Holly and Frontier merge to create HollyFrontier
Holly Corp. and Frontier Oil Corp. have merged. Factoring in various variables, it can be safely interpreted that the new company has an enterprise value of $7 billion.
The new company, which will be named HollyFrontier Corp, will have a well-positioned refining asset base and enhanced growth opportunities. According to the Holly marketing department, the combination of Frontier and Holly will create the most profitable (on a per barrel basis) independent refiner in the US, serving the niche Mid-Continent, Rocky Mountain and Southwest refining markets and will have access to growing regional domestic and Canadian crude oil supplies.
HollyFrontier will be headquartered in Dallas, Texas, the location of Holly’s current headquarters. Mike Jennings, current chairman of Frontier, will serve as CEO of the combined company. Matt Clifton, current Holly CEO, will serve as executive chairman of the combined company. Following the closing of the transaction, the board of directors of the new company will consist of the seven current Frontier board members and the seven current members of the Holly board.
Under the terms of the agreement, Frontier shareholders will receive 0.4811 Holly shares for each share of Frontier common stock. Upon closing of the transaction, Holly shareholders are expected to own approximately 51% and Frontier shareholders are expected to own approximately 49% of the combined company. The transaction is structured to be tax-free to the shareholders of both companies.
Frontier plans to pay a $0.28 per share special dividend on March 21, 2011, to all Frontier shareholders of record on March 7, 2011. Frontier also plans to reinstate its regular quarterly dividend of $0.06 per share, which will also be payable on March 21, 2011, to shareholders of record on March 7, 2011. Holly expects to continue to pay dividends at the current level through the closing of the merger. Holly pays an annual dividend of $0.60 per share. Following the completion of the merger, it is expected that the HollyFrontier board will adopt a dividend policy appropriate to build long-term shareholder value.
Increased scale, asset diversity and competitiveness. The combined company’s expanded footprint will allow for an increase in refining capacity in fast growing, traditionally high demand areas while maintaining significant exposure to the growing supply of lower cost domestic and Canadian crude oil. The HollyFrontier combination strengthens both companies’ strategic position by diversifying revenues, expanding infrastructure and increasing the scale of its assets. The new company will have a refining capacity in excess of 440,000 bpd across five refineries.
Significant synergy opportunities. The transaction is expected to generate value through total annual cost savings of at least $30 million through reduced SG&A expenses and increased operational efficiencies.
Financial strength and flexibility. Frontier and Holly expect the combination to be accretive to Holly’s earnings per share based on analysts’ consensus estimates and excluding one-time expenses related to the merger. The increased scale and diversity of assets, coupled with the combined company’s strong balance sheet, create the possibility for cost-of-capital synergies and a stronger corporate credit profile. In addition, the combined company will be better positioned to take advantage of future strategic opportunities including growth in its logistics and marketing operations facilitated by collaboration with Holly Energy Partners.
The transaction is expected to be completed early in the third quarter of 2011. It is subject to, among other things, approval by both companies’ shareholders and other customary closing conditions, as well as clearance under the Hart-Scott-Rodino Act.
Deutsche Bank Securities Inc. and Morgan Stanley & Co. are acting as financial advisors to Holly and Vinson & Elkins is acting as its legal advisor. Citi and Credit Suisse Securities (USA) are acting as financial advisors to Frontier and Andrews Kurth is acting as its legal advisor.
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