Standard & Poor's Ratings Services said it raised its outlook on natural-gas pipeline operator Energy Transfer Partners L.P. (ETP) to stable from negative, saying the company's plans to buy Sunoco Inc. (SUN) for about $5.3 billion will improve its scale and competitive position.
Sunoco has been trying to sell itself since late 2011, after posting losses for much of the past two years because of high oil prices and decreasing fuel demand. Finding a buyer for the company and its aging refineries was considered a long-shot despite Sunoco's profitable logistics and retail businesses.
S&P affirmed its triple-B-minus rating on nergy Transfer Partners, which is just above a junk-level rating. The ratings firm said the company's more diversified mix of assets will allow it to tolerate a somewhat higher debt level, as the company increases its scale and competitive position in natural gas, oil and natural gas liquids markets.
Deal might be a little too good for ETP. Premium is only 23%. I would not be surprised to see another bidder. Breakup fee is $225mm which is not too large for a deal this size. The way to play this deal is to buy SUN. You win with a higher bid, or you win as ETP's shares rise based on a steal of a deal.
When you refigure the cash flow from SUN (post refinery sale) after changing it from a C Corp to a MLP (no tax bil) it becomes accretive. It also deleverages ETP because SUN is about 80% equity and 20% debt compared to MLP standard 50/50. Last there are two numbers not calculated. $250M from selling oil inventory and another 2.5M shares of SUN that were bought back this spring.
Remember a MLP is DCF not net profit. Also SUN has changed itself. Last, if you listened to the conference call ETP said they really do not know what they are going to do with the retail business. It does not fit well into a MLP and they acknowledged there would be interested buyers.