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| EX-99.2 - EX-99.2 - HollyFrontier Corp | d79909exv99w2.htm |
| EX-99.1 - EX-99.1 - HollyFrontier Corp | d79909exv99w1.htm |
| EX-99.4 - EX-99.4 - HollyFrontier Corp | d79909exv99w4.htm |
| 8-K - FORM 8-K - HollyFrontier Corp | d79909e8vk.htm |
Exhibit 99.3
| FINAL TRANSCRIPT HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement Event Date/Time: Feb. 22. 2011 / 1:30PM GMT |
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss
Definitive Merger Agreement
CORPORATE PARTICIPANTS
Neale Hickerson
Holly Corporation — VP, IR
Holly Corporation — VP, IR
Matt Clifton
Holly Corporation — Chairman & CEO
Holly Corporation — Chairman & CEO
Mike Jennings
Frontier Oil — Chairman, President & CEO
Frontier Oil — Chairman, President & CEO
CONFERENCE CALL PARTICIPANTS
Arjun Murti
Goldman Sachs — Analyst
Goldman Sachs — Analyst
Doug Leggate
Bank of America-Merrill Lynch — Analyst
Bank of America-Merrill Lynch — Analyst
Evan Calio
Morgan Stanley — Analyst
Morgan Stanley — Analyst
Paul Cheng
Barclays Capital — Analyst
Barclays Capital — Analyst
Jacques Rousseau
RBC Capital Markets — Analyst
RBC Capital Markets — Analyst
Chi Chow
Marquarie Capital — Analyst
Marquarie Capital — Analyst
Daniel Burke
Johnson Rice — Analyst
Johnson Rice — Analyst
PRESENTATION
Operator
Good morning. My name is Brandi and I will be your conference operator today. At this time, I would
like to welcome everyone to the Holly Corporation and Frontier Oil Corporation merger announcement
webcast. All lines have been placed on mute to prevent any background noise. After the speakers’
remarks, there will be a question-and-answer session. (Operator Instructions). Thank you, Mr. Neale
Hickerson. You may begin your conference.
Neale Hickerson - Holly Corporation — VP, IR
Good morning, everyone and thank you for joining us on short notice today to discuss the
combination of Holly and Frontier. This morning, we issued a press release announcing this
transaction and that press release is available on both company websites at www.hollycorp.com and
www.frontieroil.com. We also have presentation slides posted on the Investor Relations pages of
both company websites.
Before we move into our call, please note that statements made on this call that are not historical
facts are forward-looking statements that fall under the Private Securities Litigation Reform Act
of 1995, the Securities Act of 1933, the Securities and Exchange Act of 1934. Please read a full
description of our forward-looking statement disclaimer in the press release from this morning.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss
Definitive Merger Agreement
Also, please note our call today does not constitute an offer to buy or sell any securities
related to this transaction. All solicitations to buy or sell securities and to secure shareholder
proxy votes will be made under current SEC rules and regulations.
Please note that information presented on our call today speaks only as of today, February 22, 2011
and any time-sensitive information provided may no longer be accurate at the time of any webcast
replay or rereading of the transcript of our call.
On the call with us today are Matt Clifton, Holly’s Chairman and Chief Executive Officer and Mike
Jennings, Frontier’s Chairman, President and Chief Executive Officer. Mike and Matt will discuss
today’s announcement and at the conclusion of their prepared remarks, we will take questions as
time permits. And now I would like to turn things over to Matt Clifton.
Matt Clifton - Holly Corporation — Chairman & CEO
Thanks, Neale. And thanks, everybody, for joining us this morning. We are here to discuss our
exciting announcement that Holly and Frontier have reached a definitive agreement under which the
two companies will combine in a tax-free stock-for-stock transaction. The new company will be
called HollyFrontier Corporation. It should be a leading independent refiner.
Looking now at slide 1, this combination is a true merger of equals. Under the terms of the
agreement, Frontier stockholders will receive 0.4811 Holly shares for each share of Frontier common
stock. Upon closing of the transaction, Holly stockholders are expected to own approximately 51%
and Frontier stockholders are expected to own approximately 49% of the combined company.
Under the terms of the agreement, Frontier will make a $0.28 per share special dividend payment to
all Frontier stockholders of record as of March 7, 2011. As I mentioned before, the transaction is
structured to be tax-free to the stockholders of both companies.
