Holly and Frontier Oil to join in nearly $3B deal

[February 22, 2011]  DALLAS (AP) -- Refinery operators Holly Corp. and Frontier Oil Corp. are combining in an all-stock deal valued at nearly $3 billion.

Both companies said Tuesday that the deal will create the most profitable independent U.S. refiner on a per barrel basis. The new company will have a refining capacity of more than 440,000 barrels per day across five refineries.

Frontier shareholders will get 0.4811 Holly shares for each Frontier share they own. Holly stockholders are expected to own 51 percent of the combined company, with Frontier shareholders owning the remaining stake. Based on Frontier's number of shares outstanding, the transaction is valued at $2.85 billion.

In addition, Houston-based Frontier plans to pay shareholders a special dividend of 28 cents a share. Frontier also plans to reinstate its quarterly dividend of 6 cents a share. Both dividends will be paid on March 21 to Frontier shareholders of record on March 7.

Holly anticipates still paying its dividends through the deal's closing. The Dallas-based company has an annual dividend of 60 cents a share.

The companies said the transaction has an enterprise value of $7 billion. The combination is expected to save at least $30 million through lower selling, general and administrative expenses and more operational efficiencies.

Frontier Chairman, President and CEO Mike Jennings and Holly Chairman and CEO Matt Clifton said in a joint statement that the transaction increases their geographic coverage and diversity of assets.

"We expect this transaction to deliver meaningful value to our shareholders, as it provides significant growth potential via a combined company that is better positioned in an increasingly competitive industry," they said.

The new company, based in Dallas, will be called HollyFrontier Corp. It will serve the Mid-Continent, Rocky Mountain and Southwest refining markets and will have access to growing domestic and Canadian crude oil supplies.

Both companies' boards have unanimously approved the deal. Jennings of Frontier will become CEO and president, while Holly's Clifton will serve as executive chairman.

The combined company's board will include 14 members, with seven each from Frontier and Holly's existing boards.

The transaction is expected to close early in the third quarter and needs the approval of both companies' stockholders.

[Associated Press]

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