Activist hedge fund Elliott Management Corp., whose funds collectively own about 2.5% of Marathon Petroleum Corp. (MPC), is pushing the Findlay, OH-based operator to separate its midstream, refining and convenience store businesses to unlock more value.
Meanwhile, two other large shareholders have sent a separate letter to the board calling for CEO Gary Heminger to be replaced.
In the first salvo against MPC in the past few days, Elliot sent a letter to the board citing “chronic underperformance.” Elliott, which had called for a separation in 2016, said spinning off the midstream arm MPLX LP as a standalone “would be a top five U.S. midstream operator by enterprise value.” MPLX has broad operations across the Lower 48, including the Permian Basin, and with MarkWest Energy Partners LP, it owns a mix of midstream and natural gas liquids assets.
Elliott also wants the company to spin off Speedway, which it said would create the largest U.S.-listed convenience store operator. By separating the refining arm, it likely would become the “largest independent merchant refiner by U.S. throughput.”
Elliott representatives had met with management in 2016 about ways “to create value, which concluded with promises from management and the board that certain steps would be taken to improve performance. Those promises have not been kept, and Elliott continues to believe that Marathon is severely undervalued.”
Subsequent actions since Elliott first met with management have been a concern, it said. For example, since the company bought Andeavor last year, the company has become “even more complex,” which compounded its historical valuation issues.
“Elliott continued to monitor the Marathon situation through the Andeavor merger and the subsequent stumbles. As the stock collapsed back to 2016 levels, we again reviewed the case for structural change…”
Meanwhile, CNBC reported that hedge fund D.E. Shaw, which owns a similar stake in MPC as Elliott, also is supporting MPC’s breakup.
The MPC board said in response to Elliott’s recommendations that it welcomed “constructive input related to enhancing shareholder value...Since becoming an independent company in 2011, MPC has generated total shareholder return of 254%, exceeding the S&P, which has returned 174%. At the same time, MPC has returned over $20 billion to shareholders through dividends and share repurchases.”
The company said it would “thoroughly evaluate Elliott's proposal and look forward to continuing our constructive engagement around these issues.”
From another corner, former Andeavor board members Paul Foster and Jeff Stevens, whose affiliates own around 1.7% of MPC’s common shares, are calling for Heminger to be replaced.
“In our view, Marathon’s record of value destruction since the Andeavor acquisition is staggering on both a standalone basis and relative to peers,” Foster and Stevens wrote. “Today, we believe Marathon has lost the confidence of its largest stockholders and its credibility with sell-side analysts.”
While they said they agreed with most of Elliott’s proposals, “our view is that Elliott has not gone far enough. Other near-term steps must be taken with respect to management and corporate governance to ensure the best interests of stockholders are pursued.
“In our opinion, the most important step is replacing you, Mr. Heminger, as Marathon’s chairman and CEO. Our recent experience trying to interact with Marathon’s lead independent director and your insistence on being present at any such meeting demonstrates a stunning disregard for sound corporate governance.
“Engaging with you in a public manner was not our first choice, but unfortunately our hand was forced by your obstruction and obfuscation. We still welcome the opportunity to meet with and commence a substantive dialogue with your independent board members.”