Marathon Petroleum, Andeavor plan merger

April 30, 2018
Marathon Petroleum Corp. has entered a definitive agreement to acquire US independent Andeavor, formerly Tesoro Corp., in a merger that would create the largest US refiner by capacity and one of the top five largest refiners globally. 

Marathon Petroleum Corp. has entered a definitive agreement to acquire US independent Andeavor, formerly Tesoro Corp., in a merger that would create the largest US refiner by capacity and one of the top five largest refiners globally.

As part of the proposed transaction unanimously approved by the boards of both companies, Marathon will acquire all of Andeavor’s outstanding shares, representing a total equity value of $23.3 billion and total enterprise value of $35.6 billion based on Marathon’s Apr. 27 closing price of $81.43/share, the companies said on Apr. 30.

Andeavor shareholders will have the option to choose 1.87 shares of Marathon stock or $152.27 in cash subject to a proration mechanism that will result in 15% of Andeavor’s fully diluted shares receiving cash consideration, which represents a premium of 24.4% to Andeavor’s Apr. 27 closing price.

Once completed, Marathon and Andeavor shareholders will own about 66% and 34% of the combined company, respectively, the companies said.

The companies said they expect to close the proposed transaction during this year’s second half, pending regulatory and other customary closing conditions, including approvals from both Marathon and Andeavor shareholders.

The combined company’s headquarters would remain in Findlay, Ohio, but the combined business would maintain an office at Andeavor’s current headquarters in San Antonio, the companies said.

“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,” said Gary R. Heminger, Marathon chairman and chief executive officer.

Alongside strengthening each of Marathon’s operating segments by geographically diversifying its refining portfolio into attractive markets, increasing access to advantaged feedstocks, enhancing its midstream footprint in the Permian basin, and creating a nationwide retail and marketing portfolio that will improve efficiencies and enhance its ability to serve customers, the proposed transaction would be meaningfully accretive for shareholders by generating about $1 billion of tangible annual run-rate synergies within the first 3 years, as well as enhance Marathon’s long-term cash flow generation profile, Heminger said.

“Given the confidence in the robust cash flow expected to be generated by the combined business, our board also authorized an incremental $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,” Heminger added.

At closing, Greg Goff, Andeavor’s chairman and chief executive officer, would join Marathon as executive vice-chairman and, along with three other Andeavor directors, also would join Marathon’s board.

The proposed merger follows Andeavor’s acquisition of Western Refining Inc. completed on June 1, 2017, after which Andeavor now owns 10 refineries with a combined refining capacity of more than 1.1 million b/sd (1.05 million b/cd) (OGJ Online, Aug. 1, 2017).

Combined with Marathon’s six existing refineries in the US Gulf Coast and Midwest, the united company would operate 16 US refineries with an overall throughput capacity of more than 3 million b/d.

By building on Marathon’s already strong footprint in Marcellus shale, the combined company’s expanded presence in the Permian and Bakken regions through the proposed acquisition also would greatly increase the combined company’s future US midstream growth opportunities, Marathon said.

Under the current agreement, Marathon’s midstream business would include two high-quality master limited partnerships: MPLX LP and Andeavor Logistics.

Upon finalizing the transaction, Marathon would own the general partner and be the largest unitholder in each of the separate MLPs, the companies said.

Contact Robert Brelsford at [email protected].