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Delek US Holding Buys Out Alon USA Energy for $464 Million

Delek U.S. Holdings, Inc., January 3, 2017

Delek US Holdings, Inc. (“Delek US”) and Alon USA Energy, Inc. (“Alon”) have announced a definitive agreement under which Delek US will acquire all of the outstanding shares of Alon common stock which Delek US does not already own in an all-stock transaction. Based on a closing price of $24.07 per share for Delek US common stock on Friday, December 30, 2016, the implied price for Alon common stock is $12.13 per share, or $464 million in equity value for the remaining shares. The enterprise value of this transaction to acquire the remaining 53 percent of Alon shares of common stock not already owned by Delek US is approximately $675 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 (NYSE: ALDW). This transaction was unanimously approved by the Special Committee of Alon’s board of directors and by the board of directors of Delek US. Additionally, the board of directors of Alon approved the transaction, excluding Delek employed directors which abstained from voting on this matter. The combination will create a company with a strong financial position and significant access to the Permian Basin.

Delek US currently owns approximately 33.7 million shares of common stock of Alon. Under terms of the agreement, the owners of the remaining outstanding shares in Alon that Delek US does not currently own will receive a fixed exchange ratio of 0.5040 Delek US shares for each share of Alon. This represents a 5.6 percent premium to the 20 trading day volume weighted average ratio through and including December 30, 2016, of 0.477. Upon closing, the combined company will be primarily led by Delek US’ management team. In conjunction with the Merger Agreement, the Special Committee of Alon’s board of directors will nominate one new director that will be appointed to the Delek US board, and one new director that will be added to the board of Delek Logistics Partners LP’s (NYSE: DKL) (“Delek Logistics”) general partner. Concurrently with the execution of the Merger Agreement, Delek US entered into three separate voting agreements with Alon USA, David Wiessman and Jeff Morris, pursuant to which each of Delek US, Mr. Wiessman and Mr. Morris have agreed to, among other things, vote their shares of Alon in favor of this transaction.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US stated, “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. 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. The combination of an all equity transaction, which will enable both Alon’s and Delek US’ shareholders to participate in future performance of the company, and Delek US’ 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. I would like to thank the employees of Delek US and Alon for their hard work on the transaction and the members of Alon’s Special Committee for their cooperation during this process.

We are excited to be joining Delek US and believe this agreement represents an excellent opportunity for Alon’s shareholders,” said David 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. I would like to thank Alon’s employees for their efforts, and our customers, suppliers and banks that supported our company, as we worked together to create value for our shareholders.

The combined company will have a broad platform consisting of refining, logistics, retail, wholesale marketing, as well as renewables and asphalt operations. The refining system will have approximately 300,000 barrels per day of crude throughput capacity consisting of four locations and an integrated retail platform that includes 307 locations serving central and west Texas and New Mexico. Logistics operations include Delek Logistics which can benefit from future drop downs and organic projects to support a larger refining system. This combination will create a larger marketing operation with 600,000 barrels per month of space on the Colonial Pipeline System and a wholesale business with over 1.2 billion gallons of sales volume annually in the southwest.

Permian Focused Operations

The combined company will have a larger presence in the Permian Basin. Its refining system will have access to approximately 207,000 barrels per day of Permian sourced crude out of an approximately 300,000 barrel per day crude throughput system, which equates to 69 percent of the crude slate. This will result in the combined company being one of the largest buyers of Permian sourced crude among the independent refiners, creating opportunities to benefit from economies of scale in both refining and logistics. There will be a larger marketing presence with approximately 307 retail locations and wholesale marketing operations in the region that is integrated with the Big Spring, Texas refinery and extends Delek US’ marketing beyond its current west Texas position. From a logistics standpoint, the system will have access to crude oil pipelines, trucking and gathering operations in the area, which is in addition to Delek Logistics’ RIO joint venture crude oil pipeline in west Texas. This larger system also enhances the opportunities for Delek Logistics to expand its current participation in the highly attractive Permian and Delaware basins by supporting a larger operation.

Value Creating Initiatives

Larger, more diverse company benefits all shareholders. This combination creates the ability to leverage a larger system from an operational and commercial standpoint with a stronger financial position. With a more diverse set of business platforms, it offers the ability to create value through synergies, flexibility to invest in growth opportunities and benefit from the relationship with Delek Logistics.

