LONDON, UK / ACCESSWIRE / November 18, 2016 / Active Wall St. blog coverage looks at the headline from Tesoro Corp. (NYSE: TSO) as the company announced its decision to acquire Western Refining, Inc. (NYSE: WNR) on November 17, 2016, in an all stock cum debt transaction. The acquisition would make Tesoro the 5th-largest U.S. refiner with processing capacity of 1.1 million barrels a day. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.
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Greg Goff, Chairman and CEO of Tesoro, commented of the deal:
"The acquisition of Western further strengthens our integrated business model and extends our portfolio into attractive and growing markets."
Paul Foster, Executive Chairman of Western Refining, on his part stated:
"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."
Breakup of the acquisition
As per terms of the agreement, Western Refining's shareholders can opt to receive 0.4350 share of Tesoro, or $37.30 in cash, for each share they own. Elections to receive cash will be capped at 10.8 million shares, worth about $404 million, after which they will be subject to proration. The purchase price is at a 22.3% premium of the closing price of Western Refining's stock on the day prior to announcement, i.e. November 16, 2016. The transaction will be tax free for shareholders opting for Tesoro's stock.
Based on the closing price of Tesoro's stock on November 16, 2016, the value of the deal works out to $4.1 billion. If the debt of Western Refining, amounting to $1.7 billion and the market value of $606 million for its non-controlling interest in Western Refining Logistics L.P., is taken into consideration, the enterprise value of the deal works out to $6.4 billion.
The transaction is expected to close by H12017 subject to necessary approvals and statutory closing conditions.
Once the deal is final, the combined company will continue to use Tesoro headquarters at San Antonio, Texas. Greg Goff will carry on as Chairman, President and CEO, and Steven Sterin will continue as Executive Vice President and CFO of the combined company. The Board of Directors of the combined company would add two members of Western Refining as directors, i.e. current Executive Chairman, Paul Foster, and current CEO, Jeff Stevens.
Joint synergies
Tesoro will add Western Refining's three refineries at Texas, Minnesota, and New Mexico to its kitty. With the acquisition the combined company will own 10 refineries with refining capacity of over 1.1 million barrels per day. The new facilities will increase Tesoro's capacity by about 30%, more than 254,000 barrels a day. The key highlight of this acquisition is that Tesoro gets an opportunity to expand in areas near shale fields, such as the Permian basin in West Texas and the Bakken formation in North Dakota.
Form a strong network of retail operations with 3,000 branded retail stores and combined marketing of multiple brands under its umbrella including ARCO®, Shell®, Exxon®, Mobil®, SuperAmerica®, Giant, and Tesoro®.
The combined company will inherit two Master Limited Partnerships - Tesoro Logistics L.P. and Western Refining Logistics, L.P., which have extensive logistics network with access to advantaged crude oil basins.
The combined company will be able to save around $350 million to $425 million in operational, commercial, and corporate synergies. The full run rate of the synergies is expected within two years of the closing of the deal. They also expect to achieve 10% to 13% earnings per share accretion by 2018, the first full year of combined operations.
The combined company will have a strong balance sheet and significant cash flow that will help in debts reduction. These funds would be used to make investments in high-return capital projects, pay dividends to shareholders, and share repurchases. The combined company will have a share repurchase authorization of $2 billion.
The combined company is confident of continuing to pay the same dividend that is currently being paid by Tesoro, which is $0.55 per share on a quarterly basis.
Tesoro has been on an acquisition spree in the current year:
In June 2016, Tesoro through its affiliate, Tesoro Refining & Marketing Co., acquired Dakota Prairie Refining LLC, which has 20,000 barrels per day diesel refinery near Dickinson, North Dakota.
In September 2016, Tesoro acquired biofuels company Virent Inc.
Industry insiders reveal that Tesoro was in advanced talks with Dallas based HollyFrontier Corp. (NYSE: HFC), however the deal did not materialize as HollyFrontier had turned down Tesoro's offer based on price. Experts also feel that the retail and convenience stores and the logistics business have great scope for future monetization unlocking further value in the company.
Western Refining has also been making moves in the current year. In June 2016, it acquired Arizona-based Northern Tier Energy L.P. and its 92,000 barrel-per-day refinery in St. Paul Park, Minnesota, for $1.5 billion.
Stock Performance
On Thursday, November 17, 2016, the stock closed the trading session at $86.56, rising slightly by 0.96% from its previous closing price of $85.74. A total volume of 8.93 million shares have exchanged hands, which was higher than the 3-month average volume of 2.13 million shares. Tesoro's stock price advanced 8.44% in the last month, 14.64% in the past three months, and 10.97% in the previous six months. The company's shares are trading at a PE ratio of 14.87 and have a dividend yield of 2.54%.
Western Refining's shares surged 23.11% on the back of the acquisition news, and the stock closed at $37.55 on November 17, 2016. A volume of 25.67 million shares exchanged hands at the end of the trading session. The stock has a price to earnings ratio of 24.46 and a dividend yield of 4.05%. The company's shares year-to-date performance is up 11.50%.
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