One issue I have with DK is that they never explain what the obstacle to unlocking value is. They are quite vague. We would need an activist investor to enter and stir things, don't you think so?
I agree they have been fairly vague in terms of how they are proceeding but clear in the intention. While I would like to know their explicit plan, I understand that in M&A situations you do not want to show all your cards from the beginning. But time is ticking and I think they need to act in order to remain credible. An activist investor would be welcome, but I do not think it is needed (yet).
Shell and numerous other oil companies that had captive MLPs just bought them in over the last couple years. Why not just buy the remaining shares as the combined business would have a lower cost of capital and there no longer seems to be much demand for MLPs
It is an interesting thought even though Shell and other companies also do exploration/production and are generally larger and more integrated which makes this a different situation. Also, the rhetoric so far "highlighting the MLP value" rather points to a divesture.
That said, I agree that it could lower the cost of capital because the MLP business is more stable operationally - but more financially levered. DK might need 300-400mm USD to buy the units which should be doable given the net debt position. Thanks for commenting.
Summing up refinery EBITDA together with Corp&Other and only then 'slapping' a low capitalisation multiple on it might be appropriate for the refinery part (low quality, peak margins, high Capex thus low FCF conversion, what not). But isn't it highly forgiving for the corp and other part if the holding (sotp ) is not resolved soon?
Otherwise 4x for refinery and say 10x for corp and other might be more appropriate? (Don't pick on exact numbers here)
Ideally, there would be no "Corporate & Other" but the costs should be allocated to the respective segments and then be included in the segment EBITDA. If that does not happen, in my view the next best method is to assign a "blended" multiple, e.g. weighted by the revenues of the respective segment. Since refining is the largest segment I simplified here and slapped it all in there. The VIC write-up, maybe more correctly value refining at 4x, retail at 8x and Corp/Other at 5x (https://valueinvestorsclub.com/idea/DELEK_US_HOLDINGS_INC/0925670703). I do not think 10x would be adequate.
In summary, I think you raise a fair point but the difference should not be huge.
thanks, been watching for the last 2 years and glad to see a recent update.
you mention incentives are aligned, but can you help clarify? i see a generic compensation CEO package.
speaking of which, i see a generic CEO when what could really add value is someone with enough personal technical background to keep refinery maintenance below peer average. and when i see someone again coming from the delek tree, i wonder why is there STILL so much foreign influence\control of a company with 3 (i.e., arguably all) subscale segments on the otherside of the world?
despite the shrinking financial stake directly by delek israel, i see legacy delek BOD members and the most concentrated owner is a another israeli group, ion asset. even if my paranoia is not helping here, i would pass unless something really obvious has been missed.
He gets 800K in base, a target of 1.2m in annual bonus, both cash, the bonus linked to EPS and operational performance (including refinery utilization). In addition, he gets 3m in some form of restricted shares. So in my view, this is a reasonable package and he is aligned to generate shareholder value.
In my view, picking someone who knows the company well is not a negative. Also, they hired and EVP for operations from Par Pacific who hopefully brings this technical background.
To my knowledge, Delek Group Israel (which I should have mentioned in the post) has been selling down its entire stake since I could not find them in the list of shareholders.
yes, as i stated delek israel has been selling their direct stake down, but clearly has (now even less aligned) influence via BOD, CEO, and possibly ion asset. weird.
almost all refineries have a technical lead (usually Head of Engineering), and this person gets all the blame on related capex\expansion over-runs. it is so common, that there has been a trend to sandbag future cost far beyond inflation. i would like for a capable CEO to bear this responsibility directly, especially on a subscale operator.
“Spin of some or all of the DKL units to shareholders this might be relatively easy”.
I’m pretty sure many DK owners would not want shares in a MLP for tax reasons.
IMHO, a sell of DK to a third party that wants to own a captive MLP is probably the easiest way to close the gap. The biggest problem is that all the DK and DKL pieces are sub scale, but I don’t want Dk to grow the pieces bigger, I want someone else to grow bigger by buying them.
One issue I have with DK is that they never explain what the obstacle to unlocking value is. They are quite vague. We would need an activist investor to enter and stir things, don't you think so?
