Sunoco LP (NYSE:SUN) Reaches Deal To Enhance Position In Fuel Distribution

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Sunoco LP (NYSE:SUN) and Superior Plus Corporation recently reached an agreement which will see the former purchase the storages assets and the wholesale fuel unit of the latter with a view to bolstering its fuel distribution business. Among the assets that Superior Plus Corporation will sell to Sunoco include three pipeline connected terminals located in New York and wholesale refined fuels operations spread across the northeastern parts of the United States.

The wholesale business of Superior Plus Corporation consists of commercial contracts and hundreds of deals. On an annual basis these businesses sell gallons of fuel totaling 200 million. The three terminals also include 17 tanks which possess a storages capacity of more than 429,000 barrels. The value of the deal is approximately $40 million and will be subject to regulatory approvals as well as satisfactory closing conditions. The deal is set to be concluded before the end of this month.

Commission agent model

Prior to the announcement retail sites numbering 207 had been converted to one commission agent in markets such as New Mexico, Oklahoma and West Texas. The commission agent model will require Sunoco to own as well as price the fuel to be sold at the sites. Sunoco will pay the agent on a fixed commission basis for every gallon of fuel sold. Additionally Sunoco will get rental income and fees from the commission agent who will in charge of operations at the sites.

Earlier in the year Sunoco inked a deal with 7-Eleven worth $3.2 billion with the aim of exiting from retail operations and instead turning its focus to core fuel distribution as well as logistics segments.

Strategic initiatives

By successful completing the divestment agreement with 7-Eleven and converting its remaining retail businesses to run on a commission agent model Sunoco has strategically changes its business model and this has assisted in strengthening its position financially.

With the strategic initiatives Sunoco has been able to cut its debt and put itself in a better position of tapping attractive acquisition opportunities that may arise in the near future. The latest acquisition deal is expected to be immediately accretive to the distributable cash flows of Sunoco.

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