Monday, April 30, 2012

Philadelphia's Sunoco acquired by TX pipeline company

Sunoco Inc. is being acquired for $5.3 billion by a Texas pipeline company, the latest turn in the dramatic transformation of the iconic 126-year-old Philadelphia oil business, the Philadelphia Inquirer reports today.

Energy Transfer Partners L.P., a Dallas pipeline company, announced Monday it has entered into a definitive merger agreement to acquire Sunoco for a combination of cash and stock. The buyer will pay about $50.13 a share, or a 29 percent premium above Sunoco’s average 20-day closing price.

Sunoco, which has 4,900 retail fuel outlets, and its pipeline affiliate, Sunoco Logistics Partners L.P., will maintain their headquarters in the Philadelphia area. ETP will own Sunoco’s general partner interest in Sunoco Logistics as well as Sunoco’s 32.4 percent interest in Sunoco Logistics’ partnership units.

Brian MacDonald, who became Sunoco’s chief executive only two months ago and will retain a senior management position in the merged company, said that he expects minimal disruption for Sunoco employees. ETP does not own any retail outlets or crude-oil pipelines — Sunoco Logistics’ specialty — and the merger was described as a “bolt-on acquisition.”

“The two primarily businesses of Sunoco, the retail gasoline business and the logistics business, those are businesses that Energy Transfer is not in today,” MacDonald said in an interview. “So the operating management and the substantive teams in those businesses will stay in place.”

Though most of the $70 million in synergies envisioned by the merger will come from new commercial opportunities, MacDonald acknowledged “there will be some corporate overhead reductions.”

In a statement he read to investment analysts during a morning conference call, MacDonald said: “Our commitment to the area also remains unwavering. We will continue to have a key presence in the region.

“And as part of a stronger company with increased stability and scale to capitalize on growth opportunity, we believe Sunoco will be even better positioned to return economic benefit to the Philadelphia region and to the other areas of operation.”

Sunoco has been transforming itself for several years, and under former chief executive and current chairwoman, Lynn Elsenhans, had divested its last remaining manufacturing businesses, producing chemicals, metallurgical coke and refined petroleum products. Last fall, it announced plans to exit the refining business that had been a central focus of the company for more than a century.

Sunoco said its plans remain unchanged to pursue a joint venture with the Carlyle Group to operate its Philadelphia refinery, its last operating refinery. Sunoco says it will shut down the refinery on Aug. 1 if it is unable to consummate a deal with the private equity firm.

While Sunoco is known in the Northeast for 4,900 retail fuel outlets and its refineries, it was the company’s pipelines, storage facilities and fuel terminals that are most attractive to Energy Transfer.

Energy Transfer’s assets are concentrated primarily in natural-gas pipelines along the Gulf Coast, and it has expressed a desire to diversify into transporting crude oil and refined fuels, areas where Sunoco Logistics has an expertise. Sunoco Logistic’s pipelines tie together its former refinery network in Philadelphia, Ohio and Oklahoma to crude-oil fields in Texas.

Analysts suggested that ETP would likely sell off Sunoco’s retail operation, since it is not a natural fit with Energy Transfer’s corporate ownership structure, a master limited partnership, or its core logistics business.

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