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$5 billion deal brings Sunoco to Energy Transfer Partners
Purchase diversifies gas pipeline company

Energy Transfer Partners is buying Sunoco in a $5.3 billion deal that creates one of the more diverse pipeline companies in the country.

The acquisition includes nearly 8,000 miles of pipeline, as well as 4,900 gas stations in 24 Eastern states. Those stations will keep the iconic Sunoco brand name and its diamond-and-arrow logo. The deal also brings a refinery business, despite Sunoco's decision last September to disengage from that part of the industry.

There are 100 Sunoco stations in the Buffalo Niagara region, many owned by franchisees.

Energy Transfer is primarily a natural gas pipeline company. Sunoco's pipeline network will allow the Dallas company to expand into moving crude oil and refined petroleum products from the Great Lakes region and the Northeast to America's refining center along the Gulf Coast. Sunoco's pipelines have been in high demand recently, thanks to a boom in drilling for gas and oil in U.S. shale formations.

The agreement works out to $50.13 per Sunoco share. Those shares surged by $8.38, or 20.48 percent, to a four-year high of $49.29 Monday.

Energy Transfer Chairman and CEO Kelcy Warren said the company has been looking to diversify into oil pipelines in response to an expected slowdown in the natural gas pipeline business. Natural gas prices are at 10-year lows, and some oil and gas production companies have been taking natural gas operations offline. Many have shifted to drilling for more domestic crude oil, which is both cheaper and of a higher quality than imported crudes.

"We needed to be more involved in the movement of crude," Warren said in a conference call.

Pipeline companies make money by charging fees to transport oil, natural gas and other fuels across the country. When supplies grow and storage facilities fill up -- as is the case with U.S. natural gas -- there's less of a need to transport the fuel, and that means lower revenue for the pipeline company.

By expanding its offerings to crude and other fuels, Energy Transfer can enter various markets where there still is a lot of demand. "There's a genuine business sense here," said Robert McFadden, a Houston-based natural gas pipeline consultant. "They're diversifying their ability to make money."

The boards of both companies have approved the deal. It's expected to close in the third or fourth quarter of this year. Regulators and shareholders still must sign off on the acquisition.

The agreement continues a run of deal-making for Energy Transfer. The Dallas company bought Louis Dreyfus Highbridge Energy for $1.93 billion in May 2011. Also, Energy Transfer Equity, which owns Energy Transfer Partners' general partner, bought Southern Union for more than $5 billion in March and Regency Energy Partners for $300 million in 2010.

The deals will elevate Energy Transfer Partners LP from the middle tier of North American pipeline companies.

Energy Transfer said the deal changes the cash-flow mix for its pipeline businesses to about 70 percent natural gas and 30 percent heavier hydrocarbons.

Sunoco will remain based in Philadelphia and continue its exit from the refining business.

Shareholders of Sunoco will receive $25 in cash and a portion of an Energy Transfer Partners unit. They can also opt for $50 in cash or slightly more than one ETP unit. The $50.13 price represents a 29 percent premium to the 20-day average closing price of the shares as of Friday. It's a 23 percent premium to Friday's closing price of $40.91.

Shares of Energy Transfer Partners LP rose Monday by $1.71, or 3.57 percent, to $49.63.