$9 Billion Pipeline Merger All in the Family

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Two mid-size energy master limited partnerships (MLPs) announced a definitive merger agreement Wednesday morning. MPLX L.P. (NYSE: MPLX) will acquire Andeavor Logistics L.P. (NYSE: ANDX) in an all-equity transaction valued at approximately $9 billion ($14 billion including debt).

MPLX was created in 2012 from the pipeline and other downstream assets of Marathon Petroleum Corp. (NYSE: MPC). Andeavor, then known as Tesoro, spun-out its pipeline and logistics assets into Tesoro L.P. in 2011, and, in 2018, Andeavor was acquired by Marathon for $23.3 billion ($35.6 billion including debt). Both MPLX and Andeavor have operated independently until this morning’s announcement. Marathon Petroleum owns about 64% of MPLX and is the general partner and majority owner of Andeavor Logistics.

Under the terms of the deal, Andeavor Logistics common unitholders will receive 1.135 common units of MPLX for each Andeavor Logistics common unit held, representing a premium of 7.3%, and Marathon Petroleum will receive 1.0328 MPLX common units for each Andeavor Logistics common unit held, representing a 2.4% discount. The blended exchange ratio of 1.07× represents a 1% premium to market.

The two pipeline companies operate in different areas of the country. MPLX is a major player in the Marcellus shale region of Ohio and Pennsylvania, with crude oil pipelines running from the Gulf Coast to the Midwest. The Capline pipeline, in which Marathon is a partner along with Plains All-American Pipeline L.P. (NYSE: PAA) and a subsidiary of BP PLC (NYSE: BP), is being reversed to transport up to 1.2 million barrels a day of crude from Patoka, Illinois, to the Gulf Coast. MPLX is the Capline’s operator.

Andeavor Logistics operates three pipeline systems primarily in the upper Midwest and West. It’s Southwest Pipeline system runs through the New Mexico portion of the Permian Basin to Wink, Texas, the beginning point of a new 650-mile pipeline to the Gulf Coast that is expected to begin operations in 2021.  During the first quarter of this year, MPLX signed a letter of intent to become a partner in the Wink-to-Webster pipeline

MPLX CEO Gary R. Heminger said:

This transaction simplifies our MLPs into a single listed entity and creates a leading, large-scale, diversified midstream company anchored by fee-based cash flows. This transaction is projected to be immediately accretive to MPLX unitholders on distributable cash flow, demonstrating [Marathon Petroleum’s] commitment to positioning its midstream business for long-term success.

This MPLX and Andeavor Logistics deal is just the latest example of the consolidation among the MLPs.

Shares of MPLX traded down more than 3% Wednesday morning, at $31.05 in a 52-week range of $28.32 to $39.01.

Andeavor Logistics traded up about 3.4% at $35.00 a share, in a 52-week range of $31.49 to $50.82.


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