HollyFrontier Corporation will serve the niche Mid-Continent, Rocky Mountain, Southwest refining
markets and will have advantaged access to growing domestic and Canadian crude supplies. This
merger combines two strong leadership teams with complementary skills and a proven track record of
producing industry-leading stockholder returns, growth for refinery upgrades and margin
improvement. Together, we will be a much stronger competitor and well-positioned for enhanced
growth opportunities.
Looking to slide 2, with respect to the combined company leadership team, I will serve as an
executive chairman of the combined company. Mike Jennings, currently Chairman, President and CEO of
Frontier, will serve as Chief Executive Officer and Dave Lamp, President of Holly, will take the
post of Chief Operating Officer. Doug Aron, Frontier’s Chief Financial Officer and Executive VP,
will serve as the combined company CFO. And Bruce Shaw, Holly’s Chief Financial Officer and Senior
Vice President, will serve as Senior Vice President of Strategic Planning.
Following the closing of the transaction, the Board of Directors of the new company will consist of
seven current Frontier Board members and seven members of the current Holly Board. The combined
company’s corporate headquarters will be located in Dallas where Holly is currently based. While we
will be closing Frontier’s Houston office, the Denver office will continue to provide certain
commercial capacity.
I think it is important to note that Holly and Frontier are uniquely complementary. We share a
similar management philosophy and corporate culture. From a strategic perspective, both companies
have been successfully executing on similar plans to capitalize on our strong competitive positions
in very attractive markets.
Now I would like to turn the call over to Mike who will provide a more in-depth overview of the
combination. Mike?
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Mike Jennings - Frontier Oil — Chairman, President & CEO
Thank you, Matt. Turning now to slide 3, as Matt touched upon, this combination is an outstanding
strategic fit with inherent value for stockholders of both companies. On slide 4, we see that the
combination will strengthen both companies’ strategic plans by diversifying revenues, expanding
infrastructure and increasing the scale of assets. More specifically, the combination offers
complementary exposure to high-margin Mid-Continent, Rocky Mountain and Southwest regions.
It will also increase critical mass, providing the new company with the refining capacity in excess
of 440,000 barrels per day across five refineries. Our combined refining capacity will have a
Nelson Complexity of 12.1, which places us at the top of the US refining fleet.
On slide 5, you can see a map of our combined assets and geographic footprint. We have noted each
of our five refineries on this map with the size and complexity displayed.
Turning now to slide 6, we can see how the strategic combination of Holly and Frontier
significantly increases the diversity of our assets, a key component of our enhanced position as
one of the leading independent refiners in the United States.
With respect to our combined operating locations, we will have a strong presence in three distinct
markets and our pro forma crude slate shows that we will be better diversified as a combined
company with a better asset mix of heavy, light and other categories of crude. We believe that no
other refiner of scale has the capacity to process heavy sour crude that HollyFrontier will have.
With five refineries rather than our respective three and two, we believe the combined company will
have much better risk diversification and operational flexibility to create upside for our
stockholders.
As illustrated in slide 7, our five refineries will have a combined crude capacity of 443,000
barrels per day, creating one of the largest independent refiners in the United States.
Looking at slide 8, the combined company will maintain a high overall Nelson Complexity of 12.1,
maintaining a top position within our peer group.
As a result of the substantial investments both companies have made to upgrade our refineries,
HollyFrontier will have an improved ability to refine lower-priced sour crudes, allowing the
combined company to significantly increase our presence in the asphalt marketplace while keeping
our cokers full. These initiatives will benefit HollyFrontier for years to come as we continue to
grow as a leading independent refiner.
In addition, this competitive level of overall complexity will enable the combined company to
capitalize on wide light heavy spreads while also providing the company with operational
flexibility.
Turning to slide 9, we can look at the significant synergy opportunities that this combination
offers. We expect to realize significant cost savings of approximately $30 million per year from
reduced SG&A expenses and increased operating efficiencies.
Given how complementary our two companies are, we expect a smooth transition. Of course, many of
the key decisions about how we will integrate Holly and Frontier are still being decided. At the
appropriate time, we look forward to appointing a transition team, which will be made up of
employees of both companies. As in any transaction of this size, we expect to identify areas of
redundancy and to create a more cost-effective operating structure for the combined company.
Although the merger will impact some positions at both Holly and Frontier, we are committed to
treating all our employees that are affected fairly.
