BRENTWOOD, Tenn., and Dallas -- A full merger between Delek U.S. Holdings Inc. and Alon USA Energy Inc. is “increasingly likely,” one stock analyst is predicting.
Possibilities of a merger between Delek U.S. and Alon USA have resulted in an “overhang”—a decline in stock price driven by expectations that the price will experience further declines—on the shares of both companies, said Fernando Valle, Citi Investment Research senior equity research associate, in a report cited by Benzinga.com.
“Both stocks have been impacted by narrowing [midcontinent oil] margins, rising RIN (renewable identification number) costs and overhang from a potential DK-ALJ merger,” Valle wrote. He added that while both stocks were now trading at the bottom half of the group, a merger between the two would unlock value.
Brentwood, Tenn.-based refiner-marketer Delek U.S.’s refining segment consists of refineries operated in Tyler, Texas, and El Dorado, Ark. The retail segment markets motor fuel and merchandise through a network of approximately 350 company-operated convenience stores under the Mapco Express, Mapco Mart, East Coast, Fast Food and Fuel, Favorite Markets, Delta Express and Discount Food Mart brand names.
Alon USA, Dallas, is an independent refiner and marketer of petroleum products operating primarily in the south central, southwestern and western United States. Alon owns 100% of the general partner and 81.6% of the limited partner interests in Alon USA Partners LP, which owns a crude oil refinery in Big Spring, Texas. Alon directly owns a crude oil refinery in Krotz Springs, La. Alon is the largest 7-Eleven licensee in the United States and operates approximately 300 c-stores that sell motor fuels in central and west Texas and New Mexico.
In late August, Delek U.S. entered into a deal to sell 100% equity interest in Mapco Express to Compania de Petroleos de Chile SA (COPEC) for $535 million.
Delek—following a strategic review of options for its retail assets that included a dropdown to Delek Logistics Partners LP—determined that the sale to COPEC was an “efficient and prudent” way to unlock shareholder value, said Uzi Yemin, chairman, president and CEO of Delek U.S.
“We have unlocked the value of our retail assets through this transaction with COPEC,” Yemin said at the time.
Delek U.S. also owns approximately 48% of the outstanding common stock of Alon USA.
Yemin has said that "when the market conditions are right" the company will look "very seriously" at acquiring 100% of Alon USA.
Valle said the sale to COPEC raised sufficient funds to acquire the remaining 52% stake via cash.
“Besides the synergies in procurement of crude and marketing of products, we see potential for a DK-ALJ (Delek-Alon) partnership to unlock further value from ALJ’s assets through its balance sheet. The clearest synergy is $71 million ALJ outlined in EBITDA that could be dropped into DK’s MLP, a value that alone represents 100% of ALJ’s market cap (at 8x),” Valle said.
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