An MLP Giant on the Horizon

Before market open on Nov. 21, Sunoco Logistics and

Management painted the rationale for the transaction as a way for the Energy Transfer family to more effectively compete and grow in an increasingly competitive midstream environment. The combined entity will have a footprint spanning gas and liquids businesses in the most attractive basins (Permian and Marcellus, in particular) that rivals the largest MLPs in the sector.

We welcome simplification of the ownership structure of the Energy Transfer family of companies. Nevertheless, it is clear investors are concerned about the ultimate beneficiary of this transaction. The investment theses for Sunoco Logistics and Energy Transfer Partners have changed. Sunoco Logistics, previously the growth engine of the Energy Transfer family, is now facing a moderated growth profile and different developmental focus with ETP. ETP sees bigger capital commitments and a potential shift in growth priorities. The seeming winner in this transaction is Energy Transfer Equity, which sees streamlined costs and improved capital availability because its LPs eliminate the need to provide further relief in distribution coverage.

We maintain our fair value estimates at this time.

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