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Valero and Valero Energy Partners Ink $950M Merger Deal

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Valero Energy Corporation VLO announced that it is merging with Valero Energy Partners LP VLP and Forest Merger Sub LLC, a subsidiary that was incorporated in Delaware as a merge vehicle by the company.

Per the merger agreement filed with the U.S. Securities and Exchange Commission, Valero will acquire all of the partnership’s outstanding shares at $42.25 per common unit. The transaction will be valued at about $950 million, which represents a premium of about 12.4% to the 30 trading-day volume weighted average price of the partnership's common units as of Oct 17, 2018.

Valero Energy Partners, formed as the company’s master limited partnership (MLP), commenced trading on the New York Stock Exchange on Dec 11, 2013. The affiliate owns and operates pipelines and storage terminals in Texas, Oklahoma, Louisiana and Tennessee that maintain various Valero refineries.

Since Valero holds majority of stakes in the MLP, a stockholder vote is not required. The deal is anticipated to close at the earlier than the targeted date. On completion of the transaction, the partnership will be an indirect wholly-owned subsidiary of Valero and will stop being a publicly held partnership.

Valero Energy Partners, which reported net income of $64 million on $134.6 million during the second quarter, is expected to release third-quarter results on Oct 25.

The partnership’s board declared a cash dividend of 55.1 cents per share for the third quarter. The dividend is payable on Nov 9, 2018 to unitholders of record at the close of business on Nov 1, 2018. Per the agreement, the board may not declare and the partnership may not pay any distribution other than the announced dividend prior to the closing of the transaction.

Per the SEC filings, Tortoise MLP Fund Inc is the largest institutional investor in Valero Energy Partners with more than 6 million shares. The fund's shares are valued at about $255.5 million under the merger agreement.

Post the closure of the deal, San Antonio will be home to 17 companies traded on the Nasdaq or New York Stock Exchange. Per a research by the Business Journal, the merger is the eighth largest business deal in San Antonio's history.

Price Performance

In the past year, the company’s shares have improved 20% compared with the industry’s 18.5% rise.


Zacks Rank &Stocks to Consider

Valero currently carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Denbury Resources Inc and Eni SpA E. Both these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Denbury is an exploration and production (E&P) company engaged in the acquisition, development, operation, and exploration of oil and natural gas properties. It pulled off an average positive earnings surprise of 162.9% in the last four quarters.

Based in Rome, Italy, Eni is among the leading integrated energy players in the world. The partnership delivered a negative earnings surprise of 0.3% in the last four quarters.

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