Energy Transfer Partners LP (ETP) and Regency Energy Partners LP entered into a definitive merger agreement. The merger will be a unit-for-unit transaction as well as a one-time cash payment to Regency unitholders that combined imply a value for Regency of about $18 billion, including assumption of net debt and other liabilities of $6.8 billion. The transaction is expected to close in second-quarter 2015.

The merger was approved by the boards of directors and conflicts committees of both companies. Under the terms of the agreement, Regency unitholders will receive 0.4066 ETP common units and 32 cents in cash for each common unit of Regency, or a value of $26.89 per Regency common unit based on ETP’s Jan. 23 closing price. The consideration represents a premium of about 13% to Regency common unitholders to the closing price of Regency’s common units of $23.75 on Jan. 23, and a premium of about 15% to the volume weighted average price for the last three trading days ending Jan. 23.

Additionally, Energy Transfer Equity LP (ETE), which owns the general partner and 100% of the incentive distribution rights (IDR) of both Regency and ETP, agreed to reduce the incentive distributions it receives from ETP by a total of $320 million over a five year period. The IDR subsidy will be $80 million in the first year after closing and $60 million per year for the following four years.

Latham & Watkins LLP served as legal counsel to ETP. Baker Botts LLP acted as legal counsel to Regency. Barclays served as financial advisor and Richards Layton & Finger acted as legal counsel to ETP’s conflicts committee. J.P. Morgan Securities LLC acted as financial advisor and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel to Regency’s conflicts committee.

Completion of the merger is subject to customary closing conditions, including approval of the respective ETP and Regency unitholders and observation of the waiting period under the Hart-Scott-Rodino Act, if applicable. Under the terms of the agreement, ETE and ETP have agreed to vote their respective Regency common units and Class F units in favor of the merger.