Investors cheered the deal. Sunoco shares closed up $8.38, or 20.5%, at $49.29 with 26.9 million shares changing hands, compared with average daily volume of 2 million shares.
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.
“I think everyone knows we would not have targeted a retail business for a strategic move for the company,” Kelcy Warren, ETP’s chief executive officer and chairman, told analysts. “However, it is part of the overall package of what we’re buying here.”
But he said the retail operation was well run and sustainable. “We’re happy to have it and we’re committed to the business and we will continue to grow it and manage it with the people who have done so well doing it for quite a while.”
The merger, approved by both boards, will consist of $25 in cash and 0.5245 of an ETP common unit, or about 50 percent cash and 50 percent ETP common units. ETP’s units, or shares, are traded on the New York Stock Exchange.
“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,” MacDonald said in a statement.
“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.”
MacDonald said that ETP also has an interest in growing its Marcellus Shale-related activity, and the combined company will retain a “strong Pennsylvania presence.”
ETP owns and operating a diversified portfolio of energy assets. ETP has pipeline operations in Alabama, Arizona, Arkansas, Colorado, Florida, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas.
ETP currently has natural gas operations that include approximately 23,500 miles of gathering and transportation pipelines, treating and processing assets, and three storage facilities located in Texas. ETP also holds a 70 percent interest in Lone Star NGL, a joint venture that owns and operates natural gas liquids storage, processing and transportation assets in Texas, Louisiana and Mississippi.
Founded 125 years ago by Joseph Newton Pew and Edward O. Emerson, Sunoco grew into a worldwide integrated oil company during the automobile age, when it explored for oil and developed a huge shipbuilding operation.
Read recent coverage of Sunoco at http://www.philly.com/sunoco.
Contact Andrew Maykuth at 215-854-2947 or firstname.lastname@example.org, or follow on Twitter @Maykuth.