Spin-Off Research Blog (The Spin Doctor)

Sunoco Spin-Off: Sunoco to Complete SunCoke Spin Off in January

Posted by Joe Cornell, CFA on Thu, Dec 01, 2011 @ 02:57 PM

Today Sunoco Inc. (NYSE: SUN-$38.92, market cap $4.15 billion) announced it will complete the spin-off of its metallurgical coke manufacturing business by issuing a special stock dividend to shareholders. The company said that its board of directors approved a stock dividend of the 56.66 million shares of SunCoke Energy (NYSE: SXC-$10.95, market cap $766 million) that it still owns after SunCoke's initial public offering on July 21, 2011.  Sunoco had retained an 80.94 percent controlling stake in the producer of coke, which is used in the steel industry.

Sunoco shareholders will receive 0.53 of a share of SunCoke common stock for each share of Sunoco common stock held as of January 5th.  The distribution of the SunCoke shares will occur on January 17, 2012. Each share of SUN has $5.80 worth of SunCoke Energy embedded. This suggests that the implied Sunoco “stub” value is $33.11 per share (SUN without SXC).

Sunoco operates three refineries, with a total processing capacity of 675,000 barrels of crude oil a day, and it has 5,400 miles of oil and 2,200 miles of refined products pipelines and more than 40 product terminals. More than half of its crude oil is sourced from West Africa. It markets its Sunoco gasoline through more than 4,920 retail outlets (including Ultra Service Centers and APlus convenience stores) in 23 states. Sunoco produces lubricants, mines coal for coke processing, and produces chemicals. In 2011 the company announced plans to exit the refining business.

SunCoke Energy is one of North America's largest coke producers, SunCoke produces metallurgical coke (a coal-derived fuel used in steel production) for steel companies. Its five owned and operated plants -- located in Virginia, Indiana, Ohio, Illinois, and Vitória, Brazil (operated only) -- can produce an aggregate 5 million tons of coke per year. To support its coke production, the company also has coal mining operations in Virginia and West Virginia. Major customers have included ArcelorMittal, US Steel, and AK Steel. SunCoke, a spin-off from Sunoco, went public on July 21, 2011 at $16 per share. We value SXC at $937 million or $13.38 per share based on a peer group average valuation FY12 EBITDA multiple of 5.3x. (See November 2011 Issue of Spin-Off Research).

SunCoke Energy Provides 2012 Outlook

On November 29, 2011, SunCoke Energy provided an outlook for its business in 2012 including guidance on coke and coal production, earnings, capital expenditures and other key financial measures.

"2011 was a foundational year for SunCoke and one that positioned us well for the future." said Frederick "Fritz" A. Henderson, Chairman and Chief Executive Officer of SunCoke Energy, Inc. "In 2012, we expect adjusted EBITDA to be between $250 million to $280 million, a projected increase of at least $100 million versus 2011. We expect this projected increase will be driven by production at our new Middletown, Ohio facility, year-over-year improvement in our Indiana Harbor operations and higher sale prices and production volumes in our coal mining segment."

Henderson continued, "In addition, in 2012 we expect to make further progress on our long-term strategic objective to grow our global cokemaking business by focusing on our entry into India and obtaining permits for a new U.S. cokemaking plant in anticipation of an eventual market recovery."

SunCoke also noted that capital expenditures and investments in 2012 are expected to be approximately $150 million, including a potential $30 million investment in India, versus an estimated $280 million in 2011. This anticipated lower level of capital spending reflects lower expansion capital requirements due to the completion of the Middletown facility. Free cash flow is expected to be in excess of $50 million in 2012. In addition, in 2012, SunCoke expects corporate costs to be between $30 million to $35 million, its effective tax rate to be between 20 percent and 24 percent and earnings per share to be between $1.30 and $1.65 based on 70 million shares outstanding.

Members of SunCoke's senior management presented at the following investor conferences:

  • Frederick "Fritz" A. Henderson, Chairman and Chief Executive Officer, and Mark Newman, Senior Vice President and Chief Financial Officer, will present at the Goldman Sachs Global Steel Conference in New York, NY at 9:30 a.m. ET on Tuesday, November 29, 2011.
  • Mark Newman, Senior Vice President and Chief Financial Officer will present at the Bank of America Merrill Lynch Leveraged Finance Conference in Orlando, FL at 2:00 p.m. ET on Wednesday, November 30, 2011.

These presentations are archived for replay for a limited time in the Investor Relations section of the Company's website at www.suncoke.com.


Topics: Sunoco, SUN, SunCoke, SXC, Sunoco Spin-Off, SUN Spin-Off