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Mergers & Acquisitions

Will ‘Business Combination’ Keep Delek U.S. in Retail?

Following Mapco sale, refiner offers to buy up all of Alon USA

BRENTWOOD, Tenn. -- Refiner-marketer Delek U.S. Holdings Inc., which recently sold off its own retail convenience-store network, has offered to purchase all of the remaining shares of fellow refiner-marketer Alon USA Energy Inc. that it doesn’t already own.

Delek U.S. currently controls more than 47% of Alon USA, the largest 7-Eleven licensee in the United States, which operates approximately 300 c-stores that sell motor fuels in central and west Texas and New Mexico.

In August, Delek U.S. entered into a deal to sell 100% equity interest in its network of approximately 350 company-operated Mapco Express, Mapco Mart, East Coast, Fast Food and Fuel, Favorite Markets, Delta Express and Discount Food Mart c-stores to Compania de Petroleos de Chile SA (COPEC) for $535 million. The transaction has received unanimous approval of both company's boards and is subject to customary regulatory and closing conditions. The companies said they anticipate that the transaction will close by the end of the year, funded by cash on hand.

In a letter to Alon USA Chairman David Wiessman filed with the U.S. Securities and Exchange Commission (SEC), Ezra Uzi Yemin, chairman and CEO of Delek U.S., has proposed a “business combination” of Delek U.S. and Alon USA under which Delek would acquire all outstanding shares of Alon USA common stock it doesn’t already own in an all-stock transaction at a fixed exchange ratio of 0.44 Delek shares for each outstanding Alon share.

As reported in a McLane/CSP Daily News Flash, Reuters values Alon USA at approximately $516 million, based on 71.4 million shares outstanding as of July 25.

Alon USA, Dallas, 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.

Brentwood, Tenn.-based Delek U.S.’s refining segment consists of refineries operated in Tyler, Texas, and El Dorado, Ark.

Yemin wrote that both Delek U.S. and Alon USA “are currently undervalued.”

He said that the proposal “reflects, in the context of the current and prospective challenges facing Delek’s and Alon’s sector, our view of the relative fundamental values of Alon and Delek, each company’s respective outlook and balance sheet profile and potential synergies for the transaction.”

“We believe this combination would create significant value for the respective stockholders of Delek and Alon in both the near- and long-term, and the 100% equity consideration would allow Alon stockholders, many of whom are also currently Delek stockholders, the opportunity to fully participate in that value creation as it is realized,” he said.

The letter indicates that Delek U.S. is still interested in the retail sector.

“This proposal supports the shared mission of Delek and Alon of optimizing and growing stable cash flows from an integrated portfolio of refining, logistics and retail assets,” Yemin continued.

Delek U.S.—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, Yemin said in August. “We have unlocked the value of our retail assets through this transaction with COPEC.”

He has said that "when the market conditions are right" the company would look "very seriously" at acquiring 100% of Alon USA.

The Mapco sale strengthens Delek U.S.’s “financial flexibility,” he wrote in the current filing.

“A combination with Delek would allow Alon stockholders to take part in a formidable combined company to weather the current downturn in the industry and emerge in a position of substantial strength as margins improve. When taken together, these factors collectively position a combined company to be a peer-leading enterprise in the refinery space for the long term,” he said without mentioning retail.

The company will not move forward with the transaction unless it is approved by a special committee of the Alon USA board made up entirely of directors that are independent of Delek U.S., Yemin said.

A majority of Alon shareholders, excluding Delek U.S., also must approve the deal.

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