USX, Ashland slate downstream combination

Assets of Marathon/Ashland joing venture [98172 bytes]

U.S. downstream rationalization continues.

Ending months of speculation, USX Corp. and Ashland Inc. have signed a letter of intent to pursue a combination of the major elements of USX-Marathon Group and Ashland's refining, marketing, and transportation operations in a joint venture.

The JV, when formed, will have a combined refining capacity of 930,000 b/d, accounting for 6% of U.S. capacity.

The U.S. refining and marketing sector has seen a flurry of large mergers, combinations, and JVs in recent months. In April, Ultramar Diamond Shamrock Corp.-itself the product of a 1996 merger-disclosed its plans to acquire Total Petroleum North America Ltd. (OGJ, Apr. 21, 1997, p. 26).

Earlier, deals surfaced involving a Shell Oil Co.-Texaco Inc. plan to combine certain downstream assets and a Valero Energy Corp. plan to acquire Gulf Coast refiner Basis Petroleum Inc. (OGJ, Mar. 24, 1997, p. 24).

When speculative reports initially surfaced about a possible Marathon-Ashland combination, Marathon withheld comment; Ashland officials said the company was continuing to "undertake several strategic initiatives to improve profitability and shareholder returns," including a "review of options for strategic alliances for its refining and marketing operations."

Upon disclosing the JV plan last week, USX Chairman Thomas J. Usher said, "Market conditions have dictated that new approaches be explored to improve performance and growth opportunities." He said the companies' "collective focus will be to build upon the strengths of each company."

"The combination...will create a stronger, more efficient company," noted Paul W. Chellgren, Ashland chairman and CEO.

What's involved

Terms call for USX-Marathon Group to have a 62% ownership in the JV and Ashland the remainder.

The JV will be formed after regulatory approvals, execution of definitive agreements, and approval by the USX and Ashland boards.

The deal involves Marathon and Ashland refineries, terminals, retail marketing, and pipeline assets (see table, p. 27). Marathon Oil Co. is a part of USX-

Marathon Group, a USX Corp. unit.

Current plans are to maintain the existing brand identification for each company, but future decisions on branding or consolidation may be undertaken by the new entity.

The exploration, production, and chemical businesses of both companies are not included in the JV, which will be based in Findlay, Ohio.

Also excluded are Ashland's Valvoline division, along with both companies' equity investments in certain pipelines.

Marathon operates four refineries with a total capacity of 575,000 b/d at Detroit: Robinson, Ill.; Texas City, Tex.; and Garyville, La., near New Orleans, accounting for 3.7% of U.S. capacity.

Marathon's retail operations include about 3,980 outlets in 17 states and 51 terminals in the Midwest and Southeast.

Marathon owns, leases, or has interests in 5,142 miles of pipeline that will be included in the JV.

Ashland operates refineries at Catlettsburg, Ky., St. Paul Park, Minn., and Canton, Ohio, with a total capacity of 355,000 b/d, accounting for 2.3% of U.S. capacity.

Ashland's refinery-produced petrochemicals will become part of the JV.

On the retail side, it has 1,420 outlets in 11 states and 34 terminals. Ashland owns, leases, or has interests in 5,790 miles of pipeline in 13 states.

Synergies, fallout

Officials of both companies, in noting synergies will be defined in coming months, said work force reductions and job reassignments will likely result as the new company structure is formed.

"Combining the strengths of our supply, distribution, and marketing systems and capitalizing on our mutual experience will serve our stockholders well in the long run," said Usher and Chellgren.

They said, however, the long-term growth potential of the combined entity could provide future employment opportunities.

Officials said it's expected the JV will be able to achieve substantial benefits largely by pursuing operational efficiencies and integrating the strengths of business processes, management systems, and administrative support functions.