Sunoco to Acquire NuStar Energy in $7.3 Billion Deal for Midstream Expansion

(Reuters) — Sunoco said on Monday it would acquire fuels storage and pipeline operator NuStar Energy in a deal valued at about $7.3 billion including debt, as it tries to diversify its core business beyond distribution of motor fuels.

(Image Source: Sunoco)

The equity portion of the deal comes up to $2.99 billion, and NuStar's shareholders stand to receive 0.400 of a Sunoco share for each NuStar unit they hold, valuing Sunoco's shares at $23.78. That represents a premium of 31.9% to NuStar's last closing price.

"Having the fuel distribution business helps keep your midstream assets full, and often these assets provide a foundation for additional growth and supply synergies," Sunoco executives said in a call.

The deal, which has been approved by both the boards, will give Sunoco access to NuStar's transportation and storage facilities, including a portfolio of about 9,500 miles of pipeline and 63 terminals.

NuStar would provide exposure to crude terminals and pipelines, refined products terminals and pipelines, a large ammonia pipeline, and exposure to the West Coast and Midwest, Fitch analyst Michael Ruggirello said.

Dallas-based Sunoco is an affiliate of U.S. pipeline operator Energy Transfer, which is controlled by billionaire Kelcy Warren.

Shares of Sunoco were down 5.1%, while shares of NuStar were up nearly 17%.

The companies have flagged cost savings of $150 million by the third year following closing of the deal, expected in the second quarter of 2024.

"(Sunoco's) transaction does represent a transformative shift in strategy, in our view, to a more diversified and vertically integrated midstream company," J.P. Morgan analysts said, highlighting crude pipeline and storage assets that the company would get from NuStar.

"We would not be surprised to see Energy Transfer remain quiet on M&A until this deal reaches completion."

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