- Creates leading integrated downstream petroleum and renewable
fuels company to be named HF Sinclair Corporation
- Provides growth to Holly Energy Partners through Sinclair’s
integrated crude and refined products midstream business
- HollyFrontier and HEP announce new plans for capital return to
shareholders
- HollyFrontier and HEP to Host Investor Conference Call Today at
7:30 AM CT / 8:30 AM ET
HollyFrontier Corporation (NYSE: HFC) (“HollyFrontier”) and
Holly Energy Partners, L.P. (NYSE: HEP) (“HEP”), today announced
they have entered into definitive agreements under which
HollyFrontier and HEP will acquire Sinclair Oil Corporation and
Sinclair Transportation Company from The Sinclair Companies
(“Sinclair”).
HollyFrontier Transaction
Under the terms of HollyFrontier’s definitive agreement,
HollyFrontier will acquire Sinclair’s:
- Branded marketing business and all commercial
activities, which build on an iconic brand with exceptional
customer loyalty;
- Renewable diesel business, which made Sinclair a
first-mover in the space; and
- Two premier Rocky Mountain-based refineries.
As part of the transaction, HollyFrontier will form a new parent
company, named “HF Sinclair Corporation” (“HF Sinclair”), which
will replace HollyFrontier as the public company trading on the
NYSE. At the closing, existing shares of HollyFrontier will
automatically convert on a one-for-one basis into shares of common
stock of HF Sinclair, and HF Sinclair will issue approximately 60.2
million shares of common stock to Sinclair, representing 26.75% of
the pro forma equity of HF Sinclair with a transaction value of
approximately $1.8 billion based on HollyFrontier’s fully diluted
shares of common stock outstanding and closing stock price on July
30, 2021. HollyFrontier expects to seek the approval of its
stockholders under applicable rules of the New York Stock Exchange
for the issuance of the HF Sinclair shares to Sinclair.
The transaction will transform HollyFrontier by accelerating its
growth while increasing scale and diversification; it also allows
HollyFrontier to integrate downstream into branded wholesale
distribution. HF Sinclair will drive incremental free cash flow
growth through its expanded refining business, integrated
distribution network, leading renewable diesel position and growing
lubricants and specialties business. The transaction is expected to
be accretive to HF Sinclair’s earnings, cash flow and free cash
flow within the first full year, and to enable the combined company
to increase its commitment to return cash to stockholders.
Upon closing of the transaction, HollyFrontier’s existing senior
management team will operate the combined company. Under the
definitive agreements, Sinclair will be granted the right to
nominate two directors to the HF Sinclair Board of Directors at the
closing. The Sinclair stockholders have also agreed to certain
customary lock up, voting and standstill restrictions, as well as
customary registration rights, for the HF Sinclair shares to be
issued to the stockholders of Sinclair. The new company will be
headquartered in Dallas, Texas, with combined business offices in
Salt Lake City, Utah.
HEP Transaction
Under the terms of the HEP transaction, HEP will acquire
Sinclair’s integrated crude and refined products pipelines and
terminal assets, including approximately 1,200 miles of pipelines,
eight product terminals and two crude terminals with approximately
4.5 MMbbl of operated storage. In addition, HEP will acquire
Sinclair’s interests in three pipeline joint ventures including:
Powder Flats Pipeline (32.5% non-operated interest), Pioneer
Pipeline (49.9% non-operated interest) and UNEV Pipeline (25%
non-operated interest; HEP operates the pipeline and owns the
remaining 75% interest). The purchase price for the HEP transaction
will consist of an equity issuance of 21 million HEP common units
and the payment of $325 million of cash, subject to customary
closing adjustments, representing a transaction value of
approximately $758 million based on the closing price of HEP units
on July 30, 2021. Upon closing of the HEP transaction, HEP’s
existing senior management team will continue to operate HEP. Under
the definitive agreements, Sinclair will be granted the right to
nominate one director to the HEP Board of Directors at the closing.
The Sinclair stockholders have also agreed to certain customary
lock up restrictions and registration rights for the HEP common
units to be issued to the stockholders of Sinclair. HEP will
continue to operate under the name Holly Energy Partners, L.P.
