Energy Transfer Partners announced this Monday that it will be officially merging with Sunoco Logistics Partners, its sister company that has until now been a separate entity.
According to the declaration, the official merger should be finalized sometime next year. Following the merger, the united companies will function under the current Energy Transfer name.
As the Sunoco Logistics merger will come to a be a $20 billion in all stocks deal, the united company would be run by Energy Transfer’s current Kelcy Warren.
Energy Transfer and Sunoco Logistics are already part of the same mother company. Sunoco Logistics Partners was acquired by the mother company Energy Transfer some 4 years ago.
Until now, the company has been functioning as a separate, individually traded entity. Sunoco Logistics is an oil products storing, terminalling, and transporting company.
Its pipelines are mostly responsible for the transportation of crude oil and its related products.
In contrast, Energy Transfer, which has the same domain of activity and commercial profile, is mostly a natural gas pipeline transporter.
The Sunoco Logistics and Energy Transfer union will come just as they are partnering so as to build the very controversial Dakota Access Pipeline.
According to both of the company’s representatives, the merger will help increase both their scales whilst at the same time-saving costs.
The merger deal will have the smaller Sunoco Logistics buy the much larger Energy Transfer Partners.
This decision has not pleased the company investors as the market analysts point out the effects such a move may have on their quarterly payouts.
According to estimates, the larger company investors would see an almost 30 percent decrease in their quarterly payouts following the acquisition.
As such, the Monday announcement garnered a quite negative reaction as both company stocks registered decreases.
Following the announcement, the Energy Transfer registered a 7 percent stock drop which resulted in a $36.52 stock value per unit, $2.85 less than previous values.
Sunoco Logistics Partners registered a similar drop with a 6.5 percent fall. As such, their share value per unit was of $24.47, with a $1.72-day decrease.
Energy Transfer registered a rapid growth as, just like Sunoco Logistics, it is owned through an MLP ownership model.
The MLP or master limited partnership model favors a company’s growth in a tax-friendly structure. The two companies are currently functioning through 4 such publicly traded MLPs.
As the four MLPs do not have to par corporate income taxes, most of their income is passed on to investors. These payments are quite similar to stock dividends.
The four MLPs are the Energy Transfer Partners, Energy Transfer Equity, Sunoco Logistics, Sunoco LP, and the pipeline subsidiaries.
Sunoco LP is in charge of operating thousands of convenience stores and gas stations.
The MLPs are considered to work best when their respective markets and the ensuing profits are booming. As such, it is hard for them to justify large payouts during slow growth periods or downturns.
Energy Transfer’s Warren also pointed out on Monday the inevitable nature of his company’s future consolidation besides the Sunoco Logistics merger.
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