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Natural-gas pipeline operator Energy Transfer Partners LP (ETP - Analyst Report) has entered into an agreement to acquire Philadelphia-based refining and petroleum product marketing company Sunoco Inc. for $5.3 billion.

The deal will enable Energy Transfer Partners to penetrate further in the crude oil transportation business as natural gas supplies remain under pressure from decade-low prices.  

The proposed transaction includes around 8,000 miles of Sunoco’s pipeline, as well as 4,900 gas stations encompassing over 24 Eastern states. However, these stations will retain its logo and Sunoco’s brand name, post acquisition. Logistics and retail business of Sunoco will also remain headquartered in Philadelphia

The deal is the most recent in a series of pipeline mergers that have been prompted by the developments in the oil and gas shale plays, and master limited partnership (MLP) concept, which help companies reduce their tax burden.

As per the terms of the agreement, Sunoco shareholders will get $50.13 in cash or stock for each share they hold.

Along with the transaction, Energy Transfer Equity L.P. (ETE - Snapshot Report)), the owner of Energy Transfer Partners, has agreed to part with its right to receive incentive distribution worth $210 million, which it would have received for the next 12 quarters

Sunoco, as previously announced, will continue its efforts to exit from its 120-year old refinery business, owing to higher input prices that have adversely affected their profits. It still intends to form a joint venture with Carlyle Group L.P to run its Philadelphia refinery.

With this acquisition, Energy Transfer Partners will also have the ownership of Sunoco’s branded retail business, general partner interest, plus a 32.4% stake and incentives distribution rights in Sunoco Logistics Partners L.P. (SXL - Analyst Report)), an MLP in which Sunoco has 34% stake. The retail business is spread across 4,900 retail locations in the U.S. and generates handsome cash flows.

The transaction will enable the Dallas-based Energy Transfer Partners to diversify its portfolio and generate 70% of its cash flow-mix from natural gas and the remaining 30% from heavier hydrocarbons like crude oil, refined product and natural-gas liquids.

The deal has been approved by the board of directors of both the companies and is expected to close by the latter half of this year. Post acquisition, the Energy Transfer Equity group of companies will operate Sunoco and Sunoco Logistics Partners. Sunoco Logistics Partners will continue to trade separately on the New York Stock Exchange.

Founded in 2002, Energy Transfer Partners is one of the largest publicly-traded MLPs with a broadly-diversified asset base that includes intrastate and interstate pipelines, significant midstream and storage properties. Importantly, the partnership’s strategically-positioned asset portfolio maintains a strong presence in the emerging North American shale plays. Energy Transfer has a history of achieving high returns on capital, both from acquisitions and from organic growth projects.

Philadelphia, Pennsylvania-based Sunoco, Inc. is a leading independent refiner and marketer of petroleum products. Founded in 1886, the company also has interests in logistics facilities. Its operations include two refineries (Philadelphia and Marcus Hook) having a combined capacity of 505,000 barrels per day. Sunoco’s retail marketing operations include approximately 4,900 retail sites in 24 states, primarily in the East Coast and Midwest regions of the country.

Both Energy Transfer Partners and Sunoco maintain a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

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