The pipeline unit of refiner Marathon Petroleum Corp. plans to buy MarkWest Energy Partners LP, the second-largest U.S. processor of natural gas, for about $15.8 billion in stock and cash.
The transaction represents a major expansion into pipelines and processing for Marathon, which created its pipeline unit MPLX LP in 2012, the year after it was spun out of producer Marathon Oil Corp.
The refiner has more than doubled in value since then as processors reap the rewards from low crude prices brought on by the shale revolution.
The acquisition will be a “unit-for-unit” tax-free deal that includes a one-time cash payment to MarkWest unit-holders, MPLX said in a statement Monday. The combination creates a $21 billion
company that will be the nation’s fourth-largest master-limited partnership.
It will have shipping and processing capabilities for crude oil, refined products and natural gas from Texas to Pennsylvania.
“The combination of the two companies is very formidable because it gives them economies of scale,” said Fadel Gheit, a New York-based analyst for Oppenheimer & Co. “Most of the gain is going to be for Marathon Petroleum. It will give them tremendous flexibility in their ability to source feedstock for their refining system.”
Marathon will retain control of the combined entity through ownership of the MPLX general partner and would own 19 percent of the partnership, according to the statement. MPLX affirmed plans to raise its investor payout 29 percent this year, and forecast 25 percent annual compound growth in distributions through 2017 from the combined MLPX.
The deal shows that interest in mergers continues to be strong for owners of pipelines and processing units even after oil prices fell more than 50 percent since last year. Pipeline operator Williams Cos. began an auction process to sell itself after rejecting a $48 billion takeover bid last month.
Under the MarkWest merger agreement, common unit holders in the acquired company will get 1.09 MPLX common units and a one-time cash payment of $3.37 a MarkWest unit, or the equivalent of $78.64 a unit, a 32 premium to the July 10 closing price. MPLX’s sponsor, Marathon Petroleum Corp., will contribute $675 million to fund the cash payment.
“This combination creates a unique new competitor in the midstream sector,” Marathon Chairman and Chief Executive Officer Gary Heminger said in the statement. “The success of this combination centers on sustainable growth.”
The deal is expected to close in the 2015 fourth quarter, subject to approval of MarkWest unit holders and regulatory agencies. UBS Investment Bank AG acted as financial adviser and Jones Day acted as legal adviser to MPLX. Jefferies Group LLC acted as financial adviser and Cravath, Swaine & Moore LLP acted as legal adviser to MarkWest.