forma current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
PAGE 11