ALLENTOWN, Pa. -- Wholesale motor fuel distributor Lehigh Gas Partners LP has commenced an initial public offering (IPO), as reported in a Raymond James/CSP Daily News Flash on Wednesday.
Lehigh is among a growing group of downstream fuel companies that are embracing a form of IPO known as MLPs, or Master Limited Partnerships, which offer certain tax incentives--because they are classified as partnerships, they avoid the double taxation of corporate income tax at both a state and federal level.
Allentown, Pa.-based Lehigh said in its Securities & Exchange Commission (SEC) filing that it expects the net proceeds from the sale of six million common units in this offering will be approximately $105.6 million based on an assumed offering price of $20 per common unit.
It said that it intends to use the net proceeds from this offering to repay $57.9 million in outstanding debt under the new credit facility; to repay in full $14.3 million in outstanding mortgage notes; to pay $13 million to entities owned by the children of Warren S. Kimber Jr., a director of its general partner, as consideration for the cancellation of mandatorily redeemable preferred equity; to distribute an aggregate $20 million in cash to the Topper Group and Lehigh Gas Corp. as reimbursement for certain capital expenditures with respect to the assets they contributed and consideration for the purchase of all of the assets; and to use for general partnership purposes, including working capital and acquisitions.
Joe Topper Jr. founded Lehigh Gas Partners in Bethlehem, Pa., in 1992 to distribute motor fuels and to own and lease real estate used in the retail distribution of motor fuels. The company owns and leases sites--gas stations, truckstops and toll road plazas--in Pennsylvania, New Jersey, Ohio, New York, Massachusetts, Kentucky, New Hampshire and Maine (see File Attachments below to view a map detailing Lehigh's retail network).
For the six months ended June 30, 2012, Lehigh distributed approximately 282 million gallons of motor fuels to 728 sites.
Lehigh Gas Partners has expanded aggressively, making the first of several acquisitions in 1997 when it picked up a full-line Texaco distributorship. Over the next seven years, the fuel wholesaler increased the number of petroleum brand flags, adding Exxon, Mobil, Gulf, Sunoco, Shell and Hess and, in 2006, entering a brand affiliation with Valero.
All the while, Lehigh padded its company and dealer-run network, acquiring swaths of Shell locations and ExxonMobil sites, including many On the Run c-stores, eventually raising its portfolio to 570 units, including 185 locations operated by independent dealers.
(See Related Content below for previous CSP Daily News coverage.)
For Lehigh's IPO, the underwriters will be granted a 30-day option to purchase up to an additional 900,000 common units. The common units are expected to trade on the New York Stock Exchange under the symbol "LGP."
Raymond James & Associates Inc. and Robert W. Baird & Co. Inc. are acting as joint book-running managers for the offering. Oppenheimer & Co. Inc., Janney Montgomery Scott LLC, and Wunderlich Securities Inc. are acting as co-managers.
The tax code allows natural resource businesses to form MLPs to promote the development of those resources and the associated infrastructure, so most MLPs today generate income from the production, processing, transportation, and storage of oil, natural gas, coal and refined products.
Companies have formed MLPs that derive income from the wholesale distribution of refined products to convenience stores. MLPs may also own real estate and collect rent; however, income from convenience store retail operations, including the sale of fuel to consumers, is not qualified MLP income under the tax code.
Corpus Christi, Texas based Susser Holdings Corp. has spun off Susser Petroleum Partners LP, Houston, as an MLP. Energy Transfer Partners (ETP), Houston, which recently acquired Philadelphia-based Sunoco Inc., is structured as an MLP. And Marathon Petroleum Corp. has formed MPLX LP as an MLP.
(For a detailed discussion of MLPs, click here to read an exclusive CSP Daily News guest column, "The Evolution of MLPs in Fuel Distribution." And watch for an exclusive investigative report on MLPs in the convenience store/retail petroleum industry in the November issue of CSP magazine.)
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