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November 14, 2018

Volume 3 Issue 4

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HollyFrontier to Acquire Sonneborn

A HollyFrontier subsidiary will acquire specialty hydrocarbon chemicals maker Sonneborn from private equity firm One Equity Partners for $655 million cash under an agreement announced yesterday. HollyFrontier officials said the addition of Sonneborn’s specialty products is another step in diversifying its product mix with a shift toward finished products.

Subject to customary closing conditions, the transaction is expected to close in 2019.

Founded in 1903, Sonneborn manufactures highly purified white oil, petrolatum, microcrystalline wax, sodium sulfonate and compressor lubricants for personal care, food, polymer and metalworking applications of more than 500 global customers. The company is based in Parsippany, New Jersey, and employs 360 people worldwide, with three production sites in the United States and the Netherlands. One Equity Partners acquired Sonneborn from Sun Capital Partners in 2012.

Sonneborn and One Equity Partners declined a request from Lube Report to comment on the acquisition.

Sonneborn has manufacturing plants in Petrolia, Pennsylvania, and in the Netherlands, with a combined processing capacity of roughly 5,300 barrels per day, HollyFrontier President and CEO George Damiris said during a webcast yesterday about the acquisition. “Both locations have [research and development] facilities with experienced staff as well as blending and packaging capabilities that distribute premium quality specialty products through a global distribution network,” he said.

Dallas-based HollyFrontier currently supplies a portion of Sonneborn’s base oil feedstock. “This [acquisition] provides opportunities for additional uplift from our Tulsa and Mississauga base oils,” Damiris said during the webcast. “It increases operational flexibility and allows for feedstock optimization.”

He said HollyFrontier was excited about the opportunity to combine Sonneborn with the company’s current lubricants business. HollyFrontier acquired the Petro-Canada Lubricants business from Suncor in early 2017 for U.S. $845 million, which made it a major player in the finished lubricants market and diversified its base oil portfolio to include API Group II and III base oils.

Mark Plake, HollyFrontier’s global executive of lubricants and specialty products, spoke during the webcast about the appeal of some of Sonneborn’s facilities. “The hydrotreating unit in Pennsylvania provides unparalleled flexibility to run a wide range of Group I and II base oils, which gives it a competitive advantage on feedstock,” Plake explained. “The sulfonation and purification units in the Netherlands have the ability to produce unique product formulations with a high degree of customization due to their feedstock flexibility and advanced processing technology.”

Plake also said the addition of Sonneborn’s strong global distribution and sales team should enable HollyFrontier to efficiently place a broad line of products around the world and continue shifting its product mix. “Sonneborn's diversified specialty product slates complement our existing portfolio while achieving our goal of shifting our product mix from base oils to finished products,” he said. “Sales of finished products receive higher margins and are much less volatile than base oils."

Damiris said what Sonneborn’s R&D capability brings to HollyFrontier is comparable to what Petro-Canada Lubricants’ R&D capability brought when acquired in February 2017. “It’s very similar, with slightly different markets and products,” he said during the conference call. “The capability of working with customers, having them share what their specific needs are and tailoring customized solutions through a variety of base oil feedstocks and processing capabilities – that’s what we’re really excited about. We think those opportunities really open up … if you add more facilities and more base stock feedstock options.”

He said the company’s focus remains primarily North American, in response to a conference call question about international expansion. “This business obviously has both a North American and European component,” Damiris said. “This is a logical extension of our production capability, but again – it's not our primary focus to broaden it to Europe and Asia. Never say never. When the right opportunities come along, we'll pursue them.” He added that looking for international opportunities isn’t the major thrust of HollyFrontier’s growth initiative.

Stephen B. Ames of SBA Consulting in Pepper Pike, Ohio, said the HollyFrontier and Sonneborn combination appears to be a good fit, as the latter often purchases their white oil feedstock from Petro-Canada. “Sonneborn had been a better, savvier and higher-value marketer of white oils than had Petro-Canada,” Ames noted.

However, he cautioned that the Federal Trade Commission might have concerns about the acquisition on antitrust grounds, as the U.S. white oils market is already highly concentrated. “There are three major players in the U.S. white oil market: Calumet, Sonneborn and [HollyFrontier’s] Petro-Canada.  A combination of HFC and Sonneborn would give them half the market, with Calumet having almost the other half,” Ames said. “Sounds as if that may be too much concentration to pass anti-trust scrutiny.”

In Europe, he said, the combination should not be a problem, as there are four major players: ExxonMobil and H&R, each with 25-30 percent share, followed by Petro-Canada (about 17 percent) and Sonneborn (11 percent). Nynas is also a player in the market. “A HFC/Sonneborn combination would rival ExxonMobil and H&R in market share, but none with more than a third of the market,” Ames said.