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Key advantages of an Energy Transfer Partners–Susser Holdings deal

Avik Chowdhury

Energy Transfer Partners could acquire Susser for $1.8 billion (Part 4 of 5)

(Continued from Part 3)

Key advantages

With Energy Transfer Partners (ETP) and Susser Holdings (SUSS) combined, we may see one of the largest retail or wholesale petroleum and motor fuel business entities in the southwest U.S. The asset footprint of the proposed SUSP MLP, post-merger, is expected to be the largest non-refiner distributor of motor fuel in Texas. It will have a total of 630 stores, 616 contract dealers, and 1,800 commercial customers and will have an aggregate supply of 1.6 billion gallons of fuel from the proposed merged entity.

If we look closely at the individual businesses of these two companies, Sunoco Logistics (part of ETP) already has an established East Coast and Southeast presence with over 5,000 sites selling its branded products. It earns significant fees directly from these outlets or from lease interest of these properties in these regions. It has strategic expertise in supply and trading and retail marketing. It sells fuel products under the Sunoco, Exxon Mobil, and Coastal brands. The company’s assets also include the APlus and Circle K convenience stores and Ultra Service Centers, which provide automotive diagnostics and repair. Sunoco has a strong management team that continues to show efficiency in its operating multiple brands and multiple selling channels. The most prominent of these brands is the Sunoco brand, which is positioned as a premium brand. Plus, Sunoco believes its brands and high-performance gasoline business have benefited from its sponsorship agreements with NASCAR and INDYCAR (racie car series).

Susser has also capitalized on its Stripes brand in the wholesale and retail market of gasoline products in the Southwest regions of the U.S. In 2013, Susser distributed 1.1 billion gallons of motor fuel to its Stripes convenience stores and consignment locations and 517.8 million gallons of motor fuel to other third-party customers. Of the total SUSS-operated 580 Stripes convenience stores, 533 were in Texas, 29 were in New Mexico, and 18 were in Oklahoma by end of 2013.

The concentration of Sunoco Logistics’ and Susser’s business in the Southwest, particularly in Texas, is expected to be complementary rather than competitive for its businesses. This is primarily because Texas is a fast-growing market for automobile fuel, and together, they’re believed to better serve consumers’ needs. According to The Texas Comptroller of Public Accounts, from 1989 to 2013, gasoline consumption in Texas grew approximately 46% from 8.5 billion gallons to 12.4 billion gallons, or at an approximate 1.6% CAGR (compound annual growth rate). Similarly, during the same period, diesel consumption grew approximately 150%, from 1.6 billion gallons to 4.0 billion gallons, or at an approximate 3.9% CAGR.

In its 2013 10-K, ETP explained that its strategy entails directly purchasing any dealer distribution contracts or other wholesale distribution contracts and assets owned by SUSS, selling additional fuel volumes to convenience stores that SUSS acquires or to SUSS for any acquired consignment locations, and entering into additional sale and leaseback arrangements with respect to acquired stores.

As well as the traditional fuel retail and distribution business, Susser has a restaurant business in its pipeline, In fact, SUSS has developed Laredo Taco Company, a proprietary in-house restaurant concept, and implemented it in 362 Stripes convenience stores. It also intends to implement it in all newly constructed Stripes convenience stores. The retail store locations of Susser have additional land-bank, which the company may leverage for continued store development or growth. It also provides an opportunity to ETP to increase its assets to strengthen the balance sheet.

ETP, in its presentation of the proposed merger, disclosed, “The addition of Susser to the Sunoco network broadens Sunoco’s geographic footprint and creates a portfolio of strong fuel brands and C-Store models to deploy optimally, with the strong capital and operating discipline that has allowed both Sunoco and Susser to generate sustained earnings growth over time.”

Energy Transfer Partners LP (ETP) and Susser Petroleum Partners LP (SUSP) are master limited partnerships operating in the midstream energy space in the wholesale and retail businesses. Other major companies operating in the same sector include Ferrellgas Partners LP (FGP) and Kinder Morgan Partners LP (KMP), which are also components of the Alerian MLP ETF (AMLP), Global X Funds MLP ETF (MLPA), or Yorkville High Income MLP ETF (YMLP).

Continue to Part 5

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