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Delek US Majority Shareholder Urges Sale of C-Stores

Icahn’s CVR Energy says company should focus on core refining assets
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BRENTWOOD, Tenn. — Delek U.S. Holdings Inc., in response to a letter from majority shareholder CVR Energy Inc. suggesting that its stock is undervalued and that it could benefit from selling its convenience stores, issued a statement saying it “welcomes dialogue with its shareholders and constructive input related to enhancing shareholder value.”

Brentwood, Tenn.-based Delek U.S. is a diversified downstream energy company with assets in petroleum refining, logistics, asphalt, renewable fuels and convenience-store retailing and wholesaling. The retail business operates approximately 253 c-stores in central and west Texas and New Mexico (click here for more details on Delek US's retail history).

To prevent a hostile takeover, Delek U.S. adopted a shareholder rights agreement or "poison pill" in March following an announcement by New York-based Icahn Enterprises LP, controlled by entrepreneur Carl Icahn, and Sugar Land, Texas-based CVR Energy, its majority-owned subsidiary, that they had purchased 14.86% of the outstanding shares of Delek U.S. and intended to discuss an acquisition.

In the letter from CVR Energy President and CEO David Lamp to Delek U.S. Chairman, CEO and President Uzi Yemin, Lamp said CVR Energy currently “has no interest” in acquiring Delek U.S. While at first it thought the company might be a good acquisition, because of changes in the industry, CVR Energy now believes it can achieve greater results for its shareholders by devoting capital to other investments.

“We continue to believe Delek’s stock is undervalued and that the company would benefit greatly from a board refreshment and a renewed focus on value enhancing ideas, such as prioritizing free cash flow over growth, monetizing retail and focusing on core refineries while exiting from others,” the letter said.

“We believe Delek desperately needs new strategic direction,” Lamp said. CVR wants to replace three board nominees with three independent nominees. “We believe our nominees would offer a fresh perspective, and that their extensive industry experience would help to realign Delek’s operating and capital decisions and overall strategy to better fit today’s refining and business environments,” it said.

CVR proposes that Delek US:

  • Cease operations at the Krotz Springs, Texas, and El Dorado, Ark., refineries and convert them to terminals, renewable diesel production or for other purposes.
  • Cease dropping down core refining assets into Delek Logistics at value-destroying prices.
  • Sell Delek US’s retail business at current high prices while retaining wholesale marketing. “Recent retail sales have reflected healthy multiples,” the letter said. “Proceeds from a sale of Delek’s retail assets, while retaining wholesale marketing supply, could be used to buy the 20% of limited partnership interests in Delek Logistics currently held by the public without experiencing earnings dilution and while strengthening Delek’s balance sheet.”
  • Exit non-core supply and trading activities and discontinue all other activities that add no value to Delek US’s core refining business.
  • Simplify Delek US’s corporate structure and reduce general and administrative expenses significantly.“We consider Delek’s expenses to be excessive compared to its peers,” the letter said.

In response, Delek US said its “board of directors and management team are committed to acting in the best interest of all shareholders, and regularly evaluate all available options to create and deliver value.”

“Under the leadership of an engaged and experienced board and management team, Delek U.S. has built a broad portfolio of integrated assets in strategically important geographies, providing substantial value for its customers and partners.,” it said. “In addition to strong operational performance, Delek U.S. has a long history of returning cash to shareholders through dividends and share repurchases. … While Delek U.S.'s immediate focus is navigating current market volatility, the company will continue to execute a long-term strategic plan of providing significant value to shareholders through disciplined capital allocation practices.”

Delek U.S. said its board included seven “highly qualified directors, six of whom are independent and all of whom are established industry leaders with deep expertise and experience that align with the company's long-term strategy. The Delek U.S. board has been regularly refreshed with independent and diverse directors, two of whom joined the board in the last two years. Notwithstanding this recent and ongoing refreshment, Delek U.S. remains committed to maintaining a diverse board with additive perspectives to provide independent oversight and enhance value for all shareholders. The Nominating and Corporate Governance Committee of our board will evaluate any nominees from CVR if and when they are received and make a recommendation in due course.”

It concluded, “Delek U.S. encourages input and engagement from all investors and looks forward to an ongoing dialogue with all shareholders, including CVR, as the company continues to execute value creation strategies.”

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