Guest Column: How Does Sunoco Spell 'M-E-R-G-E-R'?

Leadership changes reflect "contrarian" strategy, signal direction

Published in CSP Daily News

By
Kenneth Shriber, Managing Director, Petroleum Equity Group

CHAPPAQUA, N.Y. -- For the past few years, my firm, Petroleum Equity Group Ltd., has wondered about Sunoco's future vision and how it intended to go to market following Major Oil's exit from a direct-served strategy. Sunoco's leaders made a conscious decision not to sell the majority of the company's retail assets, but recently decided to sell its refineries. Do they see a different future of the downstream fuels business than almost everyone else?

If I was to use a single adjective to describe their strategy, in a word it would be "contrarian."

It is fairly common knowledge that Sunoco's management leadership has been in disarray, so recent announcement that the CEO and president, Lynn Elsenhans, will step aside is not a huge surprise (see Related Content below for previous CSP Daily News coverage.)

Has the board grown weary of their mixed results, losing $660 million in the fourth quarter of 2011? Or, did they just feel the need for a new leader to take the helm at a critical time in the company's history?

Time will tell, but it is clear that Sunoco may have lost some of its luster as a premier marketer since it became the official fuel supplier to NASCAR and re-imaged its stations, including its highest-volume, marquee stores along the New Jersey Turnpike, which leads you down the road to their headquarters in Philadelphia.

Well, the "City of Brotherly Love" has a new sheriff, and his name is Brian MacDonald, Sunoco's CFO. He will assume Elsenhans's many roles at the company, facing staggering losses, idled plants and a discontented rank and file. That road called the turnpike may be a brick road, made yellow by the smokestacks of the Bayway refinery, a metaphor for the tainted path that the previous management followed. Or, it may end up being a yellow brick road leading to an emerald city.

In any event, my prediction is that a radical structural change must take place if Sunoco's legacy assets are to endure. Can you spell M-E-R-G-E-R? In order to maintain shareholder value through a stock swap arrangement, Sunoco will need to seek an adequate suitor to purchase the company as a whole or in parts. There is really no other way forward for it to grow its margins enough, with its remaining income generating asset slate, to attract buyers to its stock. Why would you hold shares in a company whose stock price has deflated by more than 50% since 2007, and whose upside potential is extremely limited? This may be why the board selected someone (in MacDonald) with a heavy financial background across multiple industry sectors.

Kenneth Shriber is managing director for Petroleum Equity Group Ltd., Chappaqua, N.Y. Please email him at ks@petroleumequitygroup.com.

Kenneth Shriber By Kenneth Shriber, Managing Director, Petroleum Equity Group
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