US energy firms MPLX and MarkWest to merge in $20-bn deal
14 July 2015
Leading US pipeline operators MPLX LP, a partnership sponsored by refinery giant Marathon Petroleum Corp (MPC), is acquiring MarkWest Energy Partners LP, the country's second-largest processor of natural gas, for an enterprise value of approximately $20 billion, including $4.2-billion of debt.
The combination will create the fourth-largest US master limited partnership (MLP) - a publicly traded limited partnership - with a market capitalisation of $21 billion.
Findlay, Ohio-based MPLX was formed in 2012 as an MLP by Marathon Petroleum. The company is a leading operator of pipelines and other midstream assets related to the transportation and storage of crude oil and refined products.
Under the terms of the deal, MarkWest unit holders would get 1.09 MPLX units and a cash payment of approximately $3.37 per unit of MarkWest, for a total consideration of $78.64 based on the unit price on 10 July. The offer price represents a 32-per cent premium to MarkWest's closing price on the day.
Denver, Colorado-based MarkWest Energy Partners LP owns and operates midstream service businesses. MarkWest has a leading presence in many natural gas resource plays including the Marcellus Shale, Utica Shale and others.
The stock market was apparently not enthused by the deal. Units of MarkWest rose 14 per cent to $68.01 yesterday in New York, representing a 13.5-per cent discount to the offer price.
MPLX chairman and chief executive officer Gary Heminger said, "Our strategic combination with MarkWest would result in a large-cap, diversified MLP with an exceptional growth profile.''
''This transaction creates a tremendous platform for the combined partnership to continue to grow distributable cash flow and creates significant long-term value for the unit holders," Heminger added.
MPLX's assets consist of a 99.5-per cent equity interest in a network of oil pipeline assets located in the Midwest and Gulf Coast regions and a 100-per cent interest in a butane storage cavern located in West Virginia with approximately 1 million barrels of natural gas liquids storage capacity.
The complementary asset portfolios of the companies are expected to result in significant additional growth opportunities. The combination also provides significant vertical integration opportunities, as MPC is a large consumer of natural gas liquids.
The combined business is expected to yield a distribution growth of 29 per cent this year followed by a 25 per cent compound annual growth through 2017 with a peer-leading growth profile thereafter.
"MPC's strong balance sheet and liquidity position will enable MarkWest to accelerate organic growth in some of the nation's most economic and prolific natural gas resource plays that it may have been limited in pursuing otherwise," Heminger stated.
He also affirmed MPLX's commitment to maintain an investment grade credit profile for the combined partnership.
Frank Semple, MarkWest's chairman, president and chief executive officer commented, "This powerful combination provides MarkWest with an investment grade balance sheet and a significant expansion of growth projects driven by MPC's significant pipeline and refinery operations in the upper Midwest and the Gulf Coast.
Marathon Petroleum will provide $675 million to MPLX to fund the cash part of the deal.