By OGJ editors
HOUSTON, Mar. 19 -- In a deal that Marathon Oil Corp. said would complement its long-term growth plans, the Houston-based oil and natural gas company Friday reported it will acquire Covington, Ky.-based Ashland Inc.'s 38% interest in Marathon Ashland Petroleum LLC (MAP) for $2.93 billion.
Marathon already holds a 62% interest in Findlay, Ohio-based MAP. Once completed, the deal would make Marathon sole owner of MAP, which is the largest refiner in the US Midwest and the fifth largest refiner in the US.
The transaction is structured to be tax free, Ashland said.
Clarence P. Cazalot Jr., Marathon president and CEO, said, "Acquiring full ownership of MAP provides us with substantial growth opportunities and leverages our access to the profitable Midwest growth markets. At the same time, Marathon will retain the financial and operational flexibility to continue investing in new and existing core exploration and production operations, as well as our emerging integrated gas business."
James J. O'Brien, Ashland's chairman and CEO, commented, "This transaction represents the best opportunity for Ashland and its shareholders to capture the value that has been created through this joint venture."
Closing of the deal, which is expected in the fourth quarter, is contingent upon a number of conditions, including a favorable tax ruling from the US Internal Revenue Service as to the tax-free nature of the transaction, Ashland shareholder approval, Ashland public debt holder consents, and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act.
Deal details
As part of the transaction, Marathon will acquire certain other complementary Ashland businesses for additional consideration of about $94 million, it said.
These additional transactions include Marathon's acquisition of Ashland's maleic anhydride business, including the company's Neal, WVa., plant, which is adjacent to MAP's Catlettsburg, Ky., refinery. Marathon also will acquire a portion of Ashland's Valvoline Instant Oil Change business, consisting of 61 retail outlets in Michigan and Ohio. "While not part of MAP, these additional assets are complementary to MAP's business," Marathon said.
The deal breaks down as follows:
-- $315 million in Marathon common stock to be distributed to Ashland's shareholders, or about $4.50/share of Ashland stock, based on the number of shares currently outstanding.
-- About $794 million in cash and accounts receivable to be distributed to Ashland by MAP.
-- About $1.9 billion in assumed debt and assumed environmental liabilities with a present value of $15 million.
Marathon said it plans to initiate an offering for about $1 billion in new Marathon common shares "as soon as practical." Marathon added that it plans to use proceeds generated by this offering, along with existing Marathon cash resources, to pay down its debt.
MAP assets
MAP owns and operates seven refineries with a total capacity of 948,000 b/d of oil as well as more than 8,000 miles of pipeline. MAP markets its petroleum products through a network of nearly 6,000 retail outlets under the Marathon, Speedway, Super America, and Pilot Travel Center brands.
MAP's refinery locations and capacities are: Garyville, La., 245,000 b/d; Catlettsburg, 222,000 b/d; Robinson, Ill., 192,000 b/d; Detroit, Mich., 74,000 b/d; Canton, Ohio, 73,000 b/d; Texas City, Tex., 72,000 b/d; and St. Paul Park, Minn., 70,000 b/d.
MAP owns 88 light product and asphalt terminals, 175 truck-loading racks, and 185 owned or leased trucks.
MAP owns about 3,900 retail outlets in 16 states including Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin.
MAP's wholly owned retail arm, Speedway SuperAmerica LLC, has 1,800 locations in 9 states including Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio, South Dakota, West Virginia, and Wisconsin.
MAP owns, operates, leases or has an ownership interest in Marathon Ashland Pipe Line LLC's system.
Analyst reaction
Standard & Poor's Ratings Services, a division of The McGraw-Hill Cos., affirmed its "BBB+" corporate credit rating on Marathon following the company's announcement Friday.
"The transaction strengthens Marathon's business profile, giving it 100% control over an advantageously located, high-quality refining and marketing network that consistently ranks at or near the top of most major operating metrics," said S&P credit analyst John Thieroff.
"In addition, by eliminating cash distributions paid to Ashland (average of $338 million from 2001 through 2003), Marathon will have greater cash available to reinvest in growth projects, strategic acquisitions, or ultimately to redeploy to its growing slate of large, capital-intensive upstream projects," Thieroff added.
Also on Friday, S&P placed its "A-3" commercial paper rating on Ashland on "CreditWatch" with positive implications and affirmed all other ratings, including the "BBB" corporate credit rating.
"While the sale of its MAP interest would meaningfully diminish Ashland's business profile, the resulting debt-free capital structure. . .and good initial cash position are offsetting strengths," said S&P credit analyst Wesley E. Chinn.
"Over time, Ashland's management is expected to improve its business mix in a manner that maintains a conservative financial profile resulting in cash flow protection measures appropriate for the "BBB" corporate credit rating," he added.
