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Energy Transfer buys US refiner Sunoco for $5.3bn

04.30.2012  | 

Energy Transfer Partners agreed to acquire independent refiner Sunoco in a $5.3 billion deal that would greatly expand the reach of its pipeline system but could also saddle the company with aging refineries. Energy Transfer will also gain Sunoco's relatively successful chain of 4,900 gasoline stations.

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By BEN LEFEBVRE

HOUSTON -- Energy Transfer Partners agreed to acquire independent refiner Sunoco in a $5.3 billion deal that would greatly expand the reach of Energy Transfer's pipeline system but could also saddle the company with aging refineries.

Sunoco has been trying to sell itself since late 2011 after posting losses for much of the past two years because of high oil prices and decreasing fuel demand.

Finding a buyer for the company and its aging refineries was considered a long-shot despite Sunoco's profitable logistics and retail businesses.

Energy Transfer will gain 7,900 miles of crude oil and refined fuel pipelines from Sunoco Logistics Partners master limited partnership and give it a toe-hold in the Marcellus and Utica shale regions, increasingly productive sources of oil and natural gas.

Energy Transfer will also gain Sunoco's relatively successful chain of 4,900 gasoline stations that it could sell at a later date.

"You have to hand it to Sunoco," Morningstar analyst Jason Stevens said. "They positioned the company as a retail and logistics business, and Energy Transfer stepped up to the plate."

Energy Transfer, a natural-gas pipeline operator, said it will pay either $50 in cash, 1.0490 ETP common unit or a combination of $25 in cash and 0.5245 ETP common units for each Sunoco share.

The estimated $50.13 per-share value is a 23% premium to Sunoco's Friday closing price. The stock is up 20% so far this year.

The deal is the second pipeline acquisition by the Energy Transfer partnerships in the past year. In December, parent partnership Energy Transfer Equity closed a $3.7 billion deal for Southern Union Group, making it the largest natural gas transporter in the country.

With Sunoco's pipelines, Energy Transfer Partners will be able to expand its reach past the natural gas markets and into the crude oil and refined products transportation business.

"There are synergies," said Global Hunter Securities analyst Sam Margolin. "They're wanting to get more exposed to oil, and Sunoco Logistics is certainly an oily MLP."

But the deal will also add Sunoco's aging Pennsylvania refineries to Energy Transfer's portfolio. The refineries have posted loses for much of the past two years because of mechanical problems and their dependence on east coast oil, priced much higher than those available to competitors in the Midwest and Gulf Coast regions.

Sunoco, the second-largest independent refiner by capacity behind Valero, shuttered its Marcus Hook refinery in 2011.

Earlier this month, Sunoco launched exclusive negotiations with Carlyle Group to potentially form a joint venture that would transfer operations of its Philadelphia refinery to the private equity firm.

Sunoco will continue its plans for exiting the refining business, as well as continue its plans for the proposed refinery joint venture being discussed with Carlyle Group, an Energy Transfer spokeswoman said.

Energy Transfer expects to close the transaction by the fourth quarter and said it will immediately add to earnings.

Energy Transfer Equity, the owner of Energy Transfer Partners' general partner, has agreed to relinquish its right to about $210 million of incentive distributions from ETP that it would otherwise be entitled to receive over 12 consecutive quarters following the closing of the transaction.

Sunoco shareholders will own about 20% of ETP common units. In addition, $965 million of Sunoco's existing notes will remain outstanding.

Sunoco Logistics Partners will continue to be traded as a separate publicly traded master limited partnership.


Dow Jones Newswires



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