Sunoco Spins Off Coke Business – Analyst Blog

Philadelphia, Pennsylvania-based Sunoco Inc. (SUN) announced its plans to spin off the metallurgical coke manufacturing business, SunCoke Energy, from the rest of the company. The split is expected to shoot up the value of the shares.

 

With the separation coming into effect in the first half of 2011, Sunoco plans to create two well-positioned businesses. SunCoke Energy will transform itself into a major, high-class metallurgical coke manufacturer operating in U.S. and abroad, while Sunoco will focus on Refining, Supply, Logistics and Retail Marketing businesses only to emerge as a leading supplier of transportation fuels. The company further expects the refining segment to generate profit in the second quarter of 2010, reflecting the impact of the various business development strategies.

 

After being fully operational in the second half of 2011, SunCoke Energy will start operating from the newly-constructed plant in Middletown, Ohio, with a slated capacity to produce 550,000 tons of coke and 46 megawatts of electricity annually. SunCoke recently declared its plans to increase production from its metallurgical coal mines to approximately 1.75 million tons from 1.25 million tons annually.

 

The spin-off is subject to market, regulatory and other conditions, and the company is currently in the process of evaluating a variety of potential separation transactions, including a tax-free spin-off of SunCoke Energy to Sunoco shareholders.

 

Management believes Sunoco will follow a well coordinated strategic plan, invest in growth opportunities and strengthen the balance sheet post the separation. Sunoco’s robust, brand-led retail growth platform, combined with the growth potential of Sunoco Logistics Partners L.P. (SXL), will offer additional opportunities to augment the company’s competitive profile.