Sunoco-Wawa merger? (Updates)

As my colleague Andy Maykuth points out here, Sunoco boss Lynn Elsenhans, who's sold or shut several of Sunoco's lower-profit oil refining, chemical, trucking and (soon) steel-coke operations, is more interested in selling Cokes and smokes, along with its logistics and biofuels units.

"The retail business has been a consistent performer for Sunoco, generating steady income and good return on capital," Elsenhans told investors at a Barclays Capital energy-and-power investors' conference yesterday. "We believe we can unlock even additional values, through the growth of the network, and by improving our convenience offer."

If Sunoco wants more and bigger convenience stores, why not buy Wawa? "That is the first thought that came to my mind," says a Philadelphia investor whose family has done business with Sunoco's founding Pew family and Wawa's controlling Wood family over the years. "Wawa knows the model because they created it.  It's a very good model." Though if the Woods wanted to sell,  "this would be the year to sell because of the current cap gains rate."

Today's 15% capital-gains tax "sunsets at the end of 2010," notes Scott Isdaner, partner at Isdaner & Co. accountants in Bala Cynwyd. The tax on company-sale profits, like other capital gains, "would go back up" to 20%, or possibly more, unless Congress acts soon. So, generally, "it's time to accelerate the sale of your business, if you're looking to sell, and the price is right," says Isdaner.

What's Wawa worth? A slightly larger chain, Iowa-based Casey's General Stores, with $4.6 billion in yearly sales at more than 1,000 mostly smaller stores, is right now fielding competing $1.6 billion bids from Japanese-owned 7-11 and Canada's Alimentation Couche-Tard (Food Up-Late).

Wawa, with 550 stores and somewhere north of $4 billion in sales, according to Convenience Store News and Progressive Grocer, might fetch as much - or more, if it's expected to grow faster than Casey's. Sunoco, with $28 billion in yearly sales but a modest $4.2 billion share value, is, as Elsenhans notes, sitting on "about $1.5 billion of cash" and has good credit to borrow more.

So Wawa could be worth as much as half of what Sunoco is trading for on today's stock market. In that case, Wawa could buy Sunoco, if the Woods want to keep their private trusts going, and are willing to borrow or invest aggressively to digest the larger but slower-growing fuel retailer.

No immediate coment from Sunoco or Wawa.