Turning to slide 10, the combination will also improve our financial strength and flexibility. We
expect that the transaction will be immediately accretive to the combined company’s earnings and
cash flow. Importantly, this transaction was structured in such a way as a stock-for-stock exchange
at market prices that will allow Holly and Frontier shareholders to evenly share in the inherent
value of this combination.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
In addition, the increased scale and diversity of our assets, coupled with the combined
company’s strong balance sheet, create the possibility for cost-of-capital synergies and a stronger
corporate credit profile.
Finally, the potential to drop down assets into Holly Energy Partners, the MLP of which
HollyFrontier will own 34%, creates another compelling opportunity to create value for the
stockholders of both our companies.
Slide 11 shows the combined company’s significantly increased market capitalization. Pro forma, the
new company will have a market cap of about $6 billion, approximately two times the size of each
company’s current market cap. The transaction has an enterprise value of $7 billion at the time of
the announcement.
Slide 12 illustrates the combined company’s strong pro forma balance sheet, which has the lowest
debt and net debt levels amongst our peer group. As I mentioned, the combined company’s strong
balance sheet creates the possibility for cost-of-capital synergies and a stronger corporate credit
profile.
And as you can see from slide 13, our advantaged crude slate is expected to translate into the
highest net income per barrel among our industry peers by a significant margin. Quite simply, we
believe that our high-margin output and strong free cash flow will make HollyFrontier the best
positioned oil refiner in the United States.
In summary, this outstanding combination will be a strong competitor with a well-positioned
refining asset base, enhanced growth opportunities and a strong balance sheet. I hope you can
appreciate just how complementary these two businesses are and why we have structured this
transaction in a way that both companies’ shareholders will benefit from the value we expect to
create together.
Turning to slide 15, we are excited to move forward with this transaction and to realize the
potential inherent in the combination in order to deliver significant value for our stockholders.
On a personal note, I want to thank my team at Frontier for all their hard work and dedication
without which this transaction would not have been possible. I know that Matt agrees that it is the
talent and unrelenting focus of the employees of both our companies that really makes this
transaction so compelling.
I also want to add that I have had the pleasure of working with Matt over the past several months
and have really enjoyed it. The similarity of our organizations, our management and philosophies,
as well as my deep respect for him and his team has only reinforced my conviction as to the merits
and the potential of this transaction. And I am truly looking forward to working with Matt, Dave,
Bruce and all the folks from Holly upon closing.
Looking at slide 16, both companies see a clear and straightforward path to completion and we
expect to close the merger early in the third quarter of this year. This deal has been structured
in a way that we see it closing.
The upcoming milestones before close will consist of the following. We will seek shareholder
approval by both Holly and Frontier stockholders. We will seek antitrust approval, the expiration
or termination of the Hart-Scott-Rodino waiting period and other customary closing conditions.
Thank you, again, for joining us today on short notice. Now we will be happy to take questions as
time permits. Brandi?
QUESTIONS AND ANSWERS
Operator
(Operator Instructions). Arjun Murti, Goldman Sachs.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss
Definitive Merger Agreement
Arjun Murti - Goldman Sachs — Analyst
Thank you. Just a few questions. First, can you comment at all on potential FTC issues? I know Pad
4, for whatever reason, seems to have been a little bit of an area of focus for the FTC and
wondering if you can make any comments on that front. Thank you.
Matt Clifton - Holly Corporation — Chairman & CEO
We are not going to get ahead of the agency, but we clearly think that there shouldn’t be any
problem. We both are in a very large Pad 3 market in the MidCon. In the Rockies, in particular, we
are pretty diverse in Frontier’s assets, mainly supply the Eastern edge of the Front Range and our
refineries are over on the Salt Lake side. So there really is no interplay there.
Arjun Murti - Goldman Sachs — Analyst
Thank you, Matt. Is there a breakup fee if, for whatever reason, either of you are approached by
another company? And can you make any comment on whether either of you had sought another partner
before engaging in this merger? Thank you.
Mike Jennings - Frontier Oil — Chairman, President & CEO
The breakup fee is $80 million per the contract and that is very much in the fairway of what is
commonplace in these deals. We have put this deal together very purposefully. Neither company was
out for sale. We sought each other in a transaction to create substantial wealth for our
shareholders and create a much stronger company. So we view this as a unique transaction, the kind
of combination that comes up maybe once in a generation and we are very excited about the
opportunity to put these businesses together.
