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Sunoco Logistics and Energy Transfer Partners: $52 Billion Merger

2021-07-12 04:30:02
5 pages
1292 words
University/College: 
Sewanee University of the South
Type of paper: 
Essay
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Sunoco Logistics is part of the Energy Transfer Partners group of companies, and its headquarters is located in Philadelphia Pennsylvania. Energy Transfer Partners is an entity that owns a diversified portfolio of assets in the energy sector.it is a company that has its stock traded on the New York stock exchange. Sunoco company markets and sales its gasoline products to over 4900 retail outlets that are spread in approximately 26 states, for instance, East Mississippi, Louisiana Wisconsin among other regions. It has 650 branded stores that are company oriented but operated by third-party dealers. It has an estimate of 7900 miles of crude oil and processed products and forty product stations. Sunoco has been in operation for the last 125 years. It is trading in the New York stock exchange with a ticket symbol SXL. On the other hand, the Energy Transfer Partners is a company that owns one of the most significant portfolios of energy assets in the United States of America. The firm is centrally placed among all the production units in the U.S. It operates collections of marching natural gas, transportation and storage of assets in the inter and intrastates services for instance refined products and crude oil. It has a total of 71,000 miles of natural gas and 36 storage outlets spread within the United States of America. In late November 2016, the two companies ETP and SXL agreed to merge with the aim of reducing their operational costs and the cost of obtaining finance. SXL decided to purchase ETP at the price of $ 21 billion and taking over a long-term debt of $30 billion in ETP. It is similar to an in-house merger because the two companies were under the Energy Transfer Equity. It expected that the merger of the two companies would yield a $200 million yearly savings by 2019.

The completion of the merger that was agreed upon between SXL and ETP in November 2016 was completed and announced on 28th April 2017. The ETP will be an entirely owned subsidiary of SXL. The merger was done at a total cost of 52 billion. At the time the merge was done each unit of ETP was equal to 1.5 units of SXL. In consideration of the outstanding units of ETP, the SXL issued 845 million dollars to the ETP unitholders. However, the remaining units of classes K, G, E and I of the ETP were translated to SXL units in the newly created category with similar rights, privileges, and preferences. The SXL class B units owned by ETP at the time of the merger were canceled. As part of the closing of the merger, the SXL changed its name to ETP and its stocks will be trading in the New York securities exchange under the ticker symbol ETP. The standard units of the first ETP were ceased to be publicly traded on the stock exchange, and the new ETP stocks started trading on May 1st 2017.

The merger brought great financial impact to the company ranging from the shareholders, customers and the financial state of the company itself. Firstly, on the company the merger will provide a strategic plan, expanding scale and range of operation and diversify the products exposure in the market. Secondly, it gives the company the ability to maximize on the inter-business synergies and establish possible cost collaborations that could not be enjoyed as separate entities. Being complimentary entities they can create incredible value that offers a solution to products price headways.it is an exclusive opportunity to expand the planned upward direction of integrating natural gas and crude oil activities to realize possible benefits of coming combining surplus volumes. On the other hand, it has the opportunity to expand its basin and fill the underutilized pipes. From the analysis, SXL has a basin pipe that can develop while ETP is under-utilized because it has an idle pipe that measures 12100MBPD. The merger, therefore, will enable SXL to utilize the unused resources and expand its capacity that would have others wise be costly and perhaps take more time than when using the readily available size. The merger will also provide a more efficient tax structure. Besides, there will be a reduced total cost of the of the public company due to the utilization of economies of scale.

Additionally, it will have controlling interests in of four namely mid valley pipeline at 91%, Bayou at 60%, Permian express partners at 85% and Bakken pipeline at38%. It implies that it will expand its pipeline base significantly and be able to maximize the distribution of its products. The customers can enjoy a lower cost of products brought about by the reduced cost of production. Besides, the merger will be able to produce quality products and services to the customer. Also due to increase in the variety of the products the customers have a variety to choose. On the other hand, the shareholders in the absence of any turbulent economic conditions experience a long-term benefit due to the improvement in dividends performance. However, the dilution of voting power may be suffered because of the increased number of shares released during the merger process.

Balance Sheet (Millions of Dollars)

Assets 9/30/2017 6/30/2017 3/31/2017

Cash & Short Term Investments 379.00 272.00 38.00

Receivables - Total 3,569.00 3,426.00 1,917.00

Inventories - Total 1,591.00 1,520.00 967.00

Total Current Assets 5,780.00 5,386.00 2,931.00

Net Property, Plant & Equipment 56,972.00 54,536.00 13,149.00

Total Assets 77,011.00 74,219.00 19,936.00

Liabilities

Accounts Payable 6,048.00 5,617.00 2,469.00

Debt in Current Liabilities 838.00 1,372.00 NA

Total Current Liabilities 6,886.00 6,989.00 2,469.00

Long-Term Debt 33,630.00 32,029.00 6,760.00

Total Liabilities 50,324.00 48,582.00 9,615.00

Stockholder's Equity

Minority Interest 4,191.00 3,799.00 NA

Preferred Stock NA NA NA

Common Stock NA NA NA

Retained Earnings NA NA NA

Treasury Stock NA NA NA

Total Stockholders' Equity NA NA 10,006.00

Total Liabilities and Stockholders' Equity NA NA 19,621.00

From the financial position of ETP, it is evident that the company after the merger improved by reducing leveraging and increasing coverage and liquidity. The assets base of the merger grew from the single entity which had an assets base of 19.9 million dollars to 77.0 million dollars after the merger. For instance when a quick ratio is used to determine liquidity then it can be done as following

Before the merger

(Current assets -Total inventory)

Current liabilities

(2931 -967)

9615

The result is 0.2

After the merger

(5780-1591)

6886

The result is 0.6

When the two quick ratios are compared after the merger, the company has a high liquidity ration as compared to before the merger implying that it is more liquid than before.

Conclusion

It is important to note that mergers and acquisitions can help in the improvement of the company or make it perform poorly depending on the prevailing economic conditions. When the SXL and ETP merged the merger brought tremendous changes and more profitable opportunities both in the current position and forward statements. The company can reduce its cost of operation and lower the cost of debt. Besides, the shareholders' dividend yield will increase in the long run, and they can create more wealth as compared to when the entities are separate. On the other hand, the asset base of the company increased, and the pipeline basin also expanded. The company can expand its production capacity by utilizing the idle resources of the target company. Similarly, through the merger the tax system for the merger company becomes efficient, and the overall tax payable becomes low. Merging brings about the economies of scale because of higher bargaining power. Besides, the mergers and acquisitions enable the customers to benefit from quality products. Also, the customers can obtain the products at lower prices. In my opinion, mergers can improve the financial, profitably and expand the market of a company. Unless the merger is done during the period of ample hard economic time, it is an excellent venture to improve business and expanding the scope of a market share. The SXL and ETP made a great merger that enabled SXL to get a significant market share and assets. Mergers bring great improvement and changed in the companys productivity. When there is proper management the merger will realize great success.

 

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