Buckeye Announces Acquisition of Hess’ Terminal Assets

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Last week, Buckeye announced it has agreed to acquire Hess’ terminal assets spanning the East Coast and Caribbean for $850 million. The addition of 39 million barrels of storage increases Buckeye’s storage capacity by more than 50% to 112 million barrels and complements the partnership’s existing wide-moat footprint very well, in our view.

In particular, Buckeye will gain 15 million barrels of capacity in the New York Harbor area and 10 million barrels of capacity at St. Lucia in the Caribbean, which are positioned near Buckeye’s pipeline and terminal assets in New York and New Jersey, and BORCO marine terminal in the Bahamas, respectively. Additionally, Hess is set to be an anchor tenant with four-year storage and throughput contracts and minimum revenue commitments.

After integration and $30 million in additional investment, the partnership expects the assets to bring returns equivalent to about 8 times EBITDA in 2015, which seems attractive. However, the acquisition multiple paid, while not disclosed, is likely in the double digits. The transaction is expected to close in the fourth quarter. Partly to fund the acquisition, Buckeye also raised about $500 million new equity capital last week at $62.61 per unit.

We’ve updated our fair value estimate to $68 per unit to reflect the both the Hess acquisition and the time value of money.

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