Sunoco Logistics Partners L.P. (SXL) agreed to acquire a butane blending business from Texon L.P. for $140 million plus inventory. The business includes a patented technology for sophisticated blending of butane into gasoline, butane inventory, contracts with large terminal operators and other related assets.
 
The deal is expected to be funded by a combination of a loan of $100 million from its general partner Sunoco Inc. (SUN) and its revolving credit facility. The partnership said that the transaction is immediately accretive to cash flow and expected to be completed on July 1.
 
The process of butane blending has been adopted by terminal operators seeking to meet the stringent product quality specifications. Sunoco Logistics has been successfully utilizing this method at its terminals. In our view, the partnership will further benefit from Texon’s proven patented technology.
 
We believe that the partnership’s synergistic relationship with Sunoco Inc. is beneficial on two accounts. Firstly, a sound fee-based relationship with Sunoco shields it from competitive pressures in the MLP (master limited partnership) space and provides it with stable cash flows and consistent top-line growth opportunities. Secondly, the partnership continues to leverage its relationship with Sunoco to make joint acquisitions.
 
With its low-risk and stable cash flow-generating energy infrastructure assets, Sunoco Logistics offers investors an opportunity to capture income growth through steadily rising cash distributions and capital appreciation.
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