Mergers & Acquisitions

ETP Buys Susser: As Shock Subsides, Good Sense Becomes Clear

Other shoe drops on Energy Transfer Partners’ retail future

DALLAS -- Ever since Energy Transfer Partners (ETP) bought Sunoco and its 4,900 convenience stores in 2012, industry watchers have been waiting for the other shoe to drop, for the expected decision by ETP to exit convenience retailing. This week, the answer came in ironic fashion, through the announcement that ETP would actually grow retail through its purchase of Susser Holding Corp. ETP, Sunoco, Stripes, MACS

While the deal, which is expected to close this summer, will make ETP the third-largest convenience retailer in the United States, it also lays out the terms for the mostly upstream investor to exit retailing by creating a standalone retail business that will include both the Sunoco and Susser’s Stripes retail sites, as well as the 300 stores acquired in the purchase of Mid-Atlantic Convenience Stores (MACS) in October 2013.

The actions suggest “ETP is absolutely committed to the retail space more so than ever,” Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz., told CSP Daily News. While he admitted to being surprised by Susser’s decision to sell, Ruben said the deal makes great sense for ETP. “First Sunoco, then MACS, now Susser: It’s a way to make a dramatic impact in terms of adding a lot of retail operations in their network. It’s a new geography they’ve never been in.”

Analyst Ethan Bellamy largely agreed in a research note following the announcement. ETP CEO Kelcy Warren’s “continued M&A appetite” does not surprise the market, “although the target will, as most had expected a sale of the Sunoco retail unit,” the Robert W. Baird & Co. analyst wrote. “At first blush, the transaction looks likely to be beneficial to all parties.”

Count Kenneth Shriber among those who was “somewhat shocked” by Susser Holding’s decision to sell, although he too sees the logic in it.

“Susser’s performance (and stock price) has been poor and lagging peers,” said the managing director of Petroleum Equity Group. “This is a way to monetize the assets and maximize shareholder payout. Additionally, with a more integrated model of pipelines, terminals and retail stores, ETP should improve the results generated from the Susser chain of stores.”

ETP came to the c-store industry as a relative unknown, a publicly traded partnership owning and operating a diversified portfolio of energy assets. A master-limited partnership, ETP has pipeline operations in Arkansas, Arizona, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas. It currently has natural-gas operations that include more than 17,500 miles of gathering and transportation pipelines, treating and processing assets and three storage facilities located in Texas. ETP also holds a 70% interest in Lone Star NGL LLC, a joint venture that owns and operates natural-gas liquids storage, fractionation and transportation assets in Texas, Louisiana and Mississippi.

The Dallas-based company surprised the c-store industry with it purchase of the assets of Philadelphia-based Sunoco in 2012, including its pipeline and retail operations.

ETP’s lack of retail experience led most to believe the company would sell off the stores. Instead, it added more with the acquisition of MACS’ 300 sites in October 2013.

Now with the purchase of Susser Holding Corp. and its 630 Stripes Convenience Stores, ETP finds itself with more than 5,000 retail sites across the Eastern Seaboard, into the Great Lakes and the South and, now throughout Texas and its neighboring states.

“From a retail perspective, we now have a strong platform for future growth,” said Jamie Welch, group chief financial officer and head of business development, noting the gap between ETP store on the East Coast and in Texas leaves plenty of room for the new entity to grow.

Added Bellamy, “This is the single-most acquisitive MLP family. They are voracious and adept at financing and acquiring assets and corporations across the energy value chain, which stretches from the wellhead all the way back to the gas tank. I really doubt that anyone can or would outbid Energy Transfer for something that they want if they deem it to be a strategic asset, which obviously Susser is, given their solid position in Texas specifically.

“Generally speaking, retail fuel distribution just got a lot more interesting,” he told CSP Daily News. “If you own a station that has some value, I suspect that simultaneously your competitive dynamics just got a little tougher, but your takeout value just got a nudge higher, as well.”

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