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Sunoco (SUN) and NuStar Join Forces for a 7.3B All-Equity Merger
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Sunoco LP (SUN - Free Report) and NuStar EnergyL.P. (NS - Free Report) jointly announced that they have entered into a definitive agreement for Sunoco to acquire NuStar in an all-stock deal valued at approximately $7.3 billion, including assumed debt.
Per the terms of the agreement, NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit, representing a 24% premium based on the 30-day volume-weighted average prices (VWAPs) of both NuStar and Sunoco as of Jan 19, 2024. To facilitate the transaction, Sunoco has secured a $1.6 billion 364-day bridge term loan. This loan will be utilized to refinance NuStar's Series A, B, and C Preferred Units, Subordinated Notes, Revolving Credit Facility and Receivables Financing Agreement.
The transaction received unanimous approval from the board of directors of both companies and is expected to close in the second quarter of 2024, subject to the satisfaction of the closing conditions. These conditions include approval from NuStar's unitholders and customary regulatory approvals.
The acquisition is designed to bring about increased stability by diversifying business operations, adding scale and capturing the benefits of vertical integration through the combination of two stable businesses. It is anticipated to strengthen Sunoco's financial foundation by continuing its successful capital allocation strategy on a larger scale, improving the partnership's credit profile and supporting a growing distribution.
Moreover, the deal is expected to enhance growth prospects, providing more cash flow generation for reinvestment and growth across an expanded opportunity set.
The transaction is projected to be immediately accretive, with a 10%+ accretion to distributable cash flow per LP unit by the third year following the closure. Synergies of at least $150 million in run-rate are expected by the third year following the closure. Additionally, approximately $50 million per year of additional cash flow is foreseen from refinancing high-cost floating rate capital.
Sunoco aims to achieve a leverage target of 4.0x within 12-18 months post-closure, supporting continued distribution growth while maintaining strong coverage.
Oceaneering International is a leading provider of integrated technology solutions, active at all phases of the offshore oilfield lifecycle. Its strong relationship with high-quality customers provides revenue visibility and business certainty. OII is well-positioned to supply equipment for deep-water projects.
Vaalco Energy is an independent energy company involved in upstream operation business with a diversified presence in Africa and Canada. Having a large inventory of drilling locations in premium Canadian Acreage, the company’s production outlook seems bright.
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Sunoco (SUN) and NuStar Join Forces for a 7.3B All-Equity Merger
Sunoco LP (SUN - Free Report) and NuStar Energy L.P. (NS - Free Report) jointly announced that they have entered into a definitive agreement for Sunoco to acquire NuStar in an all-stock deal valued at approximately $7.3 billion, including assumed debt.
Per the terms of the agreement, NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit, representing a 24% premium based on the 30-day volume-weighted average prices (VWAPs) of both NuStar and Sunoco as of Jan 19, 2024. To facilitate the transaction, Sunoco has secured a $1.6 billion 364-day bridge term loan. This loan will be utilized to refinance NuStar's Series A, B, and C Preferred Units, Subordinated Notes, Revolving Credit Facility and Receivables Financing Agreement.
The transaction received unanimous approval from the board of directors of both companies and is expected to close in the second quarter of 2024, subject to the satisfaction of the closing conditions. These conditions include approval from NuStar's unitholders and customary regulatory approvals.
The acquisition is designed to bring about increased stability by diversifying business operations, adding scale and capturing the benefits of vertical integration through the combination of two stable businesses. It is anticipated to strengthen Sunoco's financial foundation by continuing its successful capital allocation strategy on a larger scale, improving the partnership's credit profile and supporting a growing distribution.
Moreover, the deal is expected to enhance growth prospects, providing more cash flow generation for reinvestment and growth across an expanded opportunity set.
The transaction is projected to be immediately accretive, with a 10%+ accretion to distributable cash flow per LP unit by the third year following the closure. Synergies of at least $150 million in run-rate are expected by the third year following the closure. Additionally, approximately $50 million per year of additional cash flow is foreseen from refinancing high-cost floating rate capital.
Sunoco aims to achieve a leverage target of 4.0x within 12-18 months post-closure, supporting continued distribution growth while maintaining strong coverage.
Zacks Rank & Other Key Picks
Sunoco currently has a Zack Rank #1 (Strong Buy).
Some other top-ranked stocks in the energy sector are Oceaneering International, Inc. (OII - Free Report) and Vaalco Energy, Inc. (EGY - Free Report) , each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Oceaneering International is a leading provider of integrated technology solutions, active at all phases of the offshore oilfield lifecycle. Its strong relationship with high-quality customers provides revenue visibility and business certainty. OII is well-positioned to supply equipment for deep-water projects.
Vaalco Energy is an independent energy company involved in upstream operation business with a diversified presence in Africa and Canada. Having a large inventory of drilling locations in premium Canadian Acreage, the company’s production outlook seems bright.