NEW YORK -- A private-equity company's new stake in Sunoco could herald an impending acquisition of the oil refiner and marketer, perhaps by one of Russia's big energy companies, according to a Forbes report. Harbinger Capital Partners revealed in a filing with the U.S. Securities & Exchange Commission (SEC) that it had taken a 6.6% stake in Sunoco, which has been struggling with unfavorable market conditions.
Refiners in general have been squeezed by rising crude oil prices, which shot up so quickly this year that gasoline and other petroleum products could not be marked up quite [image-nocss] as fast, said the report. Philadelphia-based Sunoco suffers from a second problem, Forbes added: its refineries are optimized for light, sweet crude, which is increasingly a smaller part of the overall mix of what is available in the market.
Sunoco saw its shares rise 6.1% after the Harbinger filing on Monday, and it added 1%, or 36 cents, on Tuesday, closing at $37.15. That's still down 52.9% from a 12-month high of $78.80 hit in October.
The market reaction could have been bottom-fishing by Wall Street, the report speculated. More likely, oil analyst Fadel Gheit of Oppenheimer told the magazine, it was approval of the participation of Harbinger, controlled by billionaire investor Phillip Falcone, in the refiner.
Harbinger's strategy is often to restructure embattled companies, sometimes by spinning off their various businesses, Forbes said. Gheit noted a recent report from Credit Suisse First Boston that estimated Sunoco's breakup value at $75 per share.
Sunoco had sales of $12.8 billion and a loss of $59 million in the first quarter of the year. Its refining business lost $123 million, which was offset in part by profit in the company's chemicals and coking-coal divisions. Sunoco, considered one of America's most trustworthy companies, recently appointed its first female chief executive, Lynn Elsenhans, the former head of U.S. refining at Royal Dutch Shell, who is due to take the reins in early August. (Click here for CSP Daily News coverage. Also click here.)
Elsenhans' track record at Shell suggests her strategy could involve divestitures at Sunoco, too. She presided over the sale of five refineries at Shell, said the report.
The company's biggest challenge, according to the report, is its inability to process heavy sour crude—the most profitable kind of petroleum to refine in the current market. Gheit estimated Sunoco would have to spend $10 billion to upgrade its refining facilities.
There would be little possibility for Harbinger to push for a sale to a U.S. refiner, added Gheit, since the distance between its refineries—in the Philadelphia area, Toledo, Ohio, and Tulsa—would suggest few synergies with the plants of its major competitors, most of which are located elsewhere.
But one option could be a deep-pocketed Russian firm, said Forbes. Lukoil, for example, has large amounts of cash and a growing retail gas-station network in the United States. Gazprom, the Russian government-controlled gas giant, could also buy Sunoco's refineries to obtain a long-sought foothold in the U.S. market.
Harbinger and Sunoco refused to comment.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.