ETP 'Should and Will' Sell Sunoco's Retail Network

Analysts name Wawa, MPC, Pantry, QuikTrip, Couche-Tard, Global Partners as candidates

DALLAS -- As part of pipeline company Energy Transfer Partners deal to acquire Sunoco Inc. for $5.3 billion, ETP will--if Sunoco shareholders approve the transaction on October 4--acquire not only Sunoco's 7,900 miles of crude and refined product pipelines and terminal assets, but also Sunoco's branded network of 4,900 retail gas stations scattered through 23 states in the Northeast, Southeast and Midwest.

Approximately one third are owned by Philadelphia-based Sunoco, with the others run by independent operators.

It's an odd fit, said a report on Gas stations are clearly outside the core focus of ETP's management.

Additionally, ETP is structured as a tax-friendly master limited partnership (or MLP), but merchandise from the station's convenience stores do not qualify for MLP treatment, which may subject ETP to taxes.

There is also the fact that it is increasingly tough to turn a profit from running stations, the report said.

"Recent declines in gasoline consumption coupled with higher overhead costs and greater competition from warehouse clubs, such as Costco, have resulted in declining profits for energy company-owned gas stations and those [that are] independently owned and operated," Alan Herbst, a principal at New York-based energy consultancy Utilis Advisory Group, told Minyanville.

"With the retail markup for gasoline only about 15 cents per gallon, station owners had been relying on their convenience store sales to generate income, but now those sales are also declining," he said.

Because of these reasons, oil and gas analysts believe that ETP "should and will" sell Sunoco's distribution network of stations, which they value at around $1.8 billion, the report said.

"I don't think the Sunoco stations would be that profitable as a standalone business, but they could be acquired by another retail operator who is looking to expand their network," Herbst added. "Firms that might have an interest might include Wawa and even the recently spunoff Marathon Petroleum (MPC)."

Neil Earnest, vice president at Dallas-based consultancy Muse Stancil, told Bloomberg that standalone retail operators such as Pantry Inc. or QuikTrip might be interested, while industry insiders cited by the Wall Street Journal said Alimentation Couche-Tard Inc., which operates 3,500 Circle K stores in the United States, and Global Partners, which run 800 fuel stops in the Northeast under multiple brands, could also be potential buyers, said the report.

For customers, any change in ownership of Sunoco stations would most likely go unobserved because the new owner would still use the Sunoco brand, now 126 years old, for those stations. Sunoco is still committed to sponsorship deals with NASCAR and IndyCar through to 2019 and 2014, respectively.

"Sunoco has a good amount of brand recognition, especially in the Northeast," Bradley Olsen, an analyst with Tudor, Pickering, Holt & Co, told The Philadelphia Inquirer, according to Minyanville.

ETP, for its part, said it has indeed received many calls expressing interest in the Sunoco stations, but in the mean time, Kelcy Warren, CEO, has declared to the Inquirer that he is "very comfortable" with owning Sunoco's retail unit.

Click here for previous CSP Daily News coverage of ETP's acquisition of Sunoco.