Synergies on a combined base of an estimated $85 to $105 million expected to be achieved in 2018. Improved efficiencies and cost savings through a combination of commercial, operational, cost of capital and corporate initiatives are expected to drive additional shareholder value. The annual run rate is expected to be achieved in 2018, the first full year of operation following the closing of the transaction. Delek US’ previous experience in improving operations and managing costs can be applied to a broader set of assets to drive value and improvements on a combined basis.

Ability to unlock logistics value with an estimated $70 to $85 million of logistics related annual EBITDA. By leveraging the relationship with Delek Logistics, additional value can be unlocked from Alon’s logistics assets through future potential drop downs. This potential EBITDA includes an estimated $30 to $34 million of annual logistics EBITDA at the Krotz Springs refinery. This should create value for the combined company and provide a more visible growth plan for Delek Logistics that can support its long term distribution growth and create significant cash flow to Delek US.

Strong financial position supports ability to return value to the shareholders. Through an all equity transaction that enables all shareholders to participate in future value creation, we believe the combined company’s financial position will be strong. This financial position should allow the combined company the ability to undertake initiatives to improve its operations and return cash to the shareholders through dividends and share repurchases. This transaction is expected to be highly accretive in 2018 on an earnings per share basis, the first full year of operation of the combined company, assuming a benefit from $95.0 million of synergies. By benefitting from Delek US’ strong financial position, a focus after closing will be to reduce the financing cost of the combined company. Delek US’ share repurchase program, which expired on December 31, 2016, has been replaced with a new $150 million repurchase authorization, which does not have an expiration date.

Increased asphalt and renewable businesses. The combined company will have an integrated asphalt business consisting of Alon’s operations primarily in Texas and California/Washington and Delek US’ asphalt business primarily in Texas/Arkansas/Oklahoma that is approaching 1.0 million tons of sales on an annual basis. This operation is supported through a combination of production and supply/exchange volume with 15 asphalt terminals in the operation. The combined biodiesel/renewable diesel assets, with a total capacity of approximately 61.0 million gallons per year, include Delek US’ Cleburne, Texas and Crossett, Arkansas biodiesel plants and Alon’s renewable diesel and jet plant in California.

Approvals and Timing

The transaction is expected to close in the first half of 2017 and is subject to customary closing conditions, including regulatory approval and approval by a majority of votes cast of Delek US shareholders and approval by the holders of a majority of the remaining 53 percent of Alon shares, which excludes the 47 percent of Alon shares owned by Delek US.

 

About Delek US Holdings, Inc.

Delek US Holdings, Inc. is a diversified downstream energy company with assets in petroleum refining and logistics. The refining segment consists of refineries operated in Tyler, Texas and El Dorado, Arkansas with a combined nameplate production capacity of 155,000 barrels per day. Delek US Holdings, Inc. and its affiliates also own approximately 62 percent (including the 2 percent general partner interest) of Delek Logistics Partners, LP. Delek Logistics Partners, LP (NYSE: DKL) is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets. Delek US Holdings, Inc. currently owns approximately 47 percent of the outstanding common stock of Alon USA Energy, Inc. (NYSE: ALJ).

About Alon USA

Alon USA Energy, Inc., headquartered in Dallas, Texas, is an independent refiner and marketer of petroleum products, operating primarily in the South Central, Southwestern and Western regions of the United States. Alon owns 100% of the general partner and 81.6% of the limited partner interests in Alon USA Partners, LP (NYSE: ALDW), which owns a crude oil refinery in Big Spring, Texas, with a crude oil throughput capacity of 73,000 barrels per day and an integrated wholesale marketing business. In addition, Alon directly owns a crude oil refinery in Krotz Springs, Louisiana, with a crude oil throughput capacity of 74,000 barrels per day. Alon also owns crude oil refineries in California, which have not processed crude oil since 2012. Alon owns a majority interest in a renewable fuels project in California, with a throughput capacity of 2,500 barrels per day. Alon is a leading marketer of asphalt, which it distributes primarily through asphalt terminals located predominately in the Southwestern and Western United States. Alon is the largest 7-Eleven licensee in the United States and operates approximately 300 convenience stores which also market motor fuels in Central and West Texas and New Mexico.


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