In the United States (US), Marathon Petroleum Corp (MPC) and compatriot Andeavor (ANDV) have announced that they have entered into a definitive merger agreement under which MPC will acquire all of ANDV's outstanding shares, representing a total equity value of US$23.3 billion and a total enterprise value of US$35.6 billion, based on MPC's April 27, 2018 closing price of US$81.43. MPC and ANDV shareholders will own approximately 66 percent and 34 percent of the combined company, respectively.
According to a statement, the transaction was unanimously approved by the board of directors of both companies and is expected to close in the second half of 2018, subject to regulatory and other customary closing conditions, including approvals from both MPC and ANDV shareholders.
The headquarters will be located in Findlay, Ohio (OH), and the combined business will maintain an office in San Antonio, Texas (TX).
This transaction combines two strong, complementary companies to create a leading US refining, marketing, and midstream company, building a platform that is well-positioned for long-term growth and shareholder value creation. Each of our operating segments is strengthened through this transaction, as it geographically diversifies our refining portfolio into attractive markets, increases access to advantaged feedstocks, enhances our midstream footprint in the Permian basin, and creates a nationwide retail and marketing portfolio that will substantially improve efficiencies and enhance our ability to serve customers, said Gary R. Heminger, MPC chairman, and CEO.
Country’s largest refiner
MPC is currently the nation’s second-largest refiner, with a crude oil refining capacity of approximately 1.9 million barrels per calendar day in its six-refinery system. Marathon brand gasoline is sold through approximately 5 600 independently owned retail outlets across 20 states and the District of Columbia.
In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation’s second-largest convenience store chain, with approximately 2 740 convenience stores in 21 states. MPC owns, leases, or has ownership interests in approximately 10 800 miles of crude oil and light product pipelines.
Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream master limited partnership, through which MPC has ownership interests in gathering and processing facilities with approximately 5.9 billion cubic feet per day of gathering capacity, 8.4 billion cubic feet per day of natural gas processing capacity, and 610 000 barrels per day of fractionation capacity.
MPC’s fully integrated system provides operational flexibility to move crude oil, NGLs, feedstocks, and petroleum-related products efficiently through the company’s distribution network and midstream service businesses in the Midwest, Northeast, East Coast, Southeast, and Gulf Coast regions.
ANDV (previously known as Tesoro Corporation) currently operates 10 refineries with a combined capacity of approximately 1.2 million barrels per day in the mid-continent and western United S while its retail-marketing system includes more than 3 200 stores marketed under multiple well-known fuel brands. It also has ownership in Andeavor Logistics LP and its non-economic general partner.
The combined company will be the largest US refiner by capacity and a top-five refiner globally, with a throughput capacity of over 3 million barrels per day. The combination also enhances crude oil integration from wellhead to refinery supply across the integrated system.
Importantly, we expect this transaction will be meaningfully accretive for shareholders, generating approximately US$1 billion of tangible annual run-rate synergies within the first three years and significantly enhancing our long-term cash flow generation profile. Given the confidence in the robust cash flow expected to be generated by the combined business, our board also authorized an incremental US$5 billion of share repurchases. As a combined company, we will continue our balanced approach to investing in the business and returning cash to our investors, while maintaining our commitment to an investment-grade credit profile, said Gary R. Heminger.
Closure expected H2/2018
The transaction is expected to close in the second half of 2018 and is subject to customary closing conditions, including approval by ANDV shareholders of the merger, and approval by MPC shareholders of the new MPC shares issued in the transaction.
It is also subject to approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR), and the receipt of other required regulatory approvals. Upon the close of the transaction, MPC will own the general partner and be the largest unitholder in each of the separate MLPs.
At closing, Greg Goff, ANDV chairman, and CEO will join MPC as executive vice-chairman. As such he will provide leadership and be integrally involved in the strategy for the combined company. Goff, along with three other Andeavor directors, will also join the board of directors of Marathon Petroleum.
With significantly increased scale, a strong platform for our midstream businesses, and a leading nationwide retail and marketing distribution portfolio, the combined company presents tremendous value enhancement and growth opportunities for all shareholders. This strategic combination provides our shareholders with a premium for their shares and the opportunity to benefit from substantial future value creation at MPC. As the largest refiner by capacity in the US, with a best-in-class operating capability and a strong capital structure, the combined company will be exceptionally well-positioned to deliver on its synergy and earnings targets. We look forward to working together to deliver on the full potential of this powerful combination, said Greg Goff.
Heminger and Goff added that MPC and ANDV are not only complementary from operational and financial standpoints but also share similar core values. They said that both MPC and ANDV have been committed to safety, environmental stewardship, and community involvement.
Together, the alignment on these values will enable the combined company to remain an “excellent corporate citizen wherever it has the privilege to operate”.
Barclays acted as financial advisor and Jones Day acted as legal advisor to MPC in connection with the transaction. Goldman, Sachs & Co. LLC acted as exclusive financial advisor and Sullivan & Cromwell LLP acted as legal advisor to Andeavor in connection with the transaction.
