Fuel distribution and midstream firm Sunoco announced Monday that it will acquire fellow logistics company NuStar Energy in a $7.3 billion all-stock deal, significantly expanding its geographic footprint and enabling it to enter new markets.
Sunoco said in a press release that the merger will “diversify [its] business, add scale and capture benefits of vertical integration by combining two stable businesses,” as well as unlock some $150 million in annual synergies within three years.
The deal has already been approved by both companies’ boards of directors and is expected to close in the second quarter.
Sunoco’s acquisition of NuStar comes on the heels of its announcement earlier this month that it will purchase two liquids fuels terminals in the Netherlands and Ireland. The company previously acquired NuStar’s assets on the US East Coast in 2021 for $250 million.
Its latest deal will give Sunoco control of NuStar’s remaining assets in the rest of the US.
“NuStar’s pipeline system and networks … in the western Midwest, Sunoco doesn’t have a huge fuel distribution footprint there, so having that asset base will provide a foundation for us to grow that fuel distribution business, which feeds back on the midstream and should keep those assets more full,” said Sunoco COO Karl Fails.
New Markets, New Means
Sunoco said that the purchase of the remaining NuStar assets would expand not only its physical footprint but also diversify the markets in which it is involved. Executives pointed out that NuStar’s operations include several products that Sunoco’s do not, including crude oil gathering pipelines and a network for shipping ammonia.
“One of the biggest benefits for us is really the diversification of income streams as we expand beyond our traditional refined products portfolio,” said Fails. “While we aren’t currently in those businesses, there are ties to the refined products businesses that we’re very familiar with … We follow those markets closely and are excited to have assets that are going to be able to provide value for a broader customer base.”
Sunoco said there is enough overlap with NuStar’s assets to provide significant efficiencies and cost savings. Fails pointed to Sunoco’s terminal in Brownsville, Texas as an example, around which NuStar has a logistics system.
“Currently, we’ve been bringing product into Brownsville terminal on ships,” he said. “Well, [with] this combination, we are probably going to utilize the NuStar pipeline and other assets there more … That’s where you get a benefit on the fuel distribution side, and we should get increased utilization on the midstream assets.”
Some analysts said the NuStar acquisition marked a significant change in Sunoco’s trajectory.
“The transaction does represent a transformative shift in strategy, in our view, to a more diversified and vertically integrated midstream company versus a distribution-focused company with a small but growing midstream footprint,” said John Royall and Jeremy Toney of investment bank JPMorgan Chase.
Read More: Sunoco Expands US Presence With $7.3 Billion NuStar Deal