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PHILADELPHIA -- As Sunoco shareholders get set to vote on its proposed sale to Energy Transfer Partners LP (ETP) on Oct. 4, one very important question remains up in the air: what will happen to Sunoco's gas stations?
While no one has the answer just yet -- or if ETP does, it's not saying -- analysts seem to agree that Dallas-based ETP will most likely sell the Sunoco-branded network of 4,900 retail gas stations spread across 23 states in the Northeast, Southeast and Midwest. Sunoco owns approximately one-third of the sites with the independent operators running the remaining sites.
According to a report on Minyanville.com, gas stations are an odd fit for ETP and lay outside its management's core focus. Also, ETP is structured as a master limited partnership (MLP), but merchandise from gas station/convenience stores do not qualify for MLP treatment -- which could subject ETP to additional taxes.
And then there is the challenge of operating a profit-making gas station.
"Recent declines in gasoline consumption coupled with higher overhead costs and greater competition from warehouse clubs, such as Costco, have resulted in declining profits for energy company-owned gas stations and those [that are] independently owned and operated," Alan Herbst, a principal at New York-based energy consultancy Utilis Advisory Group, told Minyanville.com. "With the retail markup for gasoline only about $0.15 per gallon, station owners had been relying on their convenience store sales to generate income, but now those sales are also declining."
All these add up to reasons why analysts believe ETP should -- and will -- sell Sunoco's retail network, which is valued at $1.8 billion, the report added.
"I don't think the Sunoco stations would be that profitable as a stand-alone business, but they could be acquired by another retail operator who is looking to expand their network," Herbst explained. "Firms that might have an interest might include Wawa and even the recently spun-off Marathon Petroleum."
Various media reports have also pointed to possible interest from The Pantry Inc., operator of Kangaroo Express, Alimentation Couche-Tard, operator of Circle K stores in the United States, and Global Partners, which runs 800 fuel stops in the Northeast under different brands.
Regardless of ETP's decision, the stations could still use the Sunoco brand, leaving any change fairly unnoticed by customers, the news outlet added. Sunoco is still committed to sponsorship deals with NASCAR and IndyCar through to 2019 and 2014 respectively.
ETP said it has received many calls expressing interest in the Sunoco gas stations, but in the mean time, CEO Kelcy Warren has said that he is "very comfortable" with owning Sunoco's retail division, Minyanville.com added.