NEW YORK (AP) — Energy Transfer Partners is buying Sunoco
in a $5.3 billion deal that creates one of the more diverse pipeline
companies in the country.
The acquisition includes nearly 8,000
miles of pipeline, as well as 4,900 gas stations in 24 Eastern states.
Those stations will keep the iconic Sunoco brand name and its
diamond-and-arrow logo. The deal also brings a refinery business that
Sunoco is trying to get out of.
Energy Transfer is primarily a
natural gas pipeline company. Sunoco’s pipeline network will allow the
Dallas company to expand into moving crude oil and refined petroleum
products from the Great Lakes and Northeast to America’s refining center
along the Gulf Coast. Sunoco’s pipelines have been in high demand
recently thanks to a boom in drilling for gas and oil in U.S. shale rock
formations.
The agreement works out to $50.13 per Sunoco share.
Those shares surged $7.99, nearly 20 percent, to a four-year high of
$48.90 in midday trading.
Energy Transfer Chairman and CEO Kelcy
Warren said the company has been looking to diversify into oil pipelines
in response to an expected slowdown in the natural gas pipeline
business. Natural gas prices are at 10-year lows, and some oil and gas
production companies have been taking natural gas operations offline.
Many have shifted to drilling for more domestic crude oil, which is both
cheaper and of a higher quality than imported crudes.
"We needed to be more involved in the movement of crude," Warren said in a conference call.
Pipeline
companies make money by charging fees to transport oil, natural gas,
and other fuels around the country. When supplies grow and storage
facilities fill up — as is the case with U.S. natural gas — there’s less
of a need to transport the fuel, and that means lower revenue for the
pipeline company.
By expanding its offerings to crude and other
fuels, Energy Transfer can enter different markets where there still is a
lot of demand. "There’s a genuine business sense here," said Robert
McFadden, a Houston-based natural gas pipeline consultant. "They’re
diversifying their ability to make money."
The boards of both
companies have approved the deal. It’s expected to close in the third or
fourth quarter of this year. Regulators and shareholders must still
sign off.
The acquisition continues a run of deal-making for
Energy Transfer. The Dallas company bought Louis Dreyfus Highbridge
Energy for $1.93 billion in May 2011. And Energy Transfer Equity, which
owns Energy Transfer Partners’ general partner, bought Southern Union
for more than $5 billion in March and Regency Energy Partners for $300
million in 2010.
The deals will elevate Energy Transfer Partners
L.P. from the middle-tier of North American pipeline companies, although
it’s still much smaller than heavyweights such as Kinder Morgan Energy
Partners L.P. and Enterprise Products Partners L.P.
Energy
Transfer said the deal changes the cash flow mix for its pipeline
businesses to about 70 percent natural gas, and 30 percent heavier
hydrocarbons.
Sunoco Inc. will remain based in Philadelphia and
continue its exit from the refining business. It already has shut down a
refinery in Marcus Hook, Pa., and it is planning to sell its
controlling interest in its Philadelphia refinery to The Carlyle Group.
Sunoco
shareholders will receive $25 in cash and a portion of an Energy
Transfer Partners unit. They can also opt for $50 in cash or slightly
more than one ETP unit. The $50.13 price represents a 29 percent premium
to the 20-day average closing price of the shares as of Friday. It’s a
23 percent premium to Friday’s closing price of $40.91.
Shares of Energy Transfer Partners LP rose $1.09, or 2.3 percent, to $49.01.
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Follow Chris Kahn on Twitter at http://twitter.com/ChrisKahnAP
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AP Business Writer Tom Murphy contributed to this story from Indianapolis.
Copyright 2012 The Associated Press.