The transactions have been unanimously approved by both
HollyFrontier’s and HEP’s Board of Directors and are expected to
close in mid-2022, subject to customary closing conditions and
regulatory clearance, including the expiration or termination of
the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act. In addition, the HFC transaction and the HEP
transaction are cross-conditioned on each other.
“HollyFrontier was formed through a transformational merger that
facilitated a decade of significant stockholder returns along with
growth and diversification into lubricants and renewables. We
believe these transactions with Sinclair represent a similar
inflection point, marking the beginning of our next chapter as HF
Sinclair,” said Mike Jennings, Chief Executive Officer of
HollyFrontier and HEP. “With this accretive transaction, we are
adding an integrated marketing business with an iconic brand while
building on the strength of our expanded refining network,
increasing our scale and accelerating the growth of our renewables
business. Together, with Sinclair and the dedicated employees who
make it successful, we will be positioned to further build this
business, capture synergies, and generate cash that will facilitate
both capital return to stockholders and further investment in the
business.”
Mr. Jennings continued, “At the same time, this transaction will
significantly extend the reach of HEP. Strengthened by an
integrated network of Sinclair pipelines and storage facilities,
HEP will have the scale and incremental earnings power to capture
new organic growth opportunities and increase cash returns to
unitholders.”
Ross Matthews, Chairman and Chief Executive Officer of Sinclair
commented, “As the oil and gas industry has evolved in recent
years, we have carefully considered how best to position Sinclair’s
refinery and logistics assets and their related operations for the
future. We’re confident these businesses—and the dedicated
employees who operate them—will continue to thrive under this new
ownership structure. We expect these businesses will benefit
significantly from HollyFrontier’s and HEP’s operational expertise,
their network of refineries and midstream assets in the Western
U.S., and the flexibilities that come with being part of a larger
organization. Sinclair’s employees bring a wealth of talent and
capability, including in the production of renewable diesel, which
will be an important and growing line of business for HF Sinclair.
Sinclair also adds to HF Sinclair an outstanding and extremely
successful brand marketing team. The transaction will help
accelerate the ongoing rapid expansion of our Sinclair branded
retail sites and the iconic DINO brand.”
“We also believe that HollyFrontier and HEP are an excellent
cultural fit, with a shared commitment to integrity and respect for
our employees, our communities and the environment,” Mr. Matthews
explained. “We anticipate a seamless transition for our employees,
distributors and other stakeholders following the closing of the
transactions.”
Strategic and Financial Benefits
HollyFrontier’s acquisition of Sinclair’s branded marketing
business, refineries and its renewable diesel business is expected
to:
- Diversify HollyFrontier’s Business with the Addition of
Sinclair’s Iconic Brand and Integrated Distribution Network. By
adding a branded wholesale business, the combined company will have
the opportunity to grow an iconic brand across a range of
HollyFrontier products and geographies. HollyFrontier will add a
footprint of over 300 distributors and 1,500 branded locations
across 30 states, with over 2 billion gallons of annual branded
fuel sales.
- Increase the Size and Scale of HollyFrontier’s Renewables
Business. Sinclair’s renewable diesel unit (“RDU”), co-located
at its Sinclair, Wyoming refinery, processes soybean oil and tallow
into renewable diesel that is sold into California. The RDU has
recently been expanded to produce 10,000 barrels per day and
Sinclair is currently in the process of constructing a
pre-treatment unit, allowing for further feedstock advantage and
flexibility. Once the transaction is complete, the combined
renewables business is expected to produce approximately 380
million gallons of renewable diesel per year and will be a leading
renewable diesel producer in the U.S. with the size and scale to
support logistical, procurement, feedstock and operational
synergies.
