In a pivotal move that reshapes the landscape of the midstream oil and gas sector, Sunoco LP has announced its agreement to acquire NuStar Energy LP in an all-stock deal valued at around $7.3 billion, inclusive of NuStar’s debt. This strategic acquisition marks a significant step for Sunoco, a major player in the fuel distribution market, as it seeks to diversify its business portfolio and strengthen its position in the midstream segment.
NuStar Energy, a renowned liquids terminal and pipeline operator in the U.S. and Mexico, brings to the table an extensive network of approximately 15,288 kilometers of pipelines and 63 terminal and storage facilities. These facilities play a crucial role in the storage and distribution of a diverse range of substances including crude oil, refined products, renewable fuels, ammonia, and specialty liquids, boasting a storage capacity of about 49 million barrels.
For Sunoco, primarily known for its distribution of motor fuels across over 40 states and territories in the U.S., this deal represents a significant shift in strategy. By acquiring NuStar, Sunoco not only expands its operational footprint but also aligns with the industry trend of vertical integration. This move is anticipated to enable Sunoco to optimize fuel supply costs, enhance cash flow generation, and foster growth opportunities within an expanded operational scope.
Financially, the equity portion of the deal amounts to $2.99 billion. NuStar shareholders are set to receive 0.400 of a Sunoco share for each unit held, translating to a 31.9% premium over NuStar’s last closing price. The transaction has been unanimously approved by both companies’ boards and is expected to close in the second quarter of 2024, subject to regulatory approvals and the consent of NuStar’s unitholders.
The acquisition comes at a time when Sunoco has been actively reshaping its asset portfolio, including the recent sale of 204 convenience stores to 7-Eleven and an agreement to acquire a liquids terminals in Europe. The purchase of NuStar is seen as a strategic endeavor to diversify Sunoco’s business, increase scale, and tap into the advantages of vertical integration by merging two stable entities.
Market reaction to the announcement was mixed, with Sunoco’s shares experiencing a downturn while NuStar’s surged. The deal is expected to yield significant cost savings, estimated at $150 million by the third year post-closing. Analysts view this as a transformative shift for Sunoco towards a more diversified and vertically integrated midstream company.
In an industry where consolidation is becoming increasingly common, this acquisition by Sunoco represents a notable development, particularly for the midstream sector. It signals a strategic pivot towards diversification and highlights the ongoing evolution within the oil and gas industry, where integration and scalability are becoming key drivers of growth and stability.