Energy Transfer Partners LP’s (ETP) $1.8 billion merger with Susser Holdings Corp., operator of 630 Stripes convenience stores, tastes like a midstream deal, despite the retail chain’s boast of selling more than 230 million tacos.

The operative term is dropdown. ETP’s plan is:

  • Purchase Corpus Christi, Texas-based Susser and move its assets to the parent company;
  • After the deal likely closes in the third quarter, drop down all retail businesses (gained in its Sunoco acquisition) to Susser in a transaction that is expected to be a combinationof shares and cash;
  • Use cash proceeds to grow the parent company; and
  • Completely segregate the combined retail business from the parent company’s midstream operations.

The plan allows Dallas-based ETP to enjoy the benefits of a profitable retail wing while focusing on its 35,000 miles of natural gas and NGL pipelines and other assets, including storage, fractionation, terminals and transportation. The company owns four gas processing plants, 15 gas treating facilities and two gas conditioning facilities. Operations are focused on Austin Chalk, Eagle Ford, Permian, Barnett, Bossier, Marcellus and Haynesville.

Sunoco joined the ETP fold in 2012 in a $5.3 billion transaction. It markets gasoline in 23 eastern states through 4,900 retail outlets. Sunoco also operates about 400 APlus convenience stores. The addition of Susser’s portfolio will extend Sunoco’s retail footprint into Texas and New Mexico and allow it to re-enter the Oklahoma market.

Wall Street jumped on news of the deal. For a month prior to the April 28 announcement, Susser’s daily trading volume on the New York Stock Exchange averaged about 240,000 shares; for the past year it had averaged around 274,000 shares. After the announcement, volume shot past 4.1 million shares, or more than 17 times the daily average of the previous month. Susser’s unit price, closing at $57.03 on the last trading day before the news, shot up 36.3% to close at $77.72, then continued to gain value later in the week.

ETP’s revenues, just under $5.9 billion in 2010, are expected to eclipse $50 billion in 2014 with a profit margin exceeding 12%, according to a Bloomberg financial analysis. Earnings per unit are expected to double in 2014 to $2.81, or about the price of a beef fajita taco plate.

Comments