HollyFrontier : Transcript

Raw Transcript

03-Aug-2021

HollyFrontier Corp. (HFC)

Q2 2021 Earnings Call - Acquisition of Sinclair Oil Corporation and Sinclair Transportation Company

	Total Pages: 29
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HollyFrontier Corp. (HFC)

Q2 2021 Earnings Call - Acquisition of Sinclair Oil Corporation and Sinclair	Raw Transcript
Transportation Company	03-Aug-2021

CORPORATE PARTICIPANTS

Craig Biery	Timothy Go
Vice President-Investor Relations, HollyFrontier Corp.	Executive Vice President & Chief Operating Officer, HollyFrontier Corp.
Michael C. Jennings	Thomas G. Creery
Chief Executive Officer, President & Director, HollyFrontier Corp.	President-HollyFrontier Refining & Marketing, HollyFrontier Corp.
Richard Lawrence Voliva	Bruce A. Lerner
President, HollyFrontier Corp.	President-HollyFrontier Lubricants & Specialties, HollyFrontier Corp.

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OTHER PARTICIPANTS

Ryan M. Todd	Manav Gupta
Analyst, Piper Sandler & Co.	Analyst, Credit Suisse Securities (USA) LLC
Theresa Chen	Kalei Akamine
Analyst, Barclays Capital, Inc.	Analyst, Bank of America Merrill Lynch
Paul Y. Cheng	Jason Gabelman
Analyst, Scotia Capital (USA), Inc.	Analyst, Cowen and Company, LLC
Phil Gresh
Analyst, JPMorgan Securities LLC

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HollyFrontier Corp. (HFC)

Q2 2021 Earnings Call - Acquisition of Sinclair Oil Corporation and Sinclair	Raw Transcript
Transportation Company	03-Aug-2021

MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to HollyFrontier's and Holly Energy Partners Investor Conference Call. At this time, all participants have been placed in listen-only made. The call begin - will open for your questions following the presentation. As a reminder, this conference call is being recorded and the press release and slide presentation regarding today's announcements are available on the Investor Relations section of the HollyFrontier and Holly Energy Partners websites. The archived replay can also be accessed on both websites following the call.

I will now turn the call over to your host, Craig Biery, Vice President of Investor Relations. Mr. Biery, you may now begin.

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Craig Biery

Vice President-Investor Relations, HollyFrontier Corp.

Thank you, Loryn. Good morning, everyone, and thank you for joining us. On the call with me today are Mike Jennings, Chief Executive Officer and President of HollyFrontier and Chief Executive Officer of Holly Energy Partners; and Rich Voliva, Executive Vice President and Chief Financial Officer of HollyFrontier and President of Holly Energy Partners. We are also joined by Tim Go, Executive Vice President and Chief Operating Officer of HollyFrontier; and Tom Creery, President of HollyFrontier Renewables.

Before we proceed with remarks, please note the Safe Harbor disclosure statement in today's press release. In summary, if such statements are made regarding management expectations, judgments or predictions or forward- looking statements, these statements are intended to be covered under the Safe Harbor provisions of federal security laws.

There are many factors that could cause results to differ from expectations including those noted in our SEC filings. The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliations to get financial measures. Also, please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript.

And with that, I'll turn the call over to my Mike Jennings.

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Michael C. Jennings

Chief Executive Officer, President & Director, HollyFrontier Corp.

Hey. Thanks, Craig, and good morning, everyone. We are thrilled to share the news this morning that HollyFrontier Corporation and Holly Energy Partners have entered into definitive agreements with the Sinclair companies. In light of that, we'll be doing things a little differently on the call today. Rich and I will first walk through the transactions and the expected benefits they will create for HollyFrontier, Holly Energy Partners, and our shareholders. After that, Rich will briefly review HFC and HEP's results for the quarter before we turn it over for questions.

Starting on slide 3, to put it simply, the acquisition of Sinclair's assets will be transformative for both HollyFrontier and Holly Energy Partners. It diversifies and scale HollyFrontier's portfolio with the addition of Sinclair's iconic

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HollyFrontier Corp. (HFC)

Q2 2021 Earnings Call - Acquisition of Sinclair Oil Corporation and Sinclair	Raw Transcript
Transportation Company	03-Aug-2021

brands and integrated distribution network, its renewable diesel business which was a first-mover in the space, and its two complementary refineries in the Rocky Mountain region.

And we expect it will strengthen our financial position, increasing our earnings cash flow and free cash flow within the first year, positioning us to increase returns to shareholders while we deepen our commitment to ESG and sustainability. For HEP too, this transformative transaction provide strategic and financial benefits. With the addition of Sinclair's integrated network of pipelines and storage facilities, HEP will have the scale and incremental earnings power to capture new growth opportunities and focus on increasing returns to unitholders.

Turning to slide 4, this transaction follows a decade of growth since the merger of Holley and Frontier. We've spent the greater part of that period expanding our refining business, building our renewables business, establishing and growing our lubricants business, and benefiting from our interest in Holly Energy Partners.

