Having gained a large petroleum retail business with the acquisition of Sunoco two years ago as well as the MACS chain of convenience stores last year, pipeline operator Energy Transfer Partners (NYSE: ETP ) is bulking up the business by taking over Susser Holdings' 630 Stripes convenience stores in a deal valued at $1.8 billion.
The retail segment has seen a lot of jockeying for position over the past year or so, and earlier this year Hess, which has been steadily transforming itself into a pure-play exploration and production company by selling off non-core assets, announced its intention to sell or spin off its own retail operations consisting of some 1,258 fuel and food outlets that make it the largest convenience store owner on the East Coast.
That puts it in direct competition with Energy Transfer Partners' Sunoco operations, which are primarily bunched up on the East Coast, but the Susser acquisition gives the pipeline operator the opportunity to expand into the southwest, pitting it against Alimentation Couche-Tard, the largest convenience store operator in Canada -- and, with 4,300 stores in the U.S., makes it second in size only to 7-Eleven. It operates more than 270 retail outlets in Texas, New Mexico, Oklahoma, and Colorado under the Couche-Tard, Mac's, and Circle K brands.
The purchase does give ETP the ability to not only expand Sunoco's rather iconic brand name but also allows it to partner Susser's Stripes convenience stores into more retail establishments, making it a good pick up on both accounts. The Sunoco division earns about two-thirds of its profits from fuel while Susser generates more from its convenience stores. Earlier this year, Susser completed the acquisition of 47 convenience stores in South Texas when it took over the Sac-N-Pac chain, and ETP says its own acquisition is a bet on the Texas market as well.
Energy Transfer Partners expects the acquisition to generate immediate synergistic savings totaling $70 million from shared services, improved economies of scale, and IT and personnel costs. Additional enhancements will come from increased buying power heft, convenience merchandise purchases, and other procurement activities.
When the deal is completed ETP will drop down all its retail marketing facilities into Susser Petroleum Partners (NYSE: SUSP ) , the master limited partnership that currently facilitates the wholesale distribution of motor fuels, which ETP will control but not operate and will continue to be publicly traded. The ultimate goal is to create a stand-alone retail business that allows ETP exit the retail business and focus on its pipeline operations.
Energy Transfer Partners got into the retail side of things when it bought Sunoco, which it wanted for its 7,900 miles worth of crude oil and efined products pipelines and 42 million barrels of refined product and crude oil storage capacity at its terminals. Sunoco's pipelines connect the Great Lakes and various regions in the Northeast to the Gulf Coast. ETP was traditionally a Texas-based natural gas transfer company, but saw Sunoco's liquids business as a new profitable venture for it. Also what came along with the purchase was Sunoco Logistics, Sunoco's pipeline operator.
So the retail side of things were never part of its core focus and placing it into an MLP was always part of the game plan. By adding Susser to the mix, it allows Energy Transfer to fulfill that goal and focus once more on its pipeline operations that still account for the vast bulk of its revenues.
Adding the 600 or so retail stores to its existing network of 5,100 outlets is a solid combination for the master plan and the master limited partnership, but investors would do well to keep focused on Energy Transfer Partner's pipeline operations.
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