By Dave Sebastian
HollyFrontier Corp. and Holly Energy Partners LP said they have agreed to buy Sinclair Oil Corp. and Sinclair Transportation Co. from the Sinclair Cos. for a combined value of about $2.6 billion.
HollyFrontier, a Dallas-based petroleum refiner, said it would buy Sinclair’s branded-marketing business, renewable-diesel business and two Rocky Mountain-based refineries and form a new parent company called HF Sinclair Corp.
After the deal closes, existing HollyFrontier shares would convert on a one-for-one basis into HF Sinclair shares, and HF Sinclair would issue about 60.2 million shares to Sinclair, representing 26.75% of expected HF Sinclair equity with a transaction value of about $1.8 billion.
The deal would add to HF Sinclair’s earnings, cash flow and free cash flow within the first full year, HollyFrontier said. The transaction could also result in $100 million in run-rate savings, as well as another $100 million to $200 million in one-time savings during the first two years after closing, the company said.
Holly Energy Partners said it would buy Sinclair’s integrated crude and refined products pipelines and terminal assets, including about 1,200 miles of pipelines, eight product terminals and two crude terminals with about 4.5 million barrels of operated storage.
Holly Energy Partners said it would also buy Sinclair’s stakes in three pipeline joint ventures, comprising a 32.5% non-operated interest in Powder Flats Pipeline, a 49.9% non-operated interest in Pioneer Pipeline and a 25% non-operated interest in the UNEV Pipeline. The transaction consists of a stock issuance of 21 million Holly Energy Partners common units and the payment of $325 million in cash, representing a total transaction value of about $758 million, the company said.
HollyFrontier’s existing management team would operate its combined business, and Sinclair would have the right to nominate two directors to the HF Sinclair board at closing, the companies said. Holly Energy Partners’ existing management team would also continue operating the company, with Sinclair having the right to nominate one director at closing, the companies said.
HF Sinclair would aim to reinstate a regular dividend of 35 cents a share by the second quarter of 2022, HollyFrontier said. It plans to return $1 billion of cash to shareholders through regular dividends and share buybacks by the first quarter of 2023 and implement a target payout ratio of 50% of adjusted net income in the form of regular dividends and share repurchases for 2023 and beyond, it said.
Holly Energy Partners aims to pay a quarterly distribution of 35 cents per unit, reduce leverage ratio to 3.5 times earnings before interest, taxes, depreciation and amortization while targeting a distribution coverage ratio of 1.5 times, it said.
The companies expect the deal to close in mid-2022.
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