PBF Energy Co. LLC, the partnership backed by private-equity firms Blackstone Group LP and First Reserve Corp., agreed to buy Sunoco Inc.’s Toledo refinery in Ohio for about $400 million.
PBF will pay $200 million in cash and $200 million as a two-year note, plus as much as $125 million based on the refinery’s profitability, according to a statement issued today by Philadelphia-based Sunoco. PBF will also pay for the plant’s crude oil and fuel inventory, which will be valued at market prices when the sale is complete, according to the statement.
“Considering the environment, considering the facility and everything else, it’s probably a fair price,” said Philip Weiss, an analyst at Argus Research in New York who has a “sell” rating on the company and doesn’t own any shares.
This would be the third refinery purchase for Parsippany, New Jersey-based PBF, which agreed to buy two plants from Valero Energy Corp. this year. The Toledo refinery is 91 miles (146 kilometers) west of Cleveland and has the capacity to process 170,000 barrels of crude a day. Sunoco bought the refinery, its first, in 1894, according to its website.
This is the second refinery sale in two years for Sunoco. The company sold its refinery in Tulsa, Oklahoma, to Holly Corp. for $65 million in June 2009, after foregoing a $375 million upgrade of the plant.
Chief Executive Officer Lynn Elsenhans said in February Sunoco was permanently shutting down its Eagle Point refinery in New Jersey because of “weak industry dynamics.” The company’s refining unit, which accounted for more than 80 percent of net income in 2007, was unprofitable in five of the last six quarters. After the sale, the company will have only two operating refineries left.
PBF, which was formed in 2008 to acquire U.S. refineries, agreed in September to purchase Valero’s Paulsboro unit in New Jersey for about $360 million and an estimated $275 million for crude inventories and other expenses.
Thomas O’Malley, the chairman of Swiss refining company Petroplus Holdings AG, serves as chairman of PBF.
PBF also agreed to buy Valero’s shuttered Delaware City, Delaware, refinery for $220 million in April, saying that it would spend up to $150 million to improve the plant. The refinery is capable of processing 182,200 barrels a day, according to data compiled by Bloomberg.
“We’re more or less finished with the East Coast, we’re comfortable there,” said O’Malley in an interview. “We want to absorb what we’ve bought, but we’re always on the lookout.”
Cost to Rise
Private-equity firms like Blackstone and First Reserve pool money from investors to take over companies, financing the purchases mostly with debt with the intention of selling them later for a profit.
“The essence of this type of investing is that the global economy has started to turn around,” said O’Malley. “It’s reasonable to say the cost of buying refineries will continue to escalate.”
Sunoco may delay the spinoff of its metallurgical coke unit, which makes fuel for steelmakers, because of outstanding litigation with ArcelorMittal concerning coke pricing, according to the statement. The company has said it would separate the company in the first half of 2011.
Thomas Golembeski, a spokesman for Sunoco, declined to comment in an interview on how long the spinoff will be delayed. A trial is scheduled for May, according to the statement.
Sunoco rose 44 cents, or 1.1 percent, to $41.15 at 4 p.m. in New York Stock Exchange composite trading, before the sale was announced.