Sunoco Logistics announced Nov. 21 a reported $20 billion merger with Energy Transfer Partners, which owns the Dakota Access Pipeline project.
The unit-for-unit transaction was approved by the boards of directors and conflicts committees of both partnerships and is expected to close in the first quarter of 2017, subject to receipt of Energy Transfer Partners unitholder approval and other customary closing conditions.
The transaction brings together one of the premier crude oil midstream master limited partnerships (MLP) with one of the premier natural gas midstream MLPs. The combined partnership is expected to be the second largest MLP as measured by enterprise value.
Under the terms of the transaction, Energy Transfer Partners unitholders will receive 1.5 common units of Sunoco Logistics for each common unit of Energy Transfer Partners they own. This equates to a 10 percent premium to the volume weighted average pricing of Energy Transfer Partners’ common units for the last 30 trading days immediately prior to the announcement of the transaction.
As Sunoco Logistics will be the acquiring entity, the existing incentive distribution rights provisions in the Sunoco Logistics partnership agreement will continue to be in effect, and Energy Transfer Equity LP will own the incentive distribution rights of Sunoco Logistics following the closing of the transaction. As part of this transaction, Energy Transfer Equity has agreed to continue to provide all the incentive distribution right subsidies that are currently in effect with respect to both partnerships. The transaction is expected to be immediately accretive to Sunoco Logistics’ distributable cash flow per common unit and is also expected to allow the combined partnership to be in position to achieve near-term distribution increases in the low double digits and a more than 1.0x distribution coverage ratio.
The transaction is expected to provide significant benefits for Sunoco Logistics and Energy Transfer Partners unitholders as the combined partnership will have increased scale and diversification across multiple producing basins and will have greater opportunities to more closely integrate Sunoco Logistics’ natural gas liquids business with Energy Transfer Partners’ natural gas gathering, processing and transportation business. With this transaction, Sunoco Logistics and Energy Transfer Partners expect to build upon their experience working together as partners in several joint ventures to pursue commercial opportunities and to achieve cost savings while enhancing the service capabilities for their customers, according to a joint statement announcing the deal. The companies also expect the deal will provide a costs savings of more than $200 million annually by 2019.
The transaction is also expected to strengthen the balance sheet of the combined organization by using cash distribution savings to reduce debt and to fund a portion of the growth capital expenditure programs of the two partnerships. Energy Transfer Partners and Sunoco Logistics have spent approximately $15 billion in organic growth capital over the past several years, and these expenditures, combined with the completion of other major capital projects currently in progress, are expected to continue to generate strong distributable cash flow growth.
At the closing of the transaction, Kelcy Warren will be CEO, Mackie McCrea will be chief commercial officer, Matt Ramsey will be president, and Tom Long will be chief financial officer of the combined partnership, and it is expected that Mike Hennigan and other members of the Sunoco Logistics management team will continue in leading management roles of the combined company with the Sunoco Logistics business headquartered in Philadelphia.
Latham & Watkins LLP acted as legal counsel to Energy Transfer Partners. Vinson & Elkins LLP acted as legal counsel to Sunoco Logistics. Barclays acted as financial advisor and Potter Anderson & Corroon LLP acted as legal counsel to Energy Transfer Partners’ conflicts committee. Citi acted as financial advisor and Richards Layton & Finger, P.A. acted as legal counsel to Sunoco Logistics’ conflicts committee.
Energy Transfer Partners is a master limited partnership that owns and operates more than 62,500 miles of natural gas and natural gas liquids pipelines. The company’s subsidiaries include Panhandle Eastern Pipe Line Co. LP (the successor of Southern Union Co.) and Lone Star NGL LLC, which owns and operates natural gas liquids storage, fractionation and transportation assets.
Sunoco Logistics is a master limited partnership that owns and operates a logistics business consisting of a geographically diverse portfolio of complementary pipeline, terminals and acquisition and marketing assets that are used to facilitate the purchase and sale of crude oil, refined products, natural gas liquids and refined products. Sunoco Logistics’ general partner is a consolidated subsidiary of Energy Transfer Partners.
Energy Transfer Equity is a master limited partnership that owns the general partner and 100 percent of the incentive distribution rights of Energy Transfer Partners and Sunoco LP. The entity also owns approximately 2.6 million Energy Transfer Partners common units and approximately 81 million Energy Transfer Partners Class H Units, which track 90 percent of the underlying economics of the general partner interest and incentive distribution rights of Sunoco Logistics. On a consolidated basis, Energy Transfer Equity’s family of companies owns and operates approximately 71,000 miles of natural gas, natural gas liquids, refined products and crude oil pipelines.