Why ETP Decided to Merge into Sunoco Logistics Partners



ETP-SXL combine to become second largest midstream MLP

The combined entity of Sunoco Logistics Partners (SXL) and Energy Transfer Partners (ETP) would be the second largest midstream energy MLP in the United States with a combined network of more than 71,000 miles of liquids and natural gas pipelines. The combined partnership would follow Enterprise Product Partners (EPD).

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ETP-SXL merger rationale

The combined partnership is expected to have an improved balance sheet, as the distribution savings would be used to repay debt and fund growth projects. Currently, ETP is one of the most leveraged MLPs among its peers. The partnership had $30.4 billion of outstanding debt by the end of 3Q16 resulting in a net-debt-to-EBITDA multiple of 5.5x. This is above the industry standards. MLPs generally target a ratio between 4.0x and 4.5x. The distribution savings would include reduced distribution to ETP’s existing shareholders.

The partnership will leverage each company’s assets for further expansion opportunities, especially their NGLs businesses. According to the related press release, “the combined partnership will have increased scale and diversification across multiple producing basins and will have greater opportunities to more closely integrate SXL’s natural gas liquids business with ETP’s natural gas gathering, processing and transportation business.”

The transaction is expected to generate commercial synergies and costs savings of ~$200 million annually by the end of 2019. However, these synergies remain uncertain considering the volatility in the commodity price environment, which was also the case in the failed merger between Energy Transfer Equity (ETE) and Williams Companies (WMB).


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