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BRENTWOOD, Tenn. — Delek US Holdings Inc. and Alon USA Energy Inc. have reached a deal for Delek US to acquire all of the outstanding shares of Alon common stock it does not already own. The all-stock transaction carries an equity value of $464 million.
According to the two companies, the enterprise value of the deal for Delek to take ownership of the remaining 53 percent of Alon shares of common stock is approximately $657 million, including the proportionate assumption of $152 million of net debt related to this transaction and $59 million of market value for the non-controlling interest in Alon USA Partners LP.
Delek's board of directors and a special committee of Alon's board of directors unanimously approved the agreement. Additionally, Alon's board approved the transaction, excluding Delek employed directors that abstained from voting on this matter.
The two sides inked the definitive merger agreement nearly three months after Delek made a bid for the remaining stock, as CSNews Online previously reported.
The combination will create a company with a strong financial position and significant access to the Permian Basin.
The Alon deal gives Delek another foothold in the convenience channel. It previously owned MAPCO and MAPCO Express stores; however, in August the Brentwood-based company signed a definitive agreement to sell the retail network to Compañía de Petróleos de Chile COPEC S.A. (COPEC).
The deal, which carried a $535-million price tag and covered 100-percent interest in MAPCO and certain affiliated companies, closed in November, as CSNews Online previously reported.
With 307 convenience stores, Dallas-based Alon is North America's largest 7-Eleven licensee. In July, it formed a special committee to review a number of strategic alternatives, including a potential business combination with Delek; the analysis of capital investments; shareholder distributions; or a sale or merger and spinoff or separation of a selected business.
The deal, which is expected to deliver between $85 million and $105 million in synergies in 2018, gives Delek "an integrated retail system in the Permian Basin we can continue to invest in," said Uzi Yemin, chairman, president and CEO of Delek US.
As Fred Green, Delek executive vice president, explained, the transaction creates a larger geographic footprint on a combined basis. "The retail system of approximately 307 stores in the Southwest is supported by the Big Spring refinery and offers a platform for future growth," he said during a company conference call Tuesday morning.
He said Delek will apply "its previous experience in improving and growing a retail platform to create value from this system."
In addition, Alon's wholesale marketing platform in west and central Texas, and the Southwest — which is also supported by the Big Spring refinery — further extends Delek's marketing reach beyond west Texas into New Mexico and Arizona.
According to Yemin, Alon's retail portfolio differs from Delek's previous experience with MAPCO because it is more integrated. Plus, the portfolio's location — namely the Permian Basin — offers the potential Delek needs "to evaluate in a different light."
In addition, MAPCO and Alon's c-stores differ in format, he added.
According to Yemin, Alon did not build "what we call megastores so we would like to explore the opportunity to build some megastores in the area before we start jumping in to sell the stores."
The transaction is expected to close in the first half of this year, subject to customary closing conditions.
In conjunction with the definitive merger agreement, the special committee of Alon's board will nominate one new director that will be appointed to the Delek board, and one new director that will be added to the board of Delek Logistics Partners LP's general partner.
Concurrently with the execution of the Merger Agreement, Delek entered into three separate voting agreements with Alon USA, David Wiessman and Jeff Morris, pursuant to which each of Delek, Wiessman and Morris have agreed to, among other things, vote their shares of Alon in favor of this transaction.
"We are excited to reach this agreement and believe this strategic combination will result in a larger, more diverse company that is well positioned to take advantage of opportunities in the market and better navigate the cyclical nature of our business," said Uzi Yemin, chairman, president and CEO of Delek US. "We expect to be able to achieve meaningful synergies across the organization and the combination will create a refining system that will be one of the largest buyers of crude from the Permian Basin among the independent refiners.
"Additionally, we expect the combined company will have the ability to unlock logistics value from Alon's assets through future potential drop downs to Delek Logistics Partners and create a platform for future logistics projects to support a larger refining system," he added.
He said the combination of an all equity transaction and Delek US's strong financial position should provide the combined company financial flexibility as it moves forward with initiatives to invest in the business to create value for the shareholders.
"We are excited to be joining Delek US and believe this agreement represents an excellent opportunity for Alon's shareholders," said Wiessman, chairman of Alon's Special Committee. "The economies of scale, financial strength, and synergies generated through this merger create the opportunity to drive long-term value for shareholders and the all-stock transaction allows all shareholders to participate in the future performance of the combined company."