Marathon Petroleum Corp. on Monday agreed to take over Andeavor, a combination that would create a powerful U.S. refining, marketing and midstream company that, among other things, builds a massive Permian Basin footprint.

The transaction, based on Marathon Petroleum’s Friday (April 27) closing price, has an estimated equity value of $23.3 billion and an enterprise value of $35.6 billion.

“This transaction combines two strong, complementary companies to create a leading U.S. refining, marketing, and midstream company, building a platform that is well-positioned for long-term growth and shareholder value creation,” said Marathon Petroleum CEO Gary R. Heminger.

Marathon Petroleum already has a significant footprint in the Marcellus and Utica shales, and the combined company would expand its presence in the Permian and Bakken Shale to increase midstream opportunities.

The midstream business would include master limited partnerships MPLX LP and Andeavor Logistics.

“Each of our operating segments are strengthened through this transaction, as it geographically diversifies our refining portfolio into attractive markets, increases access to advantaged feedstocks, enhances our midstream footprint in the Permian Basin, and creates a nationwide retail and marketing portfolio that will substantially improve efficiencies and enhance our ability to serve customers,” Heminger said.

The combination is expected to generate about $1 billion of annual run-rate synergies “within the first three years and significantly enhancing our long-term cash flow generation profile.”

When completed, Andeavor CEO Greg Goff would become executive vice president and join Marathon Petroleum’s board.

“With significantly increased scale, a strong platform for our midstream businesses and a leading nationwide retail and marketing distribution portfolio, the combined company presents tremendous value enhancement and growth opportunities for all shareholders,” Goff said.

“This strategic combination provides our shareholders with a premium for their shares and the opportunity to benefit from substantial future value creation…

“As the largest refiner by capacity in the U.S., with a best-in-class operating capability and a strong capital structure, the combined company will be exceptionally well positioned to deliver on its synergy and earnings targets.”

Andeavor’s refineries in California, the Midcontinent and the Pacific Northwest complement Marathon Petroleum’s existing Gulf Coast and Midwest refining footprint. The combined company would become the No. 1 U.S. refiner by capacity and a top five global refiner, with throughput capacity of 3 million b/d-plus.

Andeavor shareholders have the option to choose 1.87 shares each of Marathon Petroleum stock or $152.27/share in cash. If completed, Marathon Petroleum would control 66% of the company, with Andeavor owning 34%.

The transaction, unanimously approved by each board, is tentatively set to be completed later this year, subject to regulatory approvals and an OK from shareholders. Headquarters would be in Findlay, OH, with an office in San Antonio, TX.

“Wow!,” said Tudor, Pickering, Holt & Co. (TPH) analysts in reaction. It’s the biggest deal, they said, since HollyFrontier Corp. acquired Petro-Canada Lubricants Inc. last year to make it the fourth largest lubricants producer in North America.

The transaction “will create the largest refiner in the U.S. with 16 refineries with just over 3.0 million b/d capacity (16% of U.S. total), midstream stakes…worth a public market value of $22 billion, and a retail network of just about 5,000 outlets…

“The combined $58 billion market cap (before upside from synergies) would edge out Phillips 66 PSX ($56 billion) and Valero ($47 billion) and create a stark difference between these three leading companies and the rest of the group…Despite the size…we do not foresee any regulatory problems given the disparate geographical markets of each company.”