I agree they have been fairly vague in terms of how they are proceeding but clear in the intention. While I would like to know their explicit plan, I understand that in M&A situations you do not want to show all your cards from the beginning. But time is ticking and I think they need to act in order to remain credible. An activist investor would be welcome, but I do not think it is needed (yet).
Shell and numerous other oil companies that had captive MLPs just bought them in over the last couple years. Why not just buy the remaining shares as the combined business would have a lower cost of capital and there no longer seems to be much demand for MLPs
It is an interesting thought even though Shell and other companies also do exploration/production and are generally larger and more integrated which makes this a different situation. Also, the rhetoric so far "highlighting the MLP value" rather points to a divesture.
That said, I agree that it could lower the cost of capital because the MLP business is more stable operationally - but more financially levered. DK might need 300-400mm USD to buy the units which should be doable given the net debt position. Thanks for commenting.
was also wondering the same on MLP digestion trend going on for at least 2 years now.
been looking, but unable to find any comprehensive articles on who and how much was the benefit. (to the MLP holders, or to the parent ?!?)
Summing up refinery EBITDA together with Corp&Other and only then 'slapping' a low capitalisation multiple on it might be appropriate for the refinery part (low quality, peak margins, high Capex thus low FCF conversion, what not). But isn't it highly forgiving for the corp and other part if the holding (sotp ) is not resolved soon?
Otherwise 4x for refinery and say 10x for corp and other might be more appropriate? (Don't pick on exact numbers here)
Thanks for commenting.
Ideally, there would be no "Corporate & Other" but the costs should be allocated to the respective segments and then be included in the segment EBITDA. If that does not happen, in my view the next best method is to assign a "blended" multiple, e.g. weighted by the revenues of the respective segment. Since refining is the largest segment I simplified here and slapped it all in there. The VIC write-up, maybe more correctly value refining at 4x, retail at 8x and Corp/Other at 5x (https://valueinvestorsclub.com/idea/DELEK_US_HOLDINGS_INC/0925670703). I do not think 10x would be adequate.
In summary, I think you raise a fair point but the difference should not be huge.
thanks, been watching for the last 2 years and glad to see a recent update.
you mention incentives are aligned, but can you help clarify? i see a generic compensation CEO package.
speaking of which, i see a generic CEO when what could really add value is someone with enough personal technical background to keep refinery maintenance below peer average. and when i see someone again coming from the delek tree, i wonder why is there STILL so much foreign influence\control of a company with 3 (i.e., arguably all) subscale segments on the otherside of the world?
despite the shrinking financial stake directly by delek israel, i see legacy delek BOD members and the most concentrated owner is a another israeli group, ion asset. even if my paranoia is not helping here, i would pass unless something really obvious has been missed.
Thanks for commenting.
He gets 800K in base, a target of 1.2m in annual bonus, both cash, the bonus linked to EPS and operational performance (including refinery utilization). In addition, he gets 3m in some form of restricted shares. So in my view, this is a reasonable package and he is aligned to generate shareholder value.
In my view, picking someone who knows the company well is not a negative. Also, they hired and EVP for operations from Par Pacific who hopefully brings this technical background.
To my knowledge, Delek Group Israel (which I should have mentioned in the post) has been selling down its entire stake since I could not find them in the list of shareholders.
yes, as i stated delek israel has been selling their direct stake down, but clearly has (now even less aligned) influence via BOD, CEO, and possibly ion asset. weird.
almost all refineries have a technical lead (usually Head of Engineering), and this person gets all the blame on related capex\expansion over-runs. it is so common, that there has been a trend to sandbag future cost far beyond inflation. i would like for a capable CEO to bear this responsibility directly, especially on a subscale operator.
“Spin of some or all of the DKL units to shareholders this might be relatively easy”.
I’m pretty sure many DK owners would not want shares in a MLP for tax reasons.
IMHO, a sell of DK to a third party that wants to own a captive MLP is probably the easiest way to close the gap. The biggest problem is that all the DK and DKL pieces are sub scale, but I don’t want Dk to grow the pieces bigger, I want someone else to grow bigger by buying them.