Marathon Petroleum Corp. (MPC) is adding $400 million to the cash consideration payable to MarkWest Energy Partners LP unitholders in a proposed merger with MPC's midstream master limited partnership, MPLX LP.
MPLX agreed in July to acquire MarkWest for roughly $15.8 billion in a deal that could double MarkWest's growth profile over the next five years (see Shale Daily, July 13). On Tuesday, MPLX announced that MPC would sponsor an increase in the cash consideration to $1.075 billion from the previously announced $675 million.
Under the revised terms of the merger agreement, MarkWest common unitholders will receive 1.09 MPLX common units plus a one-time cash payment of about $5.21/common unit of MarkWest, for a total consideration of $52.93/common unit, based on fully diluted units currently outstanding and the closing price of MPLX's common units on Tuesday (Nov. 10). In addition, as part of the original transaction, MPC will contribute $225 million, based on the price of MPLX's common units on Tuesday, to maintain its 2% general partner interest in MPLX. All other terms of the original merger agreement remain the same, MPLX said.
"The enhancement to the terms of our agreement reflects the commitment of MPLX and its sponsor, MPC, to the combination with MarkWest and our conviction that the transaction will create significant benefits for the unitholders, customers and employees of both partnerships," said MPLX CEO Gary Heminger. "This increase substantially enhances the transaction value for MarkWest unitholders, who will not only benefit from significant distribution growth, but also a substantially lower equity yield, investment-grade debt funding costs, enhanced access to capital and liquidity, and a strong general partner prepared to provide support and financial flexibility."
The merger would tie up the nation's fourth-largest crude oil refiner and one of the Appalachian Basin's largest natural gas processors.
MPLX said the deal would create one of the largest MLPs in the country and is expected to generate a mid-20% compound annual distribution growth rate through 2019.
The merger would mostly be a tax-free, unit-for-unit transaction that values MarkWest at $20 billion, including $4.2 billion in debt that MLPX would assume. MarkWest common unitholders would receive $78.64/unit -- a 32% premium to last Friday’s closing price on the New York Stock Exchange.
The transaction is subject to approval by MarkWest unitholders and other customary closing conditions and, assuming those approvals, is expected to close next month. A special meeting of MarkWest common unitholders is scheduled for Dec. 1. The transaction was greenlighted by the Federal Trade Commission and the Department of Justice in August (see Shale Daily, Aug. 27).
Findlay, OH-based MPC, which has a crude oil refining capacity of 1.7 million b/d and sells its gasoline at more than 5,000 independent gasoline stations in 19 states, created MPLX in 2012 to operate and acquire crude oil and refined products pipelines and other assets. MarkWest has already set forth a $1.5 billion annual capital investment program over the next five years and operates cryogenic processing, fractionation and other midstream assets in Ohio, West Virginia, Pennsylvania, Kentucky, Texas and Oklahoma.
MarkWest is the nation's second-largest natural gas processor and fourth-largest fractionator. Its largest position is in the Marcellus and Utica shales, where it operates 34 processing facilities and has another 18 under construction. It's also the largest sub-investment grade MLP in the U.S.