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The shareholders of oil refiner and marketer Sunoco Inc. have given green signal for the merger of the company with natural gas pipeline operator Energy Transfer Partners L.P. (ETP - Analyst Report) in a Special Meeting held on October 4, 2012. Both the companies expect to close the transaction, worth $5.3 billion, effective October 5, 2012.

In the meeting, shareholders controlling a total of 69,613,600 shares had put in their votes that represent 66% of Sunoco’s shares. Of this, 97% of votes were cast in favor of the merger.

For the deal – which was first announced in late April, this year – Sunoco shareholders will get a combination of cash payment of $25.00 and 0.5245 in the form of an Energy Transfer Partners share. The stockholders also have an option to receive $50 in cash for each one of the shares along with 1.049 Energy Transfer units.

This transaction will enable Energy Transfer Partners to gain control of 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.

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), a master limited partnership in which Sunoco has 34% stake.

With this acquisition, Energy Transfer Partners aims to penetrate further in the crude oil transportation business as natural gas supplies remain under pressure from decade-low prices. The Dallas-based partnership will also be able 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.

We are maintaining our long-term Neutral recommendation on both the shares of Sunoco and Energy Transfer Partners.


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