Arjun Murti - Goldman Sachs — Analyst
And maybe then just lastly an operational question, obviously crude sourcing in the region is a
huge theme right now with growth of Bakken and Permian and potentially the Niobrara. As a combined
company, does that provide you greater access to sourcing crude than either of you could have done
on your own or could you provide any comments on how being merged together would help you address
that important issue for your region?
Mike Jennings - Frontier Oil — Chairman, President & CEO
Obviously, crude supply is big on the map right now given the surplus of crude in the MidCon and
the Rockies and the obvious differentials between those geographies and the Gulf Coast. We share
common exposure to those elements and the crude economics within both of our businesses are very
good and we expect them to remain good. I think what the combination does with respect to crude
supply is provide more flexibility in terms of using logistics capacity, using our crude supply
activities just to create a more effective operation that has more flexibility, more potential to
make money.
Matt Clifton - Holly Corporation — Chairman & CEO
The only thing I would add too is that with the HEP affiliation there and the Cheyenne proximity to
some of the new discoveries in the Wyoming/Colorado border, we have an opportunity there to
leverage the attractive logistics additions to gather crude and to leverage Holly’s historic
position as a large lease purchaser. So I think the combination adds some extra value to both
companies.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss
Definitive Merger Agreement
Arjun Murti - Goldman Sachs — Analyst
That’s great. And I assume on that point, Matt, clearly the Frontier midstream assets could very
well at some point be part of HEP?
Matt Clifton - Holly Corporation — Chairman & CEO
I think that is clearly an opportunity.
Arjun Murti - Goldman Sachs — Analyst
Thank you very much.
Operator
Doug Leggate, Merrill Lynch.
Doug Leggate - Bank of America-Merrill Lynch — Analyst
Thank you. Good morning, everybody and congratulations, guys, on what looks like a great deal for
both of you. A couple of questions. There is going to be an awful lot of free cash flow coming out
of this combined company. Can you speak to strategically how you might see the use of that free
cash flow going forward? I mean obviously share buybacks I guess have been on the card for Frontier
beyond the special dividend, but as you get your $200 million (inaudible) proceeds from the
pipeline deal that will be completed later this year for Holly, you are going to be left with an
awful lot of free cash. So how do acquisitions play into it, how do you really see the use of that
free cash going forward? And I have got a couple of quick follow-ups, please.
Mike Jennings - Frontier Oil — Chairman, President & CEO
Doug, a real driver in this transaction is to provide a larger and better capitalized platform for
our future growth. And so we will be looking to grow this company as we move forward through time.
I don’t want to front-run the Board of Directors of the combined company in terms of making
decisions on capital structure and cash distributions. What I would say is that cash distribution
to shareholders has been an important part of both companies’ past and we see that continuing going
forward. But we do expect a growing business as we work through time.
Doug Leggate - Bank of America-Merrill Lynch — Analyst
And that relates to organic growth or something other than that?
Mike Jennings - Frontier Oil — Chairman, President & CEO
We are going to seek out those opportunities. I don’t think that they are established at this
point.
Doug Leggate - Bank of America-Merrill Lynch — Analyst
Okay. So my follow-up is on the synergies, $30 million of synergies, I assume that is a preliminary
number. Can you speak to just some of the moving parts there and particularly what are the
operational synergies? Leaving aside the potential drop-downs,
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
which is my final question, could you really just speak to what putting the two companies together
brings in terms of operational leverage, perhaps trading leverage, balance sheet leverage,
whatever? If you could elaborate a little bit, that would be great.
Mike Jennings - Frontier Oil — Chairman, President & CEO
The combined companies, and we will get to the MLP and Matt will address that in detail. That is an
enormous opportunity for us as a combined company, something that Frontier hasn’t had immediate
access to in the past. As to the operating synergies and the cost synergies, we have called out $30
million of synergy potential and like any good management team, our hope is to beat the heck out of
that.
With that said, it breaks down into a couple of buckets, the G&A being obvious and that is about
half of the number. The operations focus being the other half. We have expanded ability to process
intermediates and optimize our refining operations, particularly in the MidCon, that being Tulsa
and El Dorado, through the course of this transaction. We also have the opportunity at Frontier to
benefit from Holly’s experience in the asphalt market, particularly Holly Asphalt Company.
So those will be two primary areas of focus. There will be others that we develop going forward,
but anytime you have got a fence line consolidation like this, particularly as close as Tulsa and
El Dorado are, there are going to be good operating synergies between the two refineries.
