Sunoco LP SUN-N said Monday it would acquire fuels storage and pipeline operator NuStar Energy LP NS-N in a deal valued at about US$7.3-billion including debt, as it tries to diversify its core business beyond distribution of motor fuels.
The equity portion of the deal comes up to US$2.99-billion, and NuStar’s shareholders stand to receive 0.400 of a Sunoco share for each NuStar unit they hold, valuing Sunoco’s shares at US$23.78. That represents a premium of 31.9 per cent to NuStar’s last closing price.
“Having the fuel distribution business helps keep your midstream assets full, and often these assets provide a foundation for additional growth and supply synergies,” Sunoco executives said in a call.
The deal, which has been approved by both the boards, will give Sunoco access to NuStar’s transportation and storage facilities, including a portfolio of about 15,000 kilometres of pipeline and 63 terminals.
NuStar would provide exposure to crude terminals and pipelines, refined products terminals and pipelines, a large ammonia pipeline, and exposure to the West Coast and Midwest, Fitch analyst Michael Ruggirello said.
Dallas-based Sunoco is an affiliate of U.S. pipeline operator Energy Transfer, which is controlled by billionaire Kelcy Warren.
Shares of Sunoco were down 5.1 per cent, while shares of NuStar were up nearly 17 per cent.
The companies have flagged cost savings of US$150-million by the third year after the deal closes, expected in the second quarter of 2024.
“[Sunoco’s] transaction does represent a transformative shift in strategy, in our view, to a more diversified and vertically integrated midstream company,” J.P. Morgan analysts said, highlighting crude pipeline and storage assets that the company would get from NuStar.
“We would not be surprised to see Energy Transfer remain quiet on M&A until this deal reaches completion.”