Sunoco to Acquire Parkland Corporation in a $9.1 Billion Transaction

Sunoco LP SUN, a master limited partnership (MLP) with a vast motor fuel distribution network in the United States, has announced the acquisition of Parkland Corporation, a Calgary-based fuel distributor and marketer. Sunoco has entered into an agreement to acquire Parkland in a cash-and-stock deal worth $9.1 billion. The total valuation also includes assumed debt.

Parkland runs 4,000 retail and commercial sites in Canada, the United States and the Caribbean. Additionally, SUN operates a network of 7,400 Sunoco and partner-branded stores. The consolidated entity will own a massive network of fueling and convenience stores across the Americas, including over 11,000 fuel stations. Furthermore, Sunoco owns product pipelines spanning 14,000 miles and over 100 storage terminals, while Parkland owns the Burnaby Refinery in British Columbia.

As part of the deal, Sunoco LP will create a Delaware LLC, known as SUNCorp., which shall hold Parkland’s shares for two years. Sunoco has mentioned that Parkland’s Calgary headquarters shall be maintained after the completion of the merger. Per the terms of the agreement, Parkland shareholders shall receive 0.295 SUNCorp. units and C$19.80 against each share of Parkland held.

Conversely, Parkland shareholders may also choose to receive C$44 per Parkland share in cash or 0.536 SUNCorp. units for each Parkland share owned. However, this structure is contingent upon proration. SUN has also disclosed that for two years following the closure of the transaction, the dividend paid to SUNCorp. unitholders will be equivalent to those received by Sunoco unitholders.

Parkland noted that this transaction provides a favorable outcome for shareholders. The deal is expected to be immediately accretive to distributable cash flow per unit by more than 10%. SUN also expects to realize run-rate synergies totaling $250 million by the third year following the acquisition. This combination should also position Sunoco as a leading independent fuel distributor in the Americas.

Parkland had previously received an offer from Sunoco worth $8 billion. The company did not agree to take the offer two years ago. The $9.1-billion transaction was described by Parkland as a 25% premium for its shareholders. Sunoco offered to acquire Parkland immediately after the latter was defeated by activist billionaire Kyffin Simpson in a proxy fight.

SUN’s Zacks Rank and Key Picks

SUNcurrently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks from the energy sector are Archrock Inc. AROC, EQT Corporation EQT and Galp Energia SGPS SA GLPEY. While Archrock currently sports a Zacks Rank #1 (Strong Buy), EQT and Galp Energia carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues. With natural gas playing an increasingly important role in the energy transition journey, AROC is expected to witness sustained demand for its services.

EQT is the largest natural gas producer in the United States. EQT holds numerous premium natural gas drilling locations in the core Appalachian Basin, securing a solid production outlook. EQT is poised to benefit from the rising demand for natural gas as a cleaner-burning fuel. The recent rise in natural gas prices is also anticipated to positively impact its profitability.

Galp Energia is a Portuguese energy company, engaged in exploration and production activities. The company’s oil exploration efforts have yielded positive results, particularly with the Mopane discovery in the Orange Basin, offshore Namibia. After the initial exploration phase, Galp had estimated that the Mopane prospect could hold nearly 10 billion barrels of oil. This discovery allows Galp to diversify its global presence with the potential to become a significant oil producer in the region.

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This article originally published on Zacks Investment Research (zacks.com).

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