- Add Complementary Rocky Mountain Refineries to
HollyFrontier’s Network. The Sinclair and Casper Refineries are
complementary to HollyFrontier’s existing refinery network and will
expand the combined company’s footprint in the Rocky Mountain
region. Like HollyFrontier’s existing refineries, the Sinclair
refineries are feedstock advantaged, given their Northern Tier
access to Canadian and Rocky Mountain crudes. The combined refining
network will feature seven complex refineries in the Rocky
Mountains, Mid-Continent, Southwest and Pacific Northwest regions
and will have a combined crude oil processing capacity of 678,000
barrels per stream day. Each refinery has the complexity to convert
crude oils into a high percentage of gasoline, diesel and other
high-value refined products.
- Deliver Financial Benefits Through Accretion and Cost
Savings. The transaction is expected to be accretive to HF
Sinclair’s earnings, cash flow and free cash flow within the first
full year. The transaction is expected to generate $100 million in
run-rate synergies, as well as another $100-200 million in one-time
savings during the first two years post close through working
capital optimization.
- Enable the Combined Company to Generate Significant Free
Cash Flow, Maintain Strong Balance Sheet and Facilitate the Return
of Capital to Stockholders. HollyFrontier’s credit profile is
expected to be enhanced through reduced leverage, increased scale
and diversification of businesses. We expect the combined company
to maintain a strong balance sheet and investment grade credit
rating. Fueled by significant free cash flow generation, the
combined company expects to return capital to stockholders through
both dividends and share repurchases.
- Deepen HollyFrontier’s and Sinclair’s Commitment to ESG and
Sustainability. HollyFrontier and Sinclair share a common
philosophy on commitments to environmental stewardship,
sustainability and strong corporate governance. The combined
business will build on each company’s ongoing ESG efforts with
increased renewables scale, a shared commitment to health and
safety practices that best serve employees and communities, and a
focus on risk management.
HEP’s acquisition of Sinclair’s integrated crude and refined
product pipeline and terminal assets, including interests in three
midstream joint ventures, is expected to:
- Expand HEP’s Scale and Earnings. HEP’s acquisition of
Sinclair’s expansive network of crude and product assets provides
an integrated system with connectivity to key crude hubs in the
Rockies, including Casper, Guernsey and Cheyenne. The acquired
assets are expected to produce stable revenues supported by
long-term minimum volume commitments from HF Sinclair.
- Extend HEP’s Access to Growing Geographies through Finished
Product Pipelines and Storage through Additional Joint
Ventures. The assets in the acquired joint ventures serve
multiple regions and are strategically located to meet increasing
demand for finished product pipelines and storage.
Financial Targets and New Plan to Return Capital
HF Sinclair will focus on maintaining its investment grade
balance sheet and delivering significant free cash flow while
utilizing a balanced approach to capital investment and cash return
to stockholders. As part of its commitment to cash return, HF
Sinclair intends to focus on the following strategy:
- Near-term: Reinstate the regular dividend of $0.35/share
no later than the second quarter of 2022.
- Mid-term (next 18 months): Return $1 billion of cash to
stockholders through regular dividends and share repurchases by the
first quarter of 2023.
- Long-term (2023 and beyond): Implement a target payout
ratio of 50% of adjusted net income in the form of regular
dividends and share repurchases.
HEP’s acquisition of Sinclair’s logistics assets is expected to
provide enhanced earnings power, allowing for further deleveraging
and incremental cash return to unitholders. For its commitment to
cash return, HEP intends to incorporate the following strategy:
- Near-term: Continue to reduce leverage while paying a
quarterly distribution of $0.35/unit.
- Mid-term (next 18 months): Reduce leverage ratio to 3.5
times EBITDA while targeting a distribution coverage ratio of 1.5
times. HEP also expects to increase its quarterly distribution with
the option of repurchasing units with excess free cash flow.
- Long-term (2023 and beyond): Maintain leverage ratio
below 3.0 times EBITDA while targeting a distribution coverage
ratio of 1.3 times. HEP expects to continue increasing the
quarterly distribution with the option of repurchasing units with
excess free cash flow.
