Independent refiner and marketer of petroleum products Tesoro Corporation TSO is rumored to have renewed its interest in smaller rival HollyFrontier Corporation HFC, per a report by Reuters on Friday.
Shares of Tesoro gained about 1%, while HollyFrontier shares increased over 3%. The HollyFrontier stock also saw a surge in trading volume on the day. 6,414,134 shares exchanged hands compared with the three-month average of 3,326,180. This increase in stock activity is reportedly attributable to the rumor.
In the first quarter of this year, Tesoro and HollyFrontier had entered into negotiations over a takeover deal. However, the deal did not come to a closure as HollyFrontier was not satisfied by the bid offered by Tesoro. The proposed price was also not disclosed.
A successful buyout would give Tesoro access to the high-margin Rocky Mountain region. With low crude prices resulting in high profits for refiners like Tesoro, gaining access to strategic locations would improve its position among peers.
Currently, Tesoro sports a Zacks Rank #1 (Strong Buy) and HollyFrontier holds a Zacks Rank #2 (Buy).
Weak crude prices have spurred a number of merger and acquisition (M&A) activities in the energy space. The $70 billion dollar Shell RDS.A-BG Group merger remains the highlight deal. The recent Energy Transfer Equity ETE-Williams WMB merger agreement has also been in the headlines. Find the top five deals of 2015 here.
With oil prices remaining below the psychologically important $50 per barrel level, energy investors should brace themselves for more M&A activities ahead.
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