Mergers & Acquisitions

The Four Reasons Western Refining Is Acquiring Northern Tier

Expanded asset base one of several benefits for refiner-marketers to combine

EL PASO, Texas & TEMPE, Ariz. -- In a “value-enhancing” deal that would simplify the corporate structure of the two companies, Western Refining Inc. (WNR) and Northern Tier Energy LP (NTI) jointly announced that they have entered into a merger agreement whereby WNR will acquire all of NTI's outstanding common units not already owned by WNR.

Western Refining (WNR) Northern Tier (NTI)

In late 2013, in a deal mainly intended to expand its refinery presence, but which included the downstream network, WNR acquired ACON Investments' and TPG Capital's ownership interests in Northern Tier for $775 million.

During a conference call on the deal, executives laid out the four main reasons for the combination:

  1. Expanded asset base.
  2. Enhanced scale and diversification.
  3. Simplified corporate structure.
  4. Increased operational and financial flexibility.

Assuming completion of the proposed transaction, NTI will become a wholly owned subsidiary of WNR and NTI common units will cease to be publicly traded. Upon completion, the companies said they expect NTI unitholders to own approximately 15% of WNR. The companies said they expect the transaction to close in the first half of 2016, subject to customary closing conditions.

“The resulting company will have three top-quartile refineries on a gross margin (per barrel) basis. … In addition, we will have an integrated retail and wholesale distribution network, with about 70% of our gas and diesel products sold through this network,” Jeff Stevens, president and CEO of WNR, said on the call.

As reported in a 21st Century Smoke/CSP Daily News Flash, Stevens will remain CEO of WNR and Paul Foster will remain executive chairman of the WNR board of directors. Upon the closing of the transaction, Dave Lamp, president and CEO of NTI, will be named president and COO of WNR.

“Merging WNR and NPI simplifies our corporate structure and makes it easier, we believe, for investors to understand and evaluate our financial results. The combination also results in greater geographic and earning diversification, which should lead to an improved credit profile,” Stevens said.

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He continued, “We think the C-Corp structure is the right vehicle for the combined refining platform, particularly in light of the recent capital markets pullback for MLPs [master limited partnerships]. We believe we have greater access to capital to fund both organic growth and acquisitions, and we should have a lower cost of capital due to the diversification and scale of our asset base. Since Western made the initial investment in NTI in Nov. 2013, we’ve been able to achieve about $20 million in synergies, we’ve identified another $10 million in annual synergies that we can realize over the next year, and we believe there are additional opportunities for more commercial synergies and cost savings.”

In addition to synergies, Stevens said there are significant growth opportunities including refinery, pipeline and storage infrastructure projects.

“We’re evaluating the potential to implement the WNR wholesale distribution model at NTI,” he said. Also, “we think the merger of WNR and NTI gives us greater flexibility to set the pace for sales of NTI traditional assets” to Western Refining Logistics LP.

“We think the merger allows NPI unitholders the option to become significant shareholders in Western, the larger, more diverse company both geographically and financially,” Lamp said. “The variable distribution MLP structure hasn’t been rewarded in the equity market as evident by our fuel and unit price. We’ve had an outstanding year, and our unit price is not reflective of these strong results. Merging with Western will help in growing the business both organically and strategically.”

El Paso, Texas-based Western Refining is an independent refining and marketing company. Its refining segment operates refineries in El Paso and Gallup, N.M. The retail segment includes 260 gas stations, convenience stores under the Giant, Mustang, Sundial and Howdy's brands, as well as unmanned fleet fueling locations, in Arizona, Colorado, New Mexico and Texas.

WNR owns the general partner and approximately 66% of the limited partnership interest in Western Refining Logistics and the general partner and approximately 38% of the limited partnership interest in Northern Tier Energy LP.

Northern Tier Energy, Tempe, Ariz., is an independent downstream energy company with refining, retail and logistics operations. It operates a refinery located in St. Paul Park, Minn. It also operates approximately 165 convenience stores and supports approximately 102 franchised convenience stores, primarily in Minnesota and Wisconsin, under the SuperAmerica trademark, and a bakery and commissary under the SuperMom's brand.

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