Energy Transfer Partners L.P. (NYSE: ETP) announced this morning that it will acquire Sunoco Inc. (NYSE: SUN) in a cash and common unit deal worth $5.3 billion. The transaction gives ETP an entry into the transportation of liquids like crude oil, natural gas liquids, and refined products as well as Sunoco’s retail business that includes some 4,900 locations in the US.

Sunoco shareholders will receive payment equal to $25 in cash and 0.5245 ETP common units for each share of Sunoco stock they own. Sunoco shareholders can choose to take $50 in cash, 1.0490 ETP common units, or the cash-common unit split, although the aggregate cash paid will be capped at 50%.

ETP also receives the general partner interest, incentive distribution rights, and 32.4% Sunoco interest in Sunoco Logistics Partners (NYSE: SXL).The owner of ETP’s general partner, Energy Transfer Equity L.P. (NYSE: ETE) will forego its right to about $210 million in incentive distributions from ETP over the next 12 quarters as part of the deal. After the deal closes Sunoco and Sunoco Logistics Partners “will operate under the Energy Transfer Equity, L.P. umbrella of companies.”

One thing that ETP won’t get is Sunoco’s refining business:

[U]nder the merger agreement, Sunoco will continue its plans for exiting its refining business as previously announced, as well as continue its plans for the proposed refinery joint venture being discussed by Sunoco and The Carlyle Group.

The joint-venture deal with Carlyle would keep Sunoco’s 335,000 barrel/day Philadelphia refinery in operation. As currently being discussed, Sunoco would contribute the Philadelphia refinery to a joint venture with Carlyle in exchange for a non-operating minority stake. The company would have no obligations to support the refining operations.

This acquisition is a pretty smart move for ETP. Its current cash flow comprises 100% natural gas transportation and logistics, and the Sunoco deal cuts the company’s natural gas cash flow to 70% of the firm’s total and adds a 30% cash flow from liquids transportation. Given the turmoil in natural gas production and pricing, ETP’s diversification into liquids couldn’t have come at a better time.

Sunoco’s shares are trading up 21% at $49.50 in the pre-market this morning, above the company’s 52-week range of $27.76-$43.43. ETP’s shares are up about 2.9% at $49.29 in a 52-week range of $38.08-$54.71.

Paul Ausick

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