Northern Tier Sets Vote on Western Refining Merger

EL PASO, Texas — Western Refining Inc.'s bid to join with Northern Tier Energy LP will head to vote next month, six months after the two companies reached a definitive merger agreement.

Northern Tier unitholders will meet on June 23 to cast votes on the proposed deal and all other related matters, according to Jeff Beyersdorfer, Western's senior vice president-treasurer and director of investor relations. His remarks came during the company's first-quarter earnings call Tuesday morning.

Northern Tier common unitholders of record at the close of business on May 19 will be eligible to cast a vote on June 23, added Paul Anderson, vice president of investor relations at Northern Tier.

The scheduled vote comes as Western submitted a second amendment to its S4 registration statement with the Securities and Exchange Commission (SEC), which is conducting the customary review, Beyersdorfer explained. The same day, April 19, Northern Tier filed an amendment to its Schedule 13E3. It also currently under customary review by the SEC, according to Anderson.

Western and Northern Tier anticipate closing the deal shortly after the vote.

Western's Q1

"From an operational perspective, the start of 2016 has been very solid," said Jeff Stevens, Western's president and CEO.

In the quarter ended March 31, net income attributable to Western, excluding special items, was $11.6 million. This compares to first-quarter 2015 net income, excluding special items, of $113.3 million. Including special items, the company recorded first-quarter 2016 net income attributable to Western of $30.5 million, compared to net income attributable to Western of $106 million for the first quarter of last year. 

Stevens noted the company saw a strong start to its retail business. Fuel volumes were up 7 percent and merchandise sales were up 5 percent on a same-store basis for the quarter, compared to the first quarter of 2015. 

"We continue to see vehicle miles traveled increase primarily due to lower gasoline prices. In the West, vehicle miles traveled is up about 4.5 percent compared to last year," the chief executive explained. 

Retail fuel margins were consistent with prior first-quarter results and Western Refining expects to see strong retail demand in the Southwest as the company moves into the summer. 

Stevens also noted that the second quarter is off to a good start. Retail fuel volume demand on a same-store basis was up 5 percent in April compared to last year. 

Assuming a successful Northern Tier vote, after the merger closes, we hope to complete a sale of either Western Refining or Northern Tier assets to Western Refining Logistics LP toward the end of the third quarter, he explained. "We expect the assets sold will have EBITDA in the range of $20 million to $25 million," Stevens added.

El Paso-based Western Refining is an independent refining and marketing company. Its retail segment includes retail service stations, convenience stores and unmanned fleet fueling locations in Arizona, Colorado, New Mexico and Texas.

Western Refining owns the general partner and approximately 66 percent of the limited partnership interest of Western Refining Logistics, and the general partner and approximately 38 percent of the limited partnership interest in Northern Tier.

Northern Tier's Q1

In its first-quarter earnings call Tuesday afternoon, Northern Tier reported first-quarter 2016 net income of $14.7 million, compared to $111.2 million for first-quarter 2015. The company's results included non-cash lower of cost or market (LCM) inventory adjustment benefits of $11 million and $10.8 million, respectively. Excluding the LCM adjustments and other special items, adjusted net income was $4.1 million for the first quarter, compared to $100.4 million for the prior-year quarter.

Adjusted EBITDA for the first quarter was $28.2 million, down from $123.2 million in same period last year, due primarily to lower gross margins per barrel. 

In retail, Northern Tier expanded its footprint by adding one company-operated store in January and five franchisee stores over the quarter, according to Dave Lamp, Northern Tier CEO. This growth "increased fuel sales via our integrated marketing channel by 7 percent compared to the same quarter last year."

In the first quarter, same-store retail fuel sales year over year were down about 2 percent, and the company is seeing similar results to date in the second quarter, Lamp noted. 

"We are growing market share and we are doing that by franchising and building new stores, so I think that has some impact on it," he explained. "We are in the process of reviewing all our programs to turn that number. Vehicle miles driven in our market are up, so we should be up on same-store sales and we're looking at it hard."

Tempe, Ariz.-based Northern Tier is an independent downstream energy company with refining, retail and logistics operations. It operates approximately 169 convenience stores and supports approximately 114 franchised convenience stores, primarily in Minnesota and Wisconsin, under the SuperAmerica trademark. The company also owns a bakery and commissary under the SuperMom's brand.