Oil refiner Sunoco Inc. (SUN) signed an agreement with Honeywell International (HON) for the sale of its Frankford phenol and acetone plant. The price of the Philadelphia-based facility and its inventory is estimated at $85 million, based on market value.
Sunoco will likely incur non-cash pre-tax charges of approximately $125 million to $150 million from the sale, primarily in the second quarter of 2011. The deal, pending regulatory approval and customary closing conditions, is expected to be closed in the third quarter of 2011.
The purchaser, Honeywell, plans to retain the 162 employees working in the manufacturing unit that produces phenol (used in resins), nylon fibers and solvents, as well as acetone (used in plastics), signs, plexiglass and paints.
The disposition forms a part of Sunoco’s strategy to streamline non-core assets and redesign its asset base. The company intends to concentrate on its high-value and profit generating retail and logistics business units.
Sunoco manufactures and markets various petroleum, commodity and intermediate petrochemicals products in the U.S. The company operates in five segments: Refining and Supply, Retail Marketing, Chemicals, Logistics, and Coke.
We believe that Sunoco faces several operational disturbances along with increased unscheduled downtime that are expected to pull the shares down in the coming months. The company also lacks geographic diversification, with about three quarters of its capacity located in the Northeast.
Considering these factors, we expect Sunoco shares to perform under pressure in the near future and maintain our long-term Underperform rating on the stock.
HONEYWELL INTL (HON): Free Stock Analysis Report
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