Sunoco Plans to Separate Coke-Manufacturing Unit, Sees Refining Profit

Sunoco Inc., the largest oil refiner on the U.S. East Coast, will separate its coke-manufacturing operation to focus on the fuels business and expects its refining segment to turn a profit. The company’s shares surged.

The SunCoke energy unit supplies steelmakers in the U.S. and Brazil, sharing neither customers nor operations with refineries, Philadelphia-based Sunoco said today in a statement. The separation will happen in next year’s first half, with a tax-free spinoff being considered, according to the statement.

Chief Executive Officer Lynn Elsenhans has cut jobs, sold assets and shut a refinery to conserve cash after losses at the refining business as the recession sapped fuel demand. The refining segment will turn a profit this quarter on lower costs and higher utilization of capacity, the company said today in slides for an investor presentation.

“The company may be undervalued from a “‘sum-of-the- parts’ perspective,” Elsenhans said in today’s statement. “A separation should enable Sunoco Inc. to purse a more focused strategic plan.”

Sunoco soared $2.03, or 6.3 percent, to $34.27 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have risen 31 percent this year. Sunoco hired Credit Suisse Group AG as adviser in the separation.

Operation Undervalued

“Metallurgical coking has long been the company’s strongest business segment,” Jim Byrne, a Calgary-based analyst for BMO Capital Markets who rates the shares “underperform,” wrote today in a note to clients, calling the announcement positive for shareholders. “The coke business is currently undervalued.”

Net income from coke production was $180 million last year on sales of $1.12 billion, according to company filings. Sales rose 35 percent from a year earlier, and more growth is possible, according to the slides.

Refining lost $316 million last year on sales of $12.3 billion.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.

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