SAN ANTONIO and EL PASO, Texas -- In a deal that creates a geographically diversified refining, marketing and logistics company with 10 refineries and 3,000 gas stations and convenience stores under 12 brands including SuperAmerica, Tesoro Corp. will acquire Western Refining Inc. for $37.30 per share in a stock transaction valued at $4.1 billion.
Western shareholders can elect to receive 0.4350 shares of Tesoro for each share of Western stock they own, or $37.30 in cash per share of Western stock.
The price tag is based on Tesoro’s closing stock price of $85.74 on Nov. 16, 2016. As reported in a McLane/CSP Daily News Flash, the deal has an estimated enterprise value of $6.4 billion, including the assumption of approximately $1.7 billion of Western’s net debt and the $605 million market value of noncontrolling interest in Western Refining Logistics LP.
The transaction represents a 5.8x EBITDA multiple, said Greg Goff, chairman and CEO of San Antonio-based Tesoro, on a conference call to discuss the deal.
The boards of directors of both companies have unanimously approved the transaction. It is subject to customary closing conditions, including approval by the shareholders of both companies and the receipt of regulatory approval. The companies said they expect the transaction to close in the first half of 2017.
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The deal adds Western Refining’s three refineries in Texas, New Mexico and Minnesota to Tesoro’s seven refineries in California, Washington, Alaska, Utah and North Dakota. It will expand the combined company’s operational capabilities and improve access to advantaged crude oil and extended product regions. The new company’s 10 refineries will have a total capacity of more than 1.1 million barrels per day, a 28% increase over Tesoro’s current capacity.
The combined retail operations will include more than 3,000 gas stations and convenience stores. The deal brings together 12 premium and value retail fuel and c-store brands across a broad, regional customer base, and it provides improved ratable supply from the entire refining system.
Tesoro’s retail-marketing system includes nearly 2,500 gas stations and convenience stores under the Arco, Shell, Exxon, Mobil, USA Gasoline, Rebel and Tesoro brands. Western Refining’s retail operations include nearly 550 gas stations and c-stores under the Giant, Howdy’s and SuperAmerica brands.
“This transaction expands Tesoro’s integrated marketing network in the midcontinent and Southwest regions of the United States,” Goff said on the call. “This will allow us to leverage or brand portfolio to better serve our customers and provide opportunities to share best practices, improve costs and expand proprietary offerings. We are developing a profitable, growing, customer-centric model that leverages the strength of this tremendous brand portfolio.”
The deal leverages an extensive and complementary logistics network with access to advantaged crude oil basins. The logistics business will include ownership in two high-growth, independent master limited partnerships (MLPs): Tesoro Logistics LP and Western Refining Logistics LP. Upon close of the transaction, Tesoro will own the general partner and be the largest unit holder in each MLP. Tesoro is committed to growing the value of the combined logistics portfolio and it will deploy its current logistics growth strategy across the expanded business, it said. This strategy consists of generating stable fee-based revenues, optimizing existing assets, pursuing high-return organic growth opportunities, growing through strategic acquisitions and growing through the combined dropdown inventory available to the two MLPs.
Integration and synergies
“The acquisition of Western further strengthens our integrated business model and extends our portfolio into attractive and growing markets,” said Goff in announcing the deal. “As a leading integrated refining, marketing and logistics company, this transformative acquisition drives value through a combination of access to advantaged crude oil, a strong, multi-brand marketing and convenience-store portfolio and a robust platform for logistics growth, all of which will allow us to continue to create shareholder value.”
Goff will become chairman, president and CEO of the combined company, based in San Antonio. Steven Sterin will continue as executive vice president and CFO. El Paso, Texas-based Western Refining’s current executive chairman, Paul Foster, and current CEO, Jeff Stevens, will become directors.
“Our increased scale and diversity will enable us to leverage and enhance in-house technical capabilities, which we expect will result in cost efficiencies, the ability to drive more growth and increased productivity,” he continued.
“We are committed to delivering $350 million to $425 million in annual synergies,” he said on the call.
“This strategic combination provides our shareholders with the opportunity to participate in the tremendous future growth prospects and synergies of the combined company,” said Foster in a statement. “Joining forces with Tesoro, a company that shares our integrated business model strategy, will enable us to further leverage our capabilities in refining, marketing and logistics operations and allow our talented team to work on a growing number of exciting opportunities. We have tremendous respect for the Tesoro team and are excited to be a part of a larger and more diverse organization to support our continued growth.”
The deal further consolidates the assets of several major petroleum and convenience-store industry companies. In December 2015, Western Refining and Northern Tier Energy LP announced their plan to merge.
Tempe, Ariz.-based Northern Tier Energy, was an independent downstream energy company that operated a refinery located in St. Paul Park, Minn., and approximately 165 company-owned gas stations and c-stores and approximately 102 franchised convenience stores, primarily in Minnesota and Wisconsin, under the SuperAmerica brand, and a bakery and commissary under the SuperMom's brand.
In June 2016, Northern Tier unit holders voted to approve the deal and on the same day, the companies satisfied all closing conditions and successfully completed the merger.