Sunoco completes acquisition of NuStar Energy to enhance financial stability and growth prospects

Sunoco LP (NYSE: SUN), a key player in the energy distribution sector, announced the completion of its acquisition of NuStar Energy L.P. (NYSE: NS). The acquisition, valued at approximately $7.3 billion including assumed debt, was finalized with the closure of NuStar’s common units on the New York Stock Exchange as of May 3, 2024. This strategic move is expected to significantly enhance Sunoco’s financial stability, increase its credit profile, and strengthen its foundation for growth.

Projected Financial Improvements and Synergies

Post-acquisition, Sunoco anticipates realizing at least $150 million in expense and commercial synergies, alongside an additional $50 million annually from refinancing activities. The transaction is projected to be immediately accretive to Sunoco’s distributable cash flow per LP unit, with expectations of over 10% accretion by the third year following the acquisition. This financial outlook underscores the strategic rationale behind the merger, aiming to diversify Sunoco’s business, add scale, and capture the benefits of vertical integration.

Sunoco LP announces the completion of its acquisition of NuStar Energy L.P. and a subsequent 4% increase in quarterly distribution.

Increase in Quarterly Distribution

In conjunction with the acquisition announcement, Sunoco’s Board of Directors declared an increase in the quarterly distribution for the first quarter of 2024 to $0.8756 per common unit, which annualizes to $3.5024. This 4% increase, building on the previous year’s 2% rise, is indicative of Sunoco’s continued confidence in its operational stability and growth trajectory. The distribution is set to be paid on May 20, 2024, to all common unitholders of record as of May 13, 2024, including those who have transitioned from NuStar as part of the merger.

Background and Strategic Rationale of the Deal

The deal, announced in January 2024, represents a significant strategic move for Sunoco, aligning with its successful capital allocation strategy and supporting a growing distribution network. Sunoco and NuStar’s integration is poised to enhance cash flow generation for reinvestment and growth, leveraging an expanded set of opportunities. Additionally, the acquisition supports the aim to achieve a leverage target of 4.0x within 12-18 months post-closure, further solidifying the financial foundation for both entities.

The acquisition of NuStar by Sunoco represents a transformative step for both companies, enhancing their capacity to serve an expanded market base across the U.S. and Mexico. By integrating NuStar’s extensive pipeline and storage facilities with Sunoco’s distribution network, the partnership is well-positioned to leverage its combined assets for greater operational efficiency and market reach. This strategic consolidation is likely to set a precedent in the energy sector for how companies can achieve growth through mergers and acquisitions.