Lehigh's Christmas Surprise

Pennsylvania-based petro company scores acquisitions in Florida, Keystone State

Published in CSP Daily News

By
Mitch Morrison, Vice President & Group Editor

Joe Topper

ALLENTOWN, Pa. -- From under the corporate Christmas tree, midstream petroleum concern Lehigh Gas Partners LP unwrapped two presents this week. The company acquired the 45-unit Express Lane Inc. of Lynn Haven, Fla., and another 24 stores in northeastern Pennsylvania from related entities Dunmore Oil Co. Inc. and JoJo Oil Co. Inc.

The combined moves come at a modest price, with Lehigh shelling out $43 million in the Florida deal to ramp up its presence in the state's Panhandle section; and another $28.5 million to build up its Pennsylvania stronghold, as reported in Raymond James/CSP Daily News Flashes on Wednesday.

The moves come less than two months after Lehigh launched a successful initial public offering (IPO), generating $120 million via the tax-friendly master limited partnership (MLP) that provided the company with the necessary capital to retire debt and embrace a growth-spirited appetite.

The acquisitions further distance the company from two years ago when it reported a $3 million loss, only to rebound in 2011 with a $9.6 million profit. Equally important, the deals reinforce Lehigh's strong distribution base of gasoline and diesel, which reached approximately 570 retail sites prior to this week's announcements.

Going South

Lehigh's acquisition of Express Lane heralds the company's foray into the hotly competitive state of Florida. The deal yields 45 fuel locations centered in the Tallahassee/Panama City markets along the I-10 corridor. Of those, 25 are Chevron branded sites, 16 ExxonMobil and two unbranded. Collectively, the group produced 42 million in fuel volume in 2011.

Lehigh 's operating arm, Lehigh Gas - Ohio LLC, an entity managed by Lehigh Gas CEO and chairman Joe Topper, will run Express Lane's gasoline and diesel and convenience store businesses. Under the arrangement, Lehigh Gas - Ohio will lease the Express Lane sites from Lehigh Gas Partners, paying $1 million in exchange for Express Lane's retail business assets.

Lehigh Gas Partners estimates it will receive aggregate rental income, net of expenses, of approximately $4.6 million per year, with an average lease term of up to 20 years. In addition, 14 of the sites feature quick-service restaurant (QSR) brands Subway, Domino's, Pizza Hut and Hardee's.

The move, said Topper, bolsters two key goals for Lehigh: "We achieve expansion beyond our core geographic footprint in the Northeast and establish a foothold in a highly trafficked metro market. "

Also, the company adds another fuel brand, Chevron, to its portfolio. "Chevron," he said, "has a strong market presence in the Southeast."

For 2011, Lehigh ranked among the 10 largest independent distributors by volume in the United States for ExxonMobil, BP, Shell and Valero. The company also distributes Sunoco and Gulf-branded motor fuels.

Express Lane, a second-generation, family-owned business, was represented by Matrix Capital Markets Group Inc., which provided merger and acquisition advisory services. James E. Lewis Jr. founded Express Lane in 1984, and two sons, Lewis III and Reid Lewis, managed operations in the Florida Panhandle.

"We are extremely pleased that we were able to negotiate a transaction that achieved all of the shareholders' goals that we had discussed prior to being engaged, including completing the sale this calendar year for tax purposes," Matrix director Cedric Fortemps said in a news statement.

NEPA

The deals with Dunmore Oil and JoJo Oil give Lehigh additional markets just an hour's drive from its home base of Allentown, Pa. With stores in the hardscrabble markets of Scranton and Wilkes-Barre, Lehigh will compete with Sunoco APlus, a smattering of Wawa and Sheetz locations and independents.

The stores run along highly-traveled interstate intersections on routes 84, 81 and 380, and are under the ExxonMobil or Valero fuel brands.

"This transaction illustrates our commitment to the execution of our overall growth strategy," said Topper in a news release. "We believe that the Dunmore and JoJo sites fit nicely into our existing portfolio and strengthen our presence in the highly traveled corridor of northeastern Pennsylvania."

The two-dozen locations previously served as sub-jobber locations for Lehigh Gas Partners and sold an aggregate of roughly 28 million gallons of motor fuel in 2011. Lehigh Gas Partners expects the sites will have margins comparable to other Lehigh Gas Partners' controlled fuel locations. In addition, Lehigh Gas Partners estimates it will receive aggregate rental income, net of expenses, of approximately $1.7 million per year from the sites.

The acquisition, in addition to resting in proximity of the company's headquarters, furthers Lehigh's geographic footprint in the northeast United States, where it operates in Pennsylvania, New Jersey, Ohio, New York, Massachusetts, Kentucky, New Hampshire and Maine.

Lehigh Gas Partners, Allentown, Pa., was formed to engage in the wholesale distribution of motor fuels and to own and lease real estate used in the retail distribution of motor fuels. Lehigh Gas Partners owns and leases sites located in Pennsylvania, New Jersey, Ohio, New York, Massachusetts, Kentucky, New Hampshire and Maine.

To learn more about Lehigh Gas Partners and MLPs, see Related Content below to read CSP magazine's November exclusive.

By Mitch Morrison, Vice President & Group Editor
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