ONEOK, Inc. (NYSE:OKE) agreed to acquire Brazos Midstream’s Permian Midland Basin assets for $4.425 billion in cash. A $9 billion nonvoting minority equity investment from Apollo-managed funds will fund the acquisition and support approximately $5 billion of debt extinguishment. ONEOK, Inc. (NYSE:OKE) expects pro forma 2027 leverage to decline to approximately 3.25 times debt-to-EBITDA without common-share issuance.
The minority investor’s internal rate of return, or IRR, is capped at 7.0% for nine years, below what ONEOK, Inc. describes as its cost of publicly traded equity. The cap applies to total return over time, not a fixed annual cash coupon.
Bull Case
Apollo-managed funds will receive a Class B interest in a new holding company. The interest is subordinate to senior debt, has no board representation or liquidation preference, and carries limited consent rights. A quarterly distribution below the capped return carries no penalty.
The Class B interest is expected to receive 15% of quarterly cash flow from operating-company activities. Distributions will vary with cash flow, and amounts above the 7% capped IRR will reduce the investor’s capital balance. ONEOK, Inc. can elect to distribute up to 20% under certain conditions to accelerate repayment. ONEOK, Inc. may acquire the remaining interest after eight years, or earlier if the balance falls to $200 million.
Approximately 600,000 dedicated acres are covered by fixed-fee contracts with a weighted average remaining term exceeding 12 years. Including plants under construction, the acquisition more than doubles ONEOK, Inc.’s Midland Basin processing capacity to approximately 2.3 billion cubic feet per day.
ONEOK, Inc. expects immediate earnings-per-share accretion. The structure reduces debt without increasing the common-share count, while value above the capped return accrues to common shareholders.
Bear Case
Avoiding common-share issuance does not eliminate the competing claim on cash flow. The Class B interest participates in ONEOK, Inc.’s existing operations rather than only the acquired assets. A calculation using the initial $9 billion balance and 7% cap produces an annualized figure of approximately $630 million, although cash distributions may be higher as capital is returned.
The target IRR increases to 7.35% in year 10 and reaches 7.85% in year 15 if a balance remains.
The acquisition valuation depends on execution. ONEOK, Inc. uses company-defined non-GAAP adjusted EBITDA, meaning earnings before interest, taxes, depreciation, and amortization, further adjusted under its methodology. ONEOK, Inc. did not provide a forward GAAP reconciliation because it said doing so would require unreasonable effort.
The stated 7.5 times 2027 adjusted EBITDA multiple includes approximately $80 million of annual synergies. Calculations using the rounded announced inputs imply approximately $590 million of 2027 adjusted EBITDA and an approximately 8.7 times multiple after subtracting those synergies.
The 6.0 times 2028 multiple implies approximately $738 million of adjusted EBITDA using the rounded inputs, about 25% above the calculated 2027 amount. That requires forecast volume growth, completed processing capacity and successful integration.
Hedge Fund Sentiment
The filings available so far reflect positions held before ONEOK, Inc. announced the Brazos Midstream acquisition and Apollo-managed minority investment. Insider Monkey’s database showed 43 hedge funds holding ONEOK, Inc. at the end of 2Q2026, down from 50 funds three months earlier.
Conclusion
The 7% capped IRR is attractive for ONEOK, Inc. if cash generation across the broader portfolio rapidly reduces the minority capital balance. The Brazos assets must deliver projected synergies and volume growth, while existing operations and future projects must support the distributions. Value creation depends on the entire portfolio earning enough to exceed the minority return while funding capital needs and shareholder distributions.
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This article is originally published at Insider Monkey.
