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MarkWest Unitholders Approve Merger With Marathon Petroleum Partnership

After weeks of growing uncertainty about whether it would happen as stagnant commodity prices have taken a bite out of the companies' market values, MarkWest Energy Partners LP's unitholders on Tuesday overwhelmingly approved a merger with Marathon Petroleum Corp.'s (MPC) master limited partnership (MLP), MPLX LP.

While the deal had already been recommended by the boards of directors of MPC, MPLX and MarkWest, along with each of the executive management teams and three independent proxy advisory firms, it hinged on Tuesday’s special meeting among MarkWest unitholders (see Shale Daily, Nov. 19). The companies said 80% of the units voted in favor of the merger agreement, tying-up the nation's second largest natural gas processor in MarkWest and its fourth largest crude oil refiner in MPC.

The combination, the companies said, would create one of the largest MLPs in the country that is expected to generate a mid-20% compound annual distribution growth rate through 2019. The merger is still subject to customary closing conditions, but is expected to close by Friday. MPLX, MarkWest and MPC management also plan to co-host an analyst and institutional investor meeting on Thursday.

"This combination creates a large-cap, diversified midstream partnership with an extraordinary growth profile, underpinned by MarkWest's large organic growth backlog and MPC's large inventory of MLP eligible assets," said MPC CEO Gary Heminger.

Executives at both companies have touted the merger as an opportunity to double MarkWest's already rapid growth profile over the next five years. A merger with MPC, they have said, would also be a significant event that allows MarkWest more flexibility with a lower cost of capital.

MarkWest CEO Frank Semple said Monday that the merger would extend the company's focus on executing the midstream infrastructure build-out in its areas of operation. "Our development of critical midstream solutions will be further enhanced by MPC's strong parental support and a growing inventory of dropdown assets available to the combined partnership," he said. "MPC's significant pipeline and refinery operations will be critical for expanding and integrating MarkWest's midstream platform throughout some of our nation's most productive resource plays."

Mostly a unit-for-unit transaction, MarkWest unitholders would receive $1.28 billion in cash and 1.09 MPLX common units per MarkWest common unit, for an all-in consideration of $51.74 per MarkWest unit, based on the company's Nov. 16 closing price. In recent weeks, concerns related to the decline in oil and gas prices and an erosion of the MLP sector's value had prompted some unitholders to advise against the merger. When the deal was announced in July, MPC offered MarkWest unitholders $78.64/unit, but it has increased its cash consideration twice, taking the original offer from $675 million to $1.28 billion (see Shale Daily, Nov. 17; July 13).

MarkWest co-founder and former CEO John Fox has said MPC's cash consideration would not be enough to offset the projected cuts in MarkWest's distributions, or payments to unitholders. He launched a highly visible effort, with support from other MarkWest unitholders, advocating that the company remain standalone.

Founded in late 2002, MarkWest was formed with the acquisition of a silo, fractionator and a number of processing plants in Kentucky and West Virginia. It has grown rapidly since, spending more than $9 billion on its operations, of which about two-thirds has been spent in the Appalachian Basin, where it has become the largest processor and fractionator. 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.

The merger is expected to provide MPC with further vertical integration and a direct supply of natural gas liquids for its refining business, sources close to the deal have said.

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