On the stock charts today, Sunoco LP (NYSE: SUN) is behaving resolutely, holding steady at $55.92 after a minor increase of less than 1%. An analyst upgrade is what is driving the Sunoco stock upward.
Citigroup changed its rating for Suncor shares today from “Neutral” to “Buy,” maintaining a $65, target price. The analyst boost came after Sunoco (SUN) made a strategic acquisition move recently. This week, Sunoco and NuStar Energy signed a final deal.
In accordance with the agreement, Sunoco would buy NuStar in an all-equity deal estimated to be worth $7.3 billion, including taken-on debt. The agreement states that for every NuStar common unit, NuStar common unitholders will get 0.400 Sunoco common units, meaning that they will earn a 24% premium based on the 30-day VWAPs of Sunoco and NuStar as of January 19, 2024.
Sunoco has secured a $1.6 billion 364-day bridge term loan from NuStar to refinance the company’s Series A, B, and C Preferred Units, Subordinated Notes, Revolving Credit Facility, and Receivables Financing Agreement. Both companies’ boards of directors have overwhelmingly approved the merger, which is expected to close in the second quarter of 2024 if all closing conditions—such as governmental approvals and NuStar’s unitholders’ approval—are satisfied.
By uniting two reliable companies, the purchase will increase size, create diversity within the company, and reap the benefits of vertical integration. It will enable an expanding distribution and assist Sunoco maintain its profitable capital allocation strategy on a bigger scale. It will also enhance the Partnership’s credit profile. The business will generate more cash flow for expansion and investing across a wider range of opportunities.
By the third year after closing, the transaction will yield run-rate synergies of at least $150 million, and the refinancing of high-cost variable rate credit will provide an additional $50 million in cash flow annually. In the 12 to 18 months following closing, it will assist Sunoco in reaching its leverage objective of 4.0x and enable sustained distribution expansion while preserving robust coverage. NuStar will pay its common unitholders a cash dividend of $0.212 per common unit prior to closure.
