Marathon To Make $20 Billion Purchase -- WSJ
May 01 2018 - 3:02AM
Dow Jones News
By Dana Cimilluca, Dana Mattioli and Bradley Olson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 30, 2018).
Marathon Petroleum Corp.'s $23 billion deal to buy rival
Andeavor will create the largest American oil refiner just as an
oil-price surge and growing global demand for fuels set the stage
for an extended industry rally.
The U.S. refining business, once seen as cash-gobbling assets
that weighed down lucrative drilling units, has been one of the
most profitable sectors in the U.S. economy in the past five
years.
Marathon's shares have nearly tripled since the company was spun
out of parent Marathon Oil Corp. in 2011. Andeavor also has had a
meteoric rise in that time, quintupling as it moved to buy
refineries from giants such as BP PLC and consolidate plants from
New Mexico to Minnesota.
"The time is right now because for this industry, the wind is
behind our backs," Andeavor Chief Executive Greg Goff said.
The cash-and-stock deal values Andeavor at $152.27 a share, a
roughly 24% premium over Andeavor's closing price Friday after the
stock surged about 50% in the past year. The Wall Street Journal
reported Sunday that such a deal could be announced Monday.
The refining tie-up is the second major oil and gas merger in
the past 30 days, following a $9.5 billion deal between two major
producers, Concho Resources Inc. and RSP Permian Inc., in West
Texas' Permian basin. This transaction gives Findlay, Ohio-based
Marathon access to Andeavor's two refining plants near the drilling
hot spot, which is set to produce as much as Iran or Iraq within a
few years.
The deal also reflects growing confidence in rising oil prices
after a prolonged slump led to billions in losses and tens of
thousands of job cuts throughout the industry. U.S. crude prices
are up about 50% in the past year. Many analysts see refiners,
which use oil to make fuels such as gasoline, in a prime position
to capitalize on the U.S. energy boom.
Demand for fuels such as gasoline, diesel and other products is
poised to increase faster than global refining capacity in the next
several years, according to advisory firm Evercore ISI.
Marathon, which says it is currently the second-largest American
independent refiner, has focused on its pipeline and transportation
assets in recent years, as well as expanding through convenience
stores. Marathon-branded gasoline is sold in 20 states, and its
Speedway unit owns the nation's second-largest convenience-store
chain. It also owns a master limited partnership with about 11,000
miles of crude oil and light-product pipelines.
Andeavor, based in San Antonio and formerly known as Tesoro, has
followed a similar model, mostly focused on the Western U.S. The
company has 10 refineries in that region with total capacity of
more than 1.2 million barrels a day. Part of the rationale of the
deal centers on the companies' complementary footprints; with
Marathon in the East and Andeavor in the West, regulatory approval
could be easier to win.
If the deal closes, Marathon will become the largest U.S.
refiner, with 16 plants and about 3 million barrels a day of
capacity, a massive pipeline network through two partnerships it
would control and a retail network of thousands of gas stations,
according to Tudor Pickering Holt & Co. The company would
control about 16% of U.S. refining capacity.
"We do not foresee any regulatory problems given the disparate
geographical markets of each company," Tudor Pickering analysts
said Monday in a research note.
The deal is expected to produce potential savings of about $1
billion a year and close in the second half of the year, the
companies said.
Marathon shares fell 8% to $74.91, while Andeavor rose 13% to
$138.32.
Marathon Chief Executive Gary Heminger is expected to run the
combined company and Andeavor CEO Gregory Goff would join Marathon
as executive vice chairman.
Utilities and energy merger activity has surged this year as oil
prices recover. There have been about $164.5 billion of deals
year-to-date, more than double the comparable figure last year,
according to Dealogic.
Marathon's financial adviser was Barclays and its legal adviser
was Jones Day. Andeavor's financial adviser was Goldman Sachs &
Co. and its legal adviser was Sullivan & Cromwell.
Cara Lombardo contributed to this article
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Dana Mattioli
at dana.mattioli@wsj.com and Bradley Olson at
Bradley.Olson@wsj.com
(END) Dow Jones Newswires
May 01, 2018 02:47 ET (06:47 GMT)
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