Doug Leggate - Bank of America-Merrill Lynch — Analyst
Great. And I guess my last question really relates — it kind of goes back to this strategic issue.
Are you able to give some idea of the potential scale of drop-downs into the MLP? And I guess
completely unrelated and this is my last point, as a bigger company with perhaps the need for more
outlets for your — for the strategic outlets for gasoline and so on, is retail something that you
guys would consider at some point? And I will leave it at that and let someone else jump on.
Matt Clifton - Holly Corporation — Chairman & CEO
On the MLP side, Doug, we haven’t crystallized exactly what the number would be peer. Clearly,
there is a lot of opportunities on drop-downs. Frontier has some product pipelines. They obviously
have loading racks and rail facilities at each of their refineries, as well as quite a bit of
storage. I don’t know if Mike has an idea of the scale, but judging I would say that it is a fairly
substantial amount, maybe not large enough for them to have done their own MLP, but large enough to
make a significant accretive addition to HEP.
Mike Jennings - Frontier Oil — Chairman, President & CEO
Yes, we have been scoping a number that is in the sort of the $30 million, $40 million range in
terms of annual tariffable EBITDA. And as Matt says, that is just inside what a captive or a
standalone MLP might be able to live on. So this combination is going to create great opportunities
there. Further, there will be new investments to support our logistics and our marketing. Niobrara
being a good example. The dollar amount for those is still sort of speculative, but what I would
tell you is it is going to enhance our strategic position and our ability to compete in those
growing areas.
In terms of retail, I don’t think we have developed a business plan around retail at this point. It
is not a business that we have significant presence in for either company, but we will look at
those opportunities as they go forward to the extent they make sense.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Doug Leggate - Bank of America-Merrill Lynch — Analyst
That’s great. Thanks a lot, guys. I appreciate the answers.
Operator
Evan Calio, Morgan Stanley.
Evan Calio - Morgan Stanley — Analyst
Good morning, guys. Congratulations on the deal. A lot of questions I think have been asked and
answered here so far. Maybe a more direct question on the current environment and your views or
collective views on how structural this current feedstock advantage may be and whether that has
factored into the consummation of this deal at this particular moment in time. And I have a
follow-up.
Mike Jennings - Frontier Oil — Chairman, President & CEO
Well, that’s a crystal ball question and we are sitting here around the table wondering who is
going to answer it, but I am going to take a crack at it, Evan. The fundamentals of that are
obvious in terms of growing crude production from Bakken, Canada, Eagle Ford, Permian Basin and an
inability to consume it all in the MidCon. So we have significant differentials.
I think the things that have supported that production increase are firmly in place and we have got
plays such as the Niobrara that have yet to come on in significant volume. And so absent meaningful
additions to pipeline capacity, and I am talking about multiple hundreds of thousands of barrels
per day, or meaningful increases in refining capacity in the MidCon, which currently aren’t even on
the planning horizon, I see this as a structural difference that is going to endure for a period of
time. It may not be a $20, $22 LL to TI differential everyday, but the fundamentals are there and
we think that the combined company will benefit from these for quite a long period of time.
Evan Calio - Morgan Stanley — Analyst
Thank you. Maybe a follow-up on that same vein. Another question on the potential of product
containment issues or clearly you are benefiting from local crudes’ inability to get to the coast.
How do you think about the ability to move product out of the region should inventory rise in
connection with higher cracks or the local markets’ ability to take higher runs or how protected
you may be in your specific assets? Somewhat of a fall-off question if I may.
Mike Jennings - Frontier Oil — Chairman, President & CEO
Sure. It’s an interesting question because we need to run more crude in the MidCon because there is
an abundance of it. One of the really interesting things about this deal, and it is a bit subtle,
is Holly’s investment in the UNEV Pipeline, which I have come to see as a crude oil play and it’s
going to allow the combined company to push product down into what is traditionally a California
market with effectively MidCon or Rocky Mountains crude supply. I see this as a very compelling
advantage for us and one of the real attractive features of partnering with Holly.
Evan Calio - Morgan Stanley — Analyst
Excellent. Thanks, guys.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Operator
Paul Cheng, Barclays Capital.
Paul Cheng - Barclays Capital — Analyst
Thank you. A couple of quick questions. I think that you are saying it is too early to see what the
agency will say or not to say and you do not expect any concern from the FTC. But just curious that
have you guys have any chance that you have any preliminary discussions with the FTC already?