Advisors
Citi is serving as financial advisor to HollyFrontier, and
Morgan, Lewis & Bockius is serving as HollyFrontier’s legal
counsel. Bank of America Merrill Lynch is serving as financial
advisor to the HEP Conflicts Committee, Bracewell is serving as
HEP’s legal counsel and Morris, Nichols, Arsht & Tunnell LLP is
serving as the HEP Conflicts Committee’s legal counsel. Wachtell,
Lipton, Rosen & Katz is serving as legal counsel to both
HollyFrontier and HEP.
Conference Call and Webcast
HollyFrontier and HEP will host a conference call today at 7:30
AM CT / 8:30 AM ET to discuss the acquisition, along with their
second quarter 2021 financial results.
A live internet broadcast of the call will be available through
the following link:
https://event.on24.com/wcc/r/3347467/55757B35D3CCD93D54C9366AD04CA5C5
About HollyFrontier Corporation:
HollyFrontier Corporation, headquartered in Dallas, Texas, is an
independent petroleum refiner and marketer that produces high value
light products such as gasoline, diesel fuel, jet fuel and other
specialty products. HollyFrontier owns and operates refineries
located in Kansas, Oklahoma, New Mexico, and Utah and markets its
refined products principally in the Southwest U.S., the Rocky
Mountains extending into the Pacific Northwest and in other
neighboring Plains states. In addition, HollyFrontier produces base
oils and other specialized lubricants in the U.S., Canada and the
Netherlands, and exports products to more than 80 countries.
HollyFrontier also owns a 57% limited partner interest and a
non-economic general partner interest in Holly Energy Partners,
L.P., a master limited partnership that provides petroleum product
and crude oil transportation, terminalling, storage and throughput
services to the petroleum industry, including HollyFrontier
Corporation subsidiaries.
About Holly Energy Partners, L.P.:
Holly Energy Partners, L.P., headquartered in Dallas, Texas,
provides petroleum product and crude oil transportation,
terminalling, storage and throughput services to the petroleum
industry, including HollyFrontier Corporation subsidiaries. HEP,
through its subsidiaries and joint ventures, owns and/or operates
petroleum product and crude gathering pipelines, tankage and
terminals in Texas, New Mexico, Washington, Idaho, Oklahoma, Utah,
Nevada, Wyoming and Kansas as well as refinery processing units in
Kansas and Utah.
Forward-Looking Statements
Statements contained herein that are not historical facts are
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Words such as
“anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,”
“strategy”, “intend,” “should,” “would,” “could,” “believe,” “may,”
and similar expressions and statements regarding our plans and
objectives for future operations are intended to identify
forward-looking statements. However, the absence of these words
does not mean that the statements are not forward-looking. These
forward-looking statements include, but are not limited to,
statements regarding the acquisition by HollyFrontier and HEP of
Sinclair Oil Corporation and Sinclair Transportation Company
(collectively, “Sinclair”, and such transactions, the “Sinclair
Transactions”), pro forma descriptions of the combined companies
and their operations, integration and transition plans, synergies,
opportunities and anticipated future performance. Forward-looking
statements are inherently uncertain and necessarily involve risks
that may affect the business prospects and performance of
HollyFrontier and/or HEP, and they are not guarantees of future
performance. These forward-looking statements are based on
assumptions using currently available information and expectations
as of the date thereof that HollyFrontier and HEP management
believe are reasonable, but that involve certain risks and
uncertainties and may prove inaccurate. Therefore, actual outcomes
and results could materially differ from what is expressed, implied
or forecast in these statements. Any differences could be caused by
a number of factors including, but not limited to (i) the failure
of HollyFrontier and HEP to successfully close the Sinclair
Transactions or, once closed, integrate the operations of Sinclair
with their existing operations and fully realize the expected
synergies of the Sinclair Transactions or on the expected timeline;
(ii) the satisfaction or waiver of the conditions precedent to the
proposed Sinclair Transactions, including, without limitation, the
receipt of the HollyFrontier stockholder approval for the issuance
of HF Sinclair common stock at closing and regulatory approvals
(including clearance by antitrust authorities necessary to complete
the Sinclair Transactions) on the terms and timeline desired, (iii)
risks relating to the value of the shares of HF Sinclair’s common
stock and the value of HEP’s common units to be issued at the
closing of the Sinclair Transactions from sales in anticipation of