Since 2011, we've returned more than $3.6 billion in cash through special and regular dividend, and an additional $2.3 billion through share repurchases. Similar to our 2011 merger, we believe these transactions with Sinclair represent an inflection point for our company. We know the holding family well and have deep respect for the brand and the business they and generations of Sinclair employees have built over the last century plus. We're pleased that Sinclair will retain a significant stake in our combined companies. And we're incredibly excited about beginning this next chapter as HF Sinclair.

I'll turn now to a brief overview of the details of the transactions on slide 5. First, the HollyFrontier transaction. HollyFrontier is acquiring Sinclair's branded marketing business and all commercial activities related thereto, which build upon an iconic brand with exceptional customer loyalty. Also, Sinclair's renewable diesel business and Sinclair's two Rocky Mountain-based refineries. Sinclair's hospitality ranching and upstream oil and gas businesses are not part of this transaction. HollyFrontier will create a new publicly traded holding company named HF Sinclair Corporation. Sinclair shareholders will receive approximately 60.2 million shares in the newly formed HF Sinclair equal to 26.75% of the company.

HollyFrontier's existing shareholders will own 73.25% of the equity or approximately 164.9 million shares of the common stock of HF Sinclair. As a result, each outstanding share of HollyFrontier common stock will convert into one share of HF Sinclair common stock at the closing. The all-stock transaction has a value of $1.8 billion based on HollyFrontier's closing stock price on July 30, 2021, and Sinclair comes with no debt. Upon closing, HollyFrontier's existing senior management tea will operate the combined company and Sinclair has been granted the right to nominate two directors to HF Sinclair Board of Directors at the closing. The transaction is expected to close in mid-2022.

And now, I'll turn the call to Rich.

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Richard Lawrence Voliva

President, HollyFrontier Corp.

Thank you, Mike. Good morning, everybody. Turning to slide 6, HEP will acquire Sinclair's integrated crude and refined product pipeline internal assets comprised of 1,200 of pipeline, eight product terminals, and two crude terminals with 4.5 million barrels of operating storage. It will also acquire Sinclair's interest in three midstream joint ventures for crude gathering and product off-take including Powder Flats Pipeline, Pioneer Pipeline, and the remaining interest in the UNEV Pipeline of which we already own a significant stake.

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HollyFrontier Corp. (HFC)

Q2 2021 Earnings Call - Acquisition of Sinclair Oil Corporation and Sinclair	Raw Transcript
Transportation Company	03-Aug-2021

Critically, this transaction provides additional scale and earnings power to HEP. It's expected add $70 million to $80 million of annual EBITDA.

Over 75% of the revenue on these assets will be supported by long-term minimum volume commitments HF Sinclair. Under the terms of the HEP transaction, Sinclair shareholders will receive $21 million HEP common units and $325 million of cash for total consideration of $758 million based on HEP's closing price on July 30, 2021. On closing of the acquisition, HEP's existing senior management team will continue to operate the company and Sinclair has been granted the right to nominate one director for the HEP board at closing.

The HEP transaction is also expected to close in mid-2022.

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Unverified Participant

Thanks, Rich. So, turning to slide 7, HF Sinclair will be well-positioned for the next decade and beyond. We expect to generate shareholder value through strong free cash flow, increased earnings per share as well as realizing synergies all of which underpin a commitment to deliver enhanced cash returns to shareholders and will fuel our continued growth.

Moving to slide 8. HollyFrontier and Sinclair share a common philosophy on commitments to environmental stewardship, sustainability, and strong corporate governance that will endure and be strengthened within HF Sinclair. The transaction will increase the scale of our renewable diesel business. This is a critical step forward as we diversify our business for a low carbon future. Our cultures also share a deep commitment to safety which is important to us as we strive every day to put our people first, do right by our communities, and manage risk.

We also take very seriously the responsibility for supplying the exceptional products that provide our customers with mobility and quality of life. And at the governance level, our board is equipped with the right mix of skills and experience to oversee the company and ensure we are delivering for our shareholders and our other stakeholders.

Turning to slide 9. You can clearly see how we are creating scale in our geographies, diversifying our business, and building an integrated business with a strong marketing presence. With that in mind, I want to take some time walking through why these individual businesses are a complementary fit with our existing business. And then, [indiscernible] 00:09:46 some of the compelling strategic benefits of this acquisition.

On slide 10, I'll begin with the marketing branded business.

By add - by adding a branded wholesale business, the combined company will have a significant base business and the opportunity to grow this iconic brand across a range of HF Sinclair products and geographies through a consistent sales channel. The Sinclair dinosaur known as Dino is one of the industry's most recognized symbols and will represent the brand for HF Sinclair.

We're thrilled to bring onboard Sinclair's marketing team who will help us to manage and grow our footprint of over 300 distributors and 1,500 branded locations across 30 states with over 2 billion gallons of annual branded fuel sales. The marketing business provides significant renewable identification or RIN generation through Sinclair's integrated product distribution network. The addition of the branded marketing business also provides the consistent sales channel for produced fuels with stable margins as well as additional earnings from brand licensing and credit card programs.

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