Matt Clifton - Holly Corporation — Chairman & CEO
We haven’t had any direct discussions with the FTC. Although we have had an economist that we have
worked with before begin his analysis and that is coming pretty much to a conclusion where we are
ready to file here very shortly on the Hart-Scott.
Paul Cheng - Barclays Capital — Analyst
Okay. And Matt and Mike, on the $30 million synergies, did you say that 15% — 50% is related to
cost reduction or did I get you wrong?
Mike Jennings - Frontier Oil — Chairman, President & CEO
You got that right, Paul. 50, 5-0%, about $15 million is cost reductions.
Paul Cheng - Barclays Capital — Analyst
Okay. And is that mainly from a headcount reduction related to that $15 million or that is related
to other cost reductions?
Mike Jennings - Frontier Oil — Chairman, President & CEO
There are multiple pieces to that number, but there will be headcount reductions as with any
transaction of this size. Our purpose relative to people is two things. First, we want to build the
most capable organization that we can out of two very good management teams. We are going to
centralize most of that in Dallas in order to have efficient and effective organizational function.
And for the people that aren’t going to continue with us, we are going to treat them fairly. So
that is about as much as I can say on the headcount.
Paul Cheng - Barclays Capital — Analyst
Sure. And Mike, in the past, I think Frontier said that you do not need all this cash sitting on
the balance sheet to run the operation and you figured that you may need somewhere in the $150
million to $200 million even if you want to be conservative. I am wondering, Matt and Mike, after
the combined company that what will be the comfort level you think you need to have the cash sit on
the balance sheet to run the operation?
Mike Jennings - Frontier Oil — Chairman, President & CEO
Paul, I think that we have some work to do before we are going to come public with that number.
There are obviously a lot of different considerations now with the merged company than we had
independently. And again, we need to work with our
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Board of Directors. We need to look at the internal and external growth opportunities before we get
committed to how we are going to have a distribution strategy and how much combined cash we feel we
need to operate.
Paul Cheng - Barclays Capital — Analyst
Okay. A final question. Don’t know whether it is a fair one. Back in 2003, these two companies also
announced a merger and ultimately that fell through and a lot have since changed that. Can you guys
discuss that, what may have caused the problem back then and why this time that you don’t see that
as a problem? Thank you.
Matt Clifton - Holly Corporation — Chairman & CEO
Paul, this is Matt. It is so long ago that it is really two different companies than it was back
then. We have grown in size and scale and new leadership teams at both companies and Mike and I,
when we first started this discussion, we basically committed to not looking backward and just
looked forward and we are committed to getting this deal done and we think we won’t have any
problems there.
Paul Cheng - Barclays Capital — Analyst
Thank you.
Operator
Jacques Rousseau, RBC Capital Markets.
Jacques Rousseau - RBC Capital Markets — Analyst
Congratulations on the transaction. Most of my questions have been answered, but I guess just a big
picture question in terms of potentially expanding the company. Should we think about it as the
same regions that Holly and Frontier separately were thinking about before or now that you have a
larger scale, will that expand the opportunity set? Thanks.
Mike Jennings - Frontier Oil — Chairman, President & CEO
Our business strategies have been through time very complementary and that is part of the reason
that it is fairly easy and quick to put this thing together. We think similarly we love the
geography we occupy for obvious reasons and our first focus would be within that region in terms of
looking at any external growth opportunities.
With that said, Kings X in terms of — we will keep our heads focused externally and find
opportunities that are attractive for us, but I would expect that the geography of Pad 2, 3 and the
Southwest — Pad 2 and 4, as well as the southwest part of Pad 3 will be our areas of focus.
Jacques Rousseau - RBC Capital Markets — Analyst
Thank you.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Operator
Chi Chow, Macquarie Capital.
Chi Chow - Marquarie Capital — Analyst
Good morning. Congratulations on the announcement. Matt and Mike, could you talk separately on kind
of what your mindset was for each company separately on assessing this deal versus other growth
opportunities that may be out there?
Matt Clifton - Holly Corporation — Chairman & CEO
Yes, Chi, this is Matt. I think in talking to Mike, we both had similar mindsets. I think we both
have great organizations and a great set of assets and really wanted to combine and create a
company that had the financial strength to look at a wider, probably wider array of potential
acquisitions and scale than we might have been able to look at individually. So I think the
combination creates advantages both for the combined company, for HEP and just creates kind of a
wider — casts a wider net on what we can look at as potential acquisitions in size than we maybe
wouldn’t be able to look at alone.
