Expanded SunCoke IPO Unlocks Sunoco Value (SXC, SUN)

SunCoke Energy, Inc. (NYSE: SXC) has announced the pricing of its initial public offering of 11,600,000 shares of common stock at $16.00 per share.  As a reminder, SunCoke Energy will not receive any of the proceeds of the offering as it is a subsidiary of Sunoco, Inc. (NYSE: SUN) and Sunoco will still own approximately 83% of SunCoke after the IPO.

SunCoke has a 45-year history of producing metallurgical coke and is the largest independent producer of coke in the Americas.  Metallurgical coke is a principal raw material in steelmaking. The company owns and operates four U.S.-based  metallurgical cokemaking facilities and one facility in Brazil, but it is also constructing a fifth U.S. facility that is expected to go on-line late this year.

SunCoke has managed to grow as its revenues grew from $458 million in 2006 to $1.3 billion in 2010, while earnings grew from under $37 million in 2006 to $139 million in 2010.  For the quarter ending March 31, 2011 SunCoke reported that earnings fell 70% to $11.8 million from a year earlier on increased expenses.

Credit Suisse, BofA Merrill Lynch, and Goldman Sachs are the joint book-running managers for the offering, and these underwriters have the option to purchase up to an additional 1,740,000 shares to cover over-allotments.

The implied valuation of SunCoke is close to $1.1 billion, which compares to about $5.1 billion in market capitalization for Sunoco itself.

While this is certainly different from a Web 2.0 version of IPOs with low floats, when company’s unlock value in this fashion it does leave a large overhang for shareholders as the parent company can always sell more shares down the road if large appreciation is seen.

JON C. OGG