Tesoro Acquires Western Refining in Deal Worth $6.4 Billion

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Tesoro Corp. (NYSE: TSO) announced Thursday that the company has agreed to acquire fellow oil refiner Western Refining Inc. (NYSE: WNR) in a stock transaction valued at $4.1 billion. Including the assumption of Western’s outstanding debt of $1.7 billion and $605 million for a non-controlling interest in Western Refining Logistics L.P. (NYSE: WNRL), the total value of the deal reaches $6.4 billion.

Western’s closing share price Wednesday was $30.50, and the implied price that Tesoro will pay is $37.30 per share, a premium of more than 22%.

Western shareholders may choose to receive 0.435 shares of Tesoro stock for each share of Western stock they own, or $37.30 in cash per share of Western stock. Elections to receive cash will be subject to proration to the extent they exceed approximately 10.8 million shares (or approximately $404 million in the aggregate). Stock elections will not be subject to proration.

Tesoro CEO Greg Goff said:

The acquisition of Western further strengthens our integrated business model and extends our portfolio into attractive and growing markets. As a leading integrated refining, marketing and logistics company, this transformative acquisition drives value through a combination of access to advantaged crude oil, a strong, multi-brand marketing and convenience store portfolio and a robust platform for logistics growth, all of which will allow us to continue to create shareholder value.

The combined company will own 10 refineries in eight states with a refining capacity of 1.1 million barrels a day. The company will also own more than 3,000 retail stations under brand names such as Arco, Shell, Exxon and Tesoro.

Upon close of the transaction, Tesoro will own the general partner and be the largest unitholder in both its own logistics MLP, Tesoro Logistics L.P. (NYSE: TLLP) and Western Refining Logistics. Tesoro said it expects to use its “strong operating and execution capability to enhance the portfolio of opportunities in the high-growth Permian and other attractive crude oil basins.”

The transaction is expected to close in the first half of 2017 and is subject to customary closing conditions and regulatory approvals. Shareholders of both companies must approve the transaction, which is expected to be tax free to Western shareholders who choose to receive stock rather than cash.

Western’s shares traded up 18% Thursday morning, at $36.00 in a 52-week range of $18.14 to $46.65. The 12-month consensus price target on the stock is $29.18.

Tesoro stock traded down about 0.9%, at $85.00 in a 52-week range of $67.80 to $119.67. The consensus 12-month price target on the stock is $99.13.