Energy Transfer Partners, LP (NYSE: ETP) and Sunoco Inc. (NYSE: SUN) entered into a definitive merger agreement whereby ETP will acquire Sunoco in a unit and cash transaction valued at $50.13 per share, or a total consideration of approximately $5.3 billion, based on ETP’s closing price on April 27, 2012. This combination will create one of the largest energy partnerships in the country by expanding ETP’s geographic footprint and strengthening its presence in the transportation, terminalling and logistics of crude oil, NGLs and refined products.
The merger consideration, which consists of $25 in cash and 0.5245 of an ETP common unit, or approximately 50% cash and 50% ETP common units, represents a 29% premium to the 20-day average closing price of Sunoco shares as of April 27, 2012. By acquiring Sunoco, ETP will also own Sunoco’s general partner interest and the incentive distribution rights (IDRs) in Sunoco Logistics Partners (NYSE: SXL), as well as Sunoco’s 32.4% interest in Sunoco Logistics Partners’ limited partner units and Sunoco’s branded retail business, which generates additional stable cash flows from a portfolio of approximately 4,900 retail locations in the U.S.
“This transaction, which will be immediately accretive, represents the next step in Energy Transfer Partners’ transformation into a more diversified enterprise with an integrated and expanded footprint,” Kelcy Warren, ETP’s chief executive officer and chairman of the board of directors, said in a news release. “As we have said in the past year, our goal is to derive more of our distributable cash flow from the transportation of heavier hydrocarbons like crude oil, NGLs, and refined products. With this transaction, we make a major move in that direction, bringing our cash flow mix related to the combined enterprise’s pipeline businesses to approximately 70% natural gas and 30% heavier hydrocarbons. At the same time, we will enhance the size and scale of the ETP platform by creating new service capabilities and entering new geographic operating areas
“This transaction will enable Sunoco’s businesses to realize their full potential by becoming an important part of a diversified leader in the energy industry,” Brian P. MacDonald, Sunoco’s president and chief executive officer, added. “In addition, it delivers an attractive premium to our shareholders, while enabling them to participate in the future growth of the business. The combination with ETP provides substantial future value-creation opportunities for Sunoco shareholders and ETP unitholders alike.”
Commenting further, MacDonald said, “ETP recognizes that the steady, ratable cash flows that our logistics and retail businesses generate are backed by great assets, deep expertise, and the potential for future growth. ETP has an interest in growing its Marcellus Shale-related activity, and I am pleased that the combined enterprise will retain a strong Pennsylvania presence.”
Sunoco’s logistics and retail businesses will continue to maintain headquarters in the Philadelphia area consistent with their current operating presence. In addition, under the merger agreement, Sunoco will continue its plans for exiting its refining business as previously announced, as well as continue its plans for the proposed refinery joint venture being discussed by Sunoco and The Carlyle Group.
The transaction has been approved by each company’s board of directors and is expected to close in the third or fourth quarter of 2012, subject to approval of Sunoco shareholders and customary regulatory approvals. Following the closing, Sunoco and Sunoco Logistics Partners will operate under the Energy Transfer Equity, L.P. umbrella of companies. By acquiring Sunoco, ETP will own Sunoco’s general partner interest, limited partner interest and the incentive distribution rights in Sunoco Logistics Partners. Sunoco Logistics Partners will continue to be traded on the NYSE as a separate publicly traded MLP.
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