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UPDATE 1-Western Refining buys stake in Northern Tier for $775 mln

Tuesday, 12 Nov 2013 | 10:15 AM ET

Nov 12 (Reuters) - Western Refining Inc said it would buy a controlling stake in Northern Tier Energy LP for about $775 million to add refining capacity with direct access to cheap crude oil.

Western Refining will buy a 38.7 percent stake in Northern Tier from private equity firms TPG Capital Management and ACON Investments Ltd and 100 percent of the general partner that controls Northern Tier.

Western Refining shares were up nearly 10 percent at $36.51 on Tuesday morning on the New York Stock Exchange. Northern Tier shares rose 4 percent to $24.16.

The Wall Street Journal first reported the deal, citing people familiar with the matter. ()

Northern Tier's refining business primarily consists of an 89,500-barrels-per-day refinery located in St. Paul Park, Minnesota, near North Dakota's Bakken shale field.

The refinery is closer to the Bakken than most U.S. refineries and is also well-positioned to receive discounted Canadian crude oil from the big pipeline networks that run through Minnesota.

U.S. refiners typically sell refined products such as gasoline and diesel at prices linked to more expensive European Brent crude, boosting margins for those with access to cheap U.S. shale crude.

Bakken and Canadian crude differentials are expected to be priced at a discount to international and other domestic crudes for at least the next couple of years, Simmons & Co analysts wrote in note to clients.

Western Refining operates the El Paso refinery in Texas and Gallup refinery in New Mexico, with combined refining capacity of about 151,000 barrels per day.

Northern Tier is structured as a master-limited partnership, a dividend-paying investment vehicle that enjoys special tax breaks and is often used by natural resources companies.

UBS Securities LLC was Western Refining's financial adviser, while Pillsbury Winthrop Shaw Pittman LLP and Davis Polk & Wardwell LLP were its legal counsels.

Barclays and J.P. Morgan Securities LLC served as co-financial advisers to ACON and TPG.

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