Alon Pumping $359M Into Five-State Deal

DALLAS-Pending regulatory approval, Alon USA Energy Inc. will take control of three refineries and seven asphalt terminals in five states in a $459-million deal with two competitors. The first transaction is planned to close at month's end and the second in June.

The Dallas-based Alon USA, 75% fueled by Alon Israel, is poised for its largest play in its six-year history. In the first closing, Alon will pay $52 million in cash to Edgington Oil Co. of Long Beach, CA, for an 18-acre asphalt terminal at 2400 E. Artesia Blvd. and a to-be-determined amount for inventory. In the second closing, Alon will fork over $307 million in cash, assume $100 million of debt and get $105 million of working capital for Paramount Petroleum Co.'s assets in Arizona, California, Nevada, Oregon and Washington. The deal includes Paramount's 50% interest in Wright Asphalt Products Co., which has Texas facilities in Houston, Corpus Christi and beside Alon's Big Spring terminal and locations in Phoenix, Tulsa, OK and Portland, OR.

Claire Hart, Alon USA's senior vice president, says Paramount's corporate chiefs are holding onto some acreage beside the 65-acre Richmond Beach terminal in Seattle's Puget Sound. In Paramount, CA, the real estate at 14700 Downey Ave. is a densely packed 60 acres holding a crude oil refinery and asphalt terminal with expansion capabilities for a hydro skimmer. The refinery recently underwent a retooling so it can also produce high-value carb diesel and Carbob gasoline. Other real estate is the 42-acre Willbridge refinery in Portland, 105 miles of pipeline and asphalt terminals totaling 134 acres in Mojave and Elk Grove, CA; Reno, NV; and Phoenix. The deal includes facilities in Flagstaff and Fredonia, AZ, but they sit on leased land, according to Hart.

Alon USA president Jeff Morris told analysts yesterday that $10 million of non-refundable earnest money has been placed on the Paramount deal and $5 million is resting on the Edgington transaction. If the Paramount sale doesn't close by June 30, Alon can get a one-month extension for another $15 million of non-refundable cash.

"I don't know that we could have put together two better deals," Morris said, citing the marriage of industry expertise between Paramount and Alon. The end result will be stepped up production, cross marketing and expansion opportunities at several locations for new generation products.

"These two acquisitions will more than double our refining capacity, improve our risk profile as and single refiner and allow us to expand into higher value-added asphalt business," David Wiessman, CEO for Alon USA, said in yesterday's press release. Alon USA, which went public in July 2005, markets gasoline and diesel under the FINA brand from its Big Spring refinery and asphalt terminal and owns 167 convenience stores in Texas and New Mexico.

Hart tells GlobeSt.com that there have been two months of serious talks for the off-market acquisitions of its competitors' industrial sites. "We liked the numbers," he says. "We think it seems like a reasonable investment from our perspective." Net EBITDA for common shareholders is projected at $28 million based on a three-year average pricing.

Hart says the plan is to move all headquarters functions to Dallas, where Alon fills nearly two full floors in Park Central I at 7616 LBJ Freeway. Though it's not in the immediate plan, he says more office space will be needed as Alon maps out future acquisitions.

Morris says the dual acquisition is being funded at less than 50% leverage in a senior credit facility with Credit Suisse First Boston. He says the plan is to de-lever the seven-year facility as quickly as possible, perhaps in "two to three years." Deutsche Bank Securities Inc. was financial adviser and Gibson, Dunn & Crutcher and Songstad & Randall were legal advisers to Paramount. Alon's legal adviser is Jones Day.

Morris says Alon's strategy keeps enough capital in place for additional acquisitions. Though he wouldn't commit to analysts, he did acknowledge Alon at one point looked at one of the two Citgo refineries that hit the market over the weekend. Right now, the plan is to get its arms around the Paramount and Edgington facilities. "We have enough to do right now," he said.