The following is an excerpt from ANDREW BARY | September 8, 2012 | Barrons.com |
Tesoro, the West Coast oil refiner, may have pulled off the acquisition of the year when it reached a deal last month to purchase a large California refinery from BP for $1.175 billion.
By Tesoro’s calculations, it paid virtually nothing for the refinery—in Carson, south of Los Angeles—when considering other assets included in the deal, such as pipelines, other energy infrastructure, gas stations, and the ARCO brand. The BP (ticker: BP) refinery could be worth $1.5 billion or more, which is significant relative to Tesoro’s (TSO) market value of $5.6 billion.
Wall Street liked the transaction, and it has warmed to the entire group of domestic oil refiners this year. The five major independents, Marathon Petroleum (MPC), Phillips 66 (PSX), HollyFrontier (HFC), Valero Energy (VLO), and Tesoro, are up an average of 50% in 2012, making refiners one of the market’s top-performing groups.
Tesoro is among the best of the bunch, with a 69% gain to $40. A further advance could be in store because of the company’s enhanced West Coast muscle. Tesoro CEO Gregory Goff called the deal “transformational” and “immediately and highly accretive to earnings.” Investors pushed Tesoro stock up about 10% afterward. The shares still look appealing, trading for 6.8 times projected 2012 profit of $5.84 a share.
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