Sunoco, Inc. (NYSE: SUN) today announced that its Board of Directors has authorized a plan to separate SunCoke Energy from the remainder of Sunoco as part of a strategy designed to unlock shareholder value. The Company also announced that it anticipates its Refining segment to report a profit for the quarter ending June 30, 2010.
Coke Business Separation
The planned separation of SunCoke Energy from the remainder of Sunoco will create two well-positioned businesses: a leading, high-quality metallurgical coke manufacturer with operations in the U.S. and abroad, and a streamlined fuels business focused on Refining, Supply, Logistics and Retail Marketing that is better positioned to become the premier provider of transportation fuels in its markets.
The Company plans to effect the separation in the first half of 2011, subject to market, regulatory and other conditions, and is currently reviewing a variety of potential separation transactions, including a tax-free spin-off of SunCoke Energy to Sunoco shareholders. Credit Suisse is advising Sunoco in connection with the separation.
“Following a rigorous evaluation process, the Board of Directors believes that the Company may be undervalued from a ‘sum-of-the-parts’ perspective and that a strategic separation of SunCoke Energy would bring long-term value to shareholders and benefits to customers and employees,” said Lynn L. Elsenhans, chairman and chief executive officer of the Company. “A separation should enable Sunoco, Inc. to pursue a more focused strategic plan, invest in growth opportunities and further strengthen its balance sheet. Sunoco’s strong, brand-led Retail growth platform, along with the growth potential of Sunoco Logistics Partners L.P. (NYSE: SXL), will give Sunoco additional opportunities to enhance its competitive profile as we position the Company to become the premier provider of transportation fuels in its markets.”
“The fuels and coke units are distinct businesses with different business models, different sets of customers and no significant integration or synergies. SunCoke Energy is a leading independent coke producer in North America, and this business has attractive global growth potential. We believe that, through a separation from Sunoco and with a management team solely focused on pursuing opportunities, SunCoke Energy will be better positioned to serve its customers who are the world’s leading steel manufacturers. The separation will also provide SunCoke Energy independent access to capital markets to finance its growth and enhance its scale to take advantage of domestic and international growth opportunities. SunCoke’s customer relationships, modern coke making assets and leading proprietary technology should allow it to undertake these opportunities,” said Elsenhans.
Two Well-Positioned Businesses
Sunoco is a leading transportation fuel provider, with operations located primarily in the East Coast and Midwest regions of the United States. The company operates more than 4,700 branded retail locations that market transportation fuels and convenience store merchandise in 23 states. This retail network is principally supplied by Sunoco-owned refineries with a combined crude oil processing capacity of 675,000 barrels per day. Sunoco is also a General Partner and has a 33-percent interest in Sunoco Logistics Partners, L.P., a publicly traded master limited partnership which owns and operates 6,000 miles of refined product and crude oil pipelines and 41 product terminals. Many of Sunoco Logistics’ pipelines and terminals and storage facilities are integrated with Sunoco’s retail network and refineries.
SunCoke Energy, which is currently part of Sunoco, uses its proven technology and proprietary processes to make high-quality metallurgical-grade coke for major steel manufacturers in the United States and Brazil. Coke is a principal raw material in steel making. SunCoke has been a market leader in designing, building, owning and operating plants that have far less impact on the environment than traditional coke making plants. SunCoke’s plants are configured to efficiently produce electricity and/or high-grade industrial steam from the valuable heat recovered from its coking process. The company's facilities in the U.S.--located in Virginia, Indiana, Ohio and Illinois--have the capacity to manufacture approximately 3.67 million tons of metallurgical coke annually. The company is also building a plant in Middletown, Ohio, that is slated to produce 550,000 tons of coke and 46 megawatts of electricity when fully operational in the second half of 2011. SunCoke is the operator of, and has an equity interest in, a 1.7 million tons-per-year coke-making facility in Vitória, Brazil. The company has been mining the type of coals used in manufacturing coke for more than four decades. SunCoke recently announced plans to increase production from its metallurgical coal mines from approximately 1.25 million tons annually to approximately 1.75 million tons annually.
Update On Refining
Commenting on the Company’s announcement that it expects its refining segment to report its first profitable quarter since Q1 2009, Elsenhans said, “We are beginning to see the results of our business improvement initiatives positively impact our performance. The actions we’ve taken, coupled with a slight improvement in market conditions, have brightened our immediate outlook for Sunoco’s refining and supply business. Nevertheless, business conditions remain difficult, requiring our continued focus on operating excellence and achieving a sustainable, lower cost structure.”