ETP: Betting on Texas

Acquisition builds on state’s “strong economy, demographic trends”

Published in CSP Daily News

By  Abbey Lewis, Executive Editor

DALLAS -- In an agreement that caught the convenience store industry by surprise, Energy Transfer Partners L.P.’s purchase of Susser Holdings Corp. has set the stage for an East Coast-to-Texas mega-chain.

It starts with ETP’s purchase of Susser in a deal worth $1.8 billion, as reported in a 21st Century Smoke/CSP Daily News Flash.

But this isn’t any ordinary deal. Instead of just purchasing Corpus Christi, Texas-based Susser Holdings outright, Dallas-based ETP is acquiring the 630-store chain in a plan that involves a series of crucial steps.

Following the initial purchase of Susser Holdings, a series of drop-down transactions will occur whereby existing ETP and Susser Holdings retail business units will be sold to Susser Petroleum Partners. This process will yield a centralized retail business combining both powerhouse brands: ETP’s Sunoco fuel brand and Susser’s Stripes Convenience Stores.

“From an ETP perspective, we think this is a very smart transaction,” said CFO Martin Salinas in a conference call Monday. “The drop downs allow us to exit the retail business and focus on our core strengths, that being, moving hydrocarbons through our pipes.”

The timing of the drop downs themselves are dependent on the market, but the hope is that the transactions will take place sooner rather than later. Following initial approval of the deal, which could take from three to four weeks, it could take another six weeks to complete the process. The deal is expected to close in the third quarter of 2014.

“In the long term, it will look like Susser today with all of Sunoco’s retail and wholesale and its very valuable brand thrown in the mix,” said group financial officer and head of corporate development at Energy Transfer Equity, Jaime Welch.

Messing With Texas

For a company that is completely concentrated east of the Mississippi, the move into Texas was a very strategic one. But why Susser? Certainly this venerable, 76-year old brand with advanced foodservice offerings would be attractive to any acquiring mind.

“As we looked across the dynamic of the retail space, we looked at Susser’s business model that capitalized on the strong economy and favorable demographic trends in Texas,” Welch said. “It was a bet on Texas. That is a bet we very much take and take daily.”

A long list of Susser’s attributes, including demonstrated retailing excellence, strong management team and more are icing on the cake. It is the potential of a brand partnership between Sunoco and Susser that had ETP gushing over the growth opportunities.

“What we’ve done is take Susser’s well-regarded brand and merchandising model and overlaid it with the Sunoco skillset on the fuel side. It creates significant synergies with little upfront investment,” Welch said.

Another one of those attributes, an in-house “land bank” of Susser-acquired properties that are either owned outright or under option, was also very appealing: “One of the things we found most attractive is the land bank they have. New sites for development over the next couple years, and that’s certainly activity we expect to continue going forward,” said Bob Owens, president and CEO at Sunoco.

Another major opportunity is the gap between ETP’s East Coast and Texas assets (see map).

"If you look at the map, it's fairly dramatic,” Owens said. “You may notice there's a little gap in between. That seems like a very logical spot for us to fill in. If you think of Texas as the center, and going north from there and west from there, we think that makes a lot of sense for us."

Leading the integration efforts between the two brands is Sunoco’s Owens, and Sam L. Susser, chairman and CEO of Susser Holdings and Susser Petroleum.

“Based on the time we spent together, it feels like we’ve got similar cultures,” Owens said. “I will tell you I think this is a very different acquisition vs. a lot of what you look at, where people pick out numbers of head count reductions and underpin the benefits of an acquisition with people savings. This is different because we’re creating real business value early on.”

Part for CSP's 2014 Convenience Top 101 retailers