Sunoco LP and NuStar Energy L.P. have announced a definitive agreement for Sunoco to acquire NuStar in an all-equity transaction valued at approximately $7.3 billion, including assumed debt. The agreement states that NuStar common unit holders will receive 0.400 Sunoco common units for each NuStar common unit, representing a 24 percent premium based on the 30-day volume-weighted average prices of both companies as of January 19, 2024.
To facilitate the transaction, Sunoco has secured a $1.6 billion 364-day bridge term loan, which will be used to refinance NuStar’s Series A, B, and C Preferred Units, Subordinated Notes, Revolving Credit Facility, and Receivables Financing Agreement.
The acquisition has received unanimous approval from the boards of directors of both companies and is expected to close in the second quarter of 2024, subject to closing conditions, including approval by NuStar’s unitholders and customary regulatory approvals.
The strategic rationale behind the acquisition includes increasing stability by diversifying the business, adding scale, and capturing the benefits of vertical integration. It also aims to strengthen Sunoco’s financial foundation by continuing its successful capital allocation strategy on a larger scale, improving its credit profile, and supporting future distribution growth. The transaction is expected to enhance growth by generating more cash flow for reinvestment and expanding the opportunity set.
From a financial perspective, the acquisition is immediately accretive, with a projected 10 percent plus accretion to distributable cash flow per LP unit by the third year following the close. It is also expected to realize at least $150 million of run-rate synergies by the third year and generate approximately $50 million per year of additional cash flow by refinancing high-cost floating rate capital. Sunoco aims to achieve its leverage target of 4.0x within 12-18 months after the closing of the transaction while supporting continued distribution growth and maintaining strong coverage.
Prior to the closing, NuStar will distribute $0.212 per common unit in cash to its common unitholders. Additional details about the transaction can be found on Sunoco’s and NuStar’s respective investor relations websites.
Sunoco LP will hold a conference call on January 22 to discuss the transaction, and Truist Securities served as the exclusive financial advisor to Sunoco. Truist and Bank of America provided committed financing, while Weil, Gotshal & Manges LLP and Vinson & Elkins LLP acted as Sunoco’s legal advisors.
For more information visit www.sunocolp.com
