Refiners Holly Corp. (NYSE: HOC) and Frontier Oil Corp. (NYSE: FTO) agreed to merge in an all-stock deal valued at nearly $3 billion, to create an independent refiner serving the mid-continent, Rocky Mountain and Southwest refining markets.

The new company, which will be named HollyFrontier Corp., is expected to increase refining capacity in fast growing, traditionally high demand areas while maintaining significant exposure to the growing supply of lower cost domestic and Canadian crude oil.

HollyFrontier will have a refining capacity of over 440,000 barrels-per-day (bpd) across five refineries, the companies said.

As per the terms of the agreement, Frontier shareholders will receive 0.4811 Holly shares for each share of Frontier common stock.
The new company would have an enterprise value of $7 billion.

Frontier and Holly are two of the most profitable, publicly traded independent refining companies; together we will be one of the largest independent refiners in the U.S., Matt Clifton, Holly's CEO, and Mike Jennings, Frontier's CEO said in a joint statement.

This strategic combination of Holly and Frontier increases our diversity of assets and geographic coverage, provides for a strong balance sheet, they said.

Jennings will serve as President and CEO of the combined company to be based in Dallas, while Clifton will serve as Executive Chairman.

The combination is expected to add to Holly's earnings per share based on analysts' consensus estimates and excluding one-time expenses related to the merger.

The companies expect Holly shareholders to own around 51 percent and Frontier shareholders about 49 percent of the combined company, post-merger.

The transaction is expected to generate value through total annual cost savings of at least $30 million.

The boards of both companies have unanimously approved an all-stock merger of equals transaction, which is expected to close early in the third quarter.

Frontier plans to reinstate its regular quarterly dividend of 6 cents a share and also set a special dividend of 28 cents a share.

Shares of HOC ended Friday's trading at $56.11, while FTO closed at $28.12.