As Connecticut lawmakers passed a bill that could impose new requirements for cleaner burning home-heating oil, the industry”™s largest player swept up a local rival in a surprise deal.
Star Gas Partners L.P. acquired Champion Energy Corp. for $62 million including some $11 million in estimated working capital, with Champion operating Hoffman Fuel, a home-heating oil supplier in Connecticut and New York.
Even as Star Gas reached its deal with Champion, another large Northeast heating oil wholesaler also made an acquisition. Waltham, Mass.-based Global Partners L.P. is spending $48 million to buy three terminals in Newburgh, N.Y., funding the deal with proceeds from a new, $950 million credit line from a syndicate of lenders that includes Bank of America Corp., JPMorgan Chase & Co., RBS Citizens Bank and Webster Bank.
Stamford-based Star Gas already claims title as the nation”™s largest supplier of home-heating oil via its Petro division and two others, competing locally with Hoffman, Standard Oil of Connecticut Inc., Santa Energy Corp. and Gault Inc., among others in a fragmented market.
Last month, Star Gas was included on a list of the “100 most trustworthy” publicly held companies published by Forbes, along with Stamford-based Silgan Holdings Inc., which produces bottles and containers.
Champion and Hoffman have 300 employees and facilities in Trumbull, Danbury and New Rochelle, N.Y. For the fiscal year ending June 30, 2009, Champion sales totaled $152 million, and the company recorded a $1.5 million profit.
In its second fiscal quarter ending March 31, Star Gas earned $40 million as sales swelled 6 percent to $552 million. Those profits were down by more than half from a year ago, however, and Star Gas and other home-heating oil companies are bracing for the fallout from a sharp escalation in oil prices in recent weeks.
“Customers will see much higher pricing from retailers this year, which could trigger many to shop around,” said Dan Donovan, CEO of Star Gas, in a conference call with investment analysts. “We feel we are well-prepared at Star to handle the multifaceted type of conversation that ”¦ customers may generate in their conversations with us. It”™s a demanding and difficult task, but we feel we are up to it.
“We have shown significant progress through the (fiscal) second quarter in reducing attrition,” Donovan added. “Net attrition has been reduced by 3 percent versus the same period last year, with the biggest improvement coming from a reduction in lost accounts.”
Even as Star Gas works toward that goal, Connecticut lawmakers set a goal of cutting sulfur content in heating oil 20 percent within a decade, but allowed dealers to delay implementing the new measure until New York, Massachusetts and Rhode Island passed a similar measure.
Massachusetts is enacting a similar mandate this summer and New York legislators are considering a bill that would set requirements on low-sulfur heating oil. Rhode Island has yet to address the issue.