As Mike said before, we really — I don’t think either company — I know speaking for Holly, we
weren’t looking at other acquisitions or other — or selling the company. This always seemed to
make sense to us just geographically. Strategic logic always was there. So really this is something
that we have just focused on singularly here.
Mike Jennings - Frontier Oil — Chairman, President & CEO
Chi, from Frontier’s perspective, I really can’t add to that and that is why this deal has come
together so well. We see the world very, very similarly. This is the deal that we want to do. It
will facilitate other things for us. We hope, if nothing else, it will facilitate having an
absolutely great company with good people and excellent assets. So we see the strategic picture
very, very similarly.
Chi Chow - Marquarie Capital — Analyst
Okay, thanks for those thoughts. Could you talk about the exchange ratio and how that was
determined?
Mike Jennings - Frontier Oil — Chairman, President & CEO
Sure. We looked at the numbers. Our objective was to get to an at-market deal and one that allows
both sets of shareholders to participate well in the synergies and in the growth of the future
company. So we basically looked back over about a three-day period prior to closing. We’ve got no
premium to either side during that period and that is a ratio that felt comfortable to us and to
both of our Boards of Directors. This is a merger of equals. That is the way we negotiated it and
we really insisted on both sets of shareholders benefiting going forward.
Matt Clifton - Holly Corporation — Chairman & CEO
The exchange ratio, and maybe by coincidence, but it gave us some comfort too is that it was pretty
much in the fairway to where the annual average had been between the two companies.
Chi Chow - Marquarie Capital — Analyst
Okay. Is the stock going to trade under the HOC ticker going forward?
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Matt Clifton - Holly Corporation — Chairman & CEO
No, we haven’t established that yet, something that we need to consider, but we don’t have that
decision made.
Chi Chow - Marquarie Capital — Analyst
Okay. And one final question. Mike, you mentioned that the Frontier logistics assets, you are
targeting kind of $30 million to $40 million in EBITDA, did that include the Niobrara crude
gathering system?
Mike Jennings - Frontier Oil — Chairman, President & CEO
No, that would be incremental. At this point, we don’t have a spending plan. We are developing a
strategy, but the Niobrara would be incremental to that.
Chi Chow - Marquarie Capital — Analyst
Any estimate on kind of earnings from that system?
Mike Jennings - Frontier Oil — Chairman, President & CEO
Not yet, Chi.
Chi Chow - Marquarie Capital — Analyst
Okay, all right, thanks a lot.
Operator
(Operator Instructions). Daniel Burke, Johnson Rice.
Daniel Burke - Johnson Rice — Analyst
Good morning, everyone. One question on the proposed crude slate for the combined entities, I guess
Holly had still been ramping up potentially at Navajo to a higher level of heavy crude throughput.
And I was wondering if you could give an update on what the max heavy crude slate would look like
for combined HollyFrontier, if the crude quality differential were driving your decision more than
geographic basis? Would it be higher than the 26%, it looks like a pro forma maybe historical?
Mike Jennings - Frontier Oil — Chairman, President & CEO
From Frontier’s perspective, as the heavy crude starts to displace the intermediate sours, we have
incentive to run up to about 80,000 barrels a day of the heavy at our two plants.
Matt Clifton - Holly Corporation — Chairman & CEO
I think comfortably we are probably in — consolidate probably in the 50,000 barrel a day range
between the three facilities.
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FINAL TRANSCRIPT
Feb. 22. 2011 / 1:30PM, HOC — Holly and Frontier Oil Corporation Conference Call to Discuss Definitive Merger Agreement
Daniel Burke - Johnson Rice — Analyst
Great. That’s helpful. And then the only other question I had at this point, you referenced the
geographic proximity of El Dorado and Tulsa. Could we elicit any further comments on maybe how
tightly an integration you would envision for the two plants? I mean is it just a trucking
opportunity on the margin or is it more than that between the two?
Matt Clifton - Holly Corporation — Chairman & CEO
We expect more efficient integration than that, Daniel, and those plans are being worked out. There
is obviously a lot of pipe in the ground in Oklahoma and Kansas. Our hope would be to participate
in some of that.
Daniel Burke - Johnson Rice — Analyst
Okay, great. I think everything else was asked. Thanks very much, guys.
Operator
Thank you. We have now reached the allotted time for the call today. Thank you for participating
and have a great day. You may now disconnect.
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