Western Refining Inc. (NYSE: WNR) has landed a deal to buy up the rest of Tempe, Ariz.-based Northern Tier Energy LP (NYSE: NTI) after lowering its original offer.

Western, based in El Paso, Texas, has entered a merger agreement with Northern Tier to acquire all of its remaining units, amounting to about 60% of Northern's outstanding units. Total consideration is expected to equal $1.5 billion using Dec. 21 prices.

Combined, the companies would have about 600 miles of pipeline and increased exposure to crude production in western Canada, the Permian and San Juan basins and the Bakken. Additionally, the combination will include the three top-quartile refineries on a gross margin per barrel basis.

"We believe that the WNR/NTI merger will result in a simpler corporate structure, more diversified refining asset base, an integrated retail network and a more efficient framework for logistics asset sales from NTI to WNRL," said Jeff Dietert, managing director and head of research at Simmons & Co. International.

With a simplified corporate structure and diverse geographic base, Western will have "greater access to capital and be positioned to profitably grow the company," said Jeff Stevens, president and CEO, in a statement.

Western Refining previously acquired ownership interests in Northern Tier for $775 million. Western took over Northern Tier's general partner and nearly 40% of the company's units.

Western expects to capture more than $10 million in incremental cost synergies to add to the $20 million it has realized from its original investment in Northern Tier in November 2013.

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Under the terms of the merger agreement entered on Dec. 21, Northern Tier unitholders will receive $15 in cash and 0.2986 Western shares. Based on the closing price at the time, total consideration is $26.21 per share which is "slightly lower" than the original offer made in October, Dietert said.

The buying price still represents an 8% premium on Northern Tier's closing share price, he said.

In addition, Northern Tier unitholders have the option to receive all cash or stock instead of the cash/equity split. Investors will make a choice between money or stock based on their “degree of confidence in WNR's future growth outlook,” Dietert said.

Northern Tier unitholders are expected to own 15% of Western Refining's outstanding stock following the transaction. Additionally, the company will assume Northern Tier's $500 million revolver and $350 million in senior secured notes.

Western will fund the deal’s $858 million cash portion using cash on hand and debt. The company will also issue $642 million in equity through an offering of 17.1 million shares.

Following the transaction, Dave Lamp, CEO of Northern Tier, will become president and COO at Western Refining. Paul Foster will remain executive chairman. Jeff Stevens will remain CEO of Western.

The transaction is expected to close during the first half of 2016, subject to Northern Tier unitholder approval and customary closing conditions.

Goldman Sachs & Co. was financial adviser to Western, and Vinson & Elkins, Davis Polk & Wardwell and Richards Layton & Finger were its legal counsel. Evercore was financial adviser to Northern Tier's conflict committee. Akin Gump Strauss Hauer & Feld LLP and Morris, Nichols, Arsht & Tunnell LLP were the committee's legal counsel.

Contact the author, Emily Moser, at emoser@hartenergy.com.

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