closing and from sales by the Sinclair holders following the
closing, (iv) legal proceedings that may be instituted against
HollyFrontier or HEP following the announcement of the proposed
Sinclair Transactions, (v) HollyFrontier’s failure to successfully
close its recently announced Puget Sound Refinery transaction or,
once closed, integrate the operations of the Puget Sound Refinery
with its existing operations and fully realize the expected
synergies of the Puget Sound Refinery Transaction or on the
expected timeline; (vi) disruption the Sinclair Transaction may
cause to customers, vendors, business partners and HollyFrontier’s
and HEP’s ongoing business, (vii) the extraordinary market
environment and effects of the COVID-19 pandemic, including a
significant decline in demand for refined petroleum products in the
markets we serve, risks and uncertainties with respect to the
actions of actual or potential competitive suppliers and
transporters of refined petroleum or lubricant and specialty
products in HollyFrontier’s and HEP’s markets, the spread between
market prices for refined products and market prices for crude oil,
the possibility of constraints on the transportation of refined
products or lubricant and specialty products, the possibility of
inefficiencies, curtailments or shutdowns in refinery operations or
pipelines, whether due to infection in the work force or in
response to reductions in demand, effects of current and future
governmental and environmental regulations and policies, including
the effects of current and future restrictions on various
commercial and economic activities in response to the COVID-19
pandemic, and (viii) other factors, including those listed in the
most recent annual, quarterly and periodic reports of HollyFrontier
and HEP filed with the Securities and Exchange Commission (“SEC”),
whether or not related to either proposed transaction. All
forward-looking statements included in this presentation are
expressly qualified in their entirety by the foregoing cautionary
statements. The forward-looking statements speak only as of the
date made and, other than as required by law, HollyFrontier and HEP
undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Additional Information and Where to Find It
The issuance of shares of HF Sinclair common stock to Sinclair
in the proposed transactions (the “Sinclair Stock Consideration”)
will be submitted to HollyFrontier’s stockholders for their
consideration. In connection with the issuance of the Sinclair
Stock Consideration, HollyFrontier will (i) prepare a proxy
statement for HollyFrontier’s stockholders to be filed with the
SEC, (ii) mail the proxy statement to its stockholders, and (iii)
file other documents regarding the issuance of the Sinclair Stock
Consideration and the proposed transactions with the SEC. This
communication is not intended to be, and is not, a substitute for
such filings or for any other document that HollyFrontier may file
with the SEC in connection with the issuance of the Sinclair Stock
Consideration or the proposed transactions. SECURITY HOLDERS ARE
URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING
THE PROXY STATEMENT, CAREFULLY WHEN THEY BECOME AVAILABLE, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION. The proxy statement and
other relevant materials (when they become available) and any other
documents filed or furnished by HollyFrontier with the SEC may be
obtained free of charge at the SEC’s web site at www.sec.gov. In
addition, security holders will be able to obtain free copies of
the proxy statement from HollyFrontier by going to its investor
relations page on its corporate web site at
www.hollyfrontier.com.
Participants in Solicitation
HollyFrontier and its directors and certain of its executive
officers and employees may be deemed to be participants in the
solicitation of proxies in connection with the issuance of the
Sinclair Stock Consideration. Information about HollyFrontier’s
directors and executive officers is set forth in its definitive
proxy statement filed with the SEC on March 25, 2021. The proxy
statement is available free of charge from the sources indicated
above and from HollyFrontier by going to its investor relations
page on its corporate web site at www.hollyfrontier.com. Additional
information regarding the interests of participants in the
solicitation of proxies in connection with the issuance of the
Sinclair Stock Consideration will be included in the proxy
statement and other relevant materials HollyFrontier files with the
SEC in connection with the proposed transactions.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210803005322/en/
HollyFrontier Corporation Craig Biery, 214-954-6510 Vice
President, Investor Relations or Trey Schonter, 214-954-6510
Investor Relations
Media Contact media@hollyfrontier.com
HollyFrontier (NYSE:HFC)
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