Icahn, CVR’s largest shareholder with 14.5 percent, said the company is worth at least $37 a share, a 34 percent premium to yesterday’s closing price, according to a statement today. The unsolicited bid values CVR at a minimum of $2.6 billion, based on a $30-a-share price for all outstanding shares.
The billionaire investor told the company’s management three days ago that it wasn’t doing enough to increase shareholder value and Sugar Land, Texas-based CVR should be put up for sale. Western Refining Inc., HollyFrontier Corp., Tesoro Corp. (TSO), Valero Energy Corp. (VLO), Marathon Petroleum Corp. or ConocoPhillips may be potential buyers for CVR, he said today.
“My only concern is his ability to convince these companies mentioned to pay $37 a share for this company in this market given their weak balance sheets,” said Eliecer Palacios, an energy sector specialist at Maxim Group LLC. “Refining is a very tight club of people and they all know each other. I don’t think these companies are interested in paying top dollar for these refineries.”
CVR’s board “will review all of Mr. Icahn’s actions and respond as appropriate in due course,” the company said.
Exiting the Business
Known for investing in companies and agitating for strategic changes with management, Icahn has chosen to buy into refining at a time when some are exiting the business to focus on more profitable activities.
Sunoco Inc., which owned refineries for 117 years, announced last year it was selling or shutting its units to focus on pipelines and retail gasoline stations. Marathon Oil Corp. spun off its refining business and ConocoPhillips plans to do the same to focus on more lucrative exploration and production of petroleum.
Exxon Mobil Corp. agreed to sell its Japanese refining business for $3.9 billion last month.
Three refineries in Pennsylvania may be sold or shut permanently, ConocoPhillips (COP) and Sunoco have said. BP Plc is seeking buyers for refineries in Texas and California and Tesoro is trying to sell a Hawaii facility.
“This is a buyer’s market for refineries -- if somebody’s interested in refining, they’ve got lots of choices,” David Hackett, president of Stillwater Associates LLC, an energy consulting firm in Irvine, California, said yesterday. “It’s not clear to me that they would step up and pay top dollar for this one when there are a bunch of other ones in the market.”
CVR completed the $525 million purchase of a 70,000 barrel- a-day refinery in Wynnewood, Oklahoma, in December. With its Coffeyville, Kansas, plant, the company can process 185,000 daily barrels of crude. It also owns a majority interest in CVR Partners LP, which produces fertilizer.
The company may benefit from a larger owner that can take help it take advantage of lower crude prices in the middle of the U.S., Icahn said in a Feb. 14 filing.
“We think there’s a lot more value in it if it were sold,” he said yesterday in a telephone interview.
Refiners such as CVR who operate near where oil is produced and stored from production in emerging U.S. fields were able to buy crude for an average of $15.69 a barrel less than the global benchmark price last year, according to data compiled by Bloomberg.
“Some of these refineries near cheap crude are among the most profitable in the world right now,” John Auers, senior vice president of Dallas-based consultant Turner, Mason & Co., said in a telephone interview yesterday.
Icahn’s purchase price would represent the lowest valuation relative to earnings of any takeover greater than $500 million in the U.S. oil refining and marketing industry. CVR had $898 million in cash and near-cash items on its balance sheet at the end of September, about 35 percent of the Icahn purchase price, according to Bloomberg calculations.
Icahn intends to nominate all new board members for the company and remove a so-called poison pill put in place last month to protect the company from unsolicited takeovers, according to the statement.
Spokesmen for Western, Valero, Marathon Petroleum, HollyFrontier, ConocoPhillips and Tesoro either declined to comment or didn’t respond to calls and e-mails seeking a response.
Deutsche Bank AG and Goldman Sachs Group Inc. are serving as financial advisers to CVR and Wachtell, Lipton, Rosen & Katz is serving as its legal adviser.
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