The planned separation of SunCoke from the remainder of Sunoco will create two well-positioned businesses, the company said in a press [image-nocss] statementa leading, high-quality metallurgical coke manufacturer with operations in the United States and abroad, and a streamlined fuels business focused on refining, supply, logistics and retail marketing that is better positioned to become the premier provider of transportation fuels in its markets.
The company plans to effect the separation in the first half of 2011, subject to market, regulatory and other conditions, and is currently reviewing a variety of potential separation transactions, including a tax-free spin-off of SunCoke Energy to Sunoco shareholders.
"Following a rigorous evaluation process, the board...believes that the company may be undervalued from a 'sum-of-the-parts' perspective and that a strategic separation of SunCoke Energy would bring long-term value to shareholders and benefits to customers and employees," Elsenhans said. "A separation should enable Sunoco Inc. to pursue a more focused strategic plan, invest in growth opportunities and further strengthen its balance sheet. Sunoco's strong, brand-led retail growth platform, along with the growth potential of Sunoco Logistics Partners LP, will give Sunoco additional opportunities to enhance its competitive profile as we position the company to become the premier provider of transportation fuels in its markets."
Sunoco is a leading transportation fuel provider, with operations located primarily on the East Coast and in the Midwest. The company operates more than 4,700 branded retail locations that market transportation fuels and convenience store merchandise in 23 states. This retail network is principally supplied by Sunoco-owned refineries with a combined crude oil processing capacity of 675,000 barrels per day. Sunoco is also a partner and has a 33% interest in Sunoco Logistics, a publicly traded master limited partnership that owns and operates 6,000 miles of refined product and crude oil pipelines and 41 product terminals. Many of Sunoco Logistics' pipelines and terminals and storage facilities are integrated with Sunoco's retail network and refineries.
The Philadelphia-based company has streamlined its retail and logistics businesses to bolster returns from the refinery to the pump, said Dow Jones. Developing a "premier transportation fuels company" regardless of the liquid fuels source has been the catchphrase repeated by Sunoco executives at the analyst day taking place at Times Square in New York.
But even with the tepid, uncertain outlook for a recovery in demand for gasoline, Sunoco expects the retail business to thrive. The pie isn't getting bigger but the company is after a "bigger piece" of it, Bob Owens, senior vice president for marketing, told the news agency.
The company plans to use its NASCAR and Indy racing sponsorships to raise brand power that was second only to BP last year for customer loyalty, according to third-party market research cited by the report.
Sunoco is focusing on expanding its retail presence in the Northeast, particularly along toll roads. The net profit margins on c-stores are just under 30%, Owens said.
"Our focal point of the business becomes the logistics business" and away from company-owned refineries as biofuels become a bigger portion of the transportation fuels market, Elsenhans said during a meeting with analysts on Wednesday.
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The refining business is an important part of that network, but not a necessary one to generate returns in the retail and logistics business, according to company executives. But given that the company already owns those plants, "we've worked really hard to get to the point where the refining business is not a drain," Elsenhans said.
Commenting on the company's announcement that it expects its refining segment to report its first profitable quarter since first-quarter 2009, Elsenhans said, "We are beginning to see the results of our business improvement initiatives positively impact our performance. The actions we've taken, coupled with a slight improvement in market conditions, have brightened our immediate outlook for Sunoco's refining and supply business. Nevertheless, business conditions remain difficult, requiring our continued focus on operating excellence and achieving a sustainable, lower-cost structure."
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