Transaction delivers full value to Magellan
unitholders and provides unitholders with ownership in a stronger
combined company
Combined company better positioned to address
secular risks and achieve strong growth and value creation over the
long term
Board carefully considered alternative
opportunities, structures and tax implications
Magellan urges unitholders to vote "FOR" the
pending merger today
TULSA,
Okla., Aug. 29, 2023 /PRNewswire/ -- Magellan
Midstream Partners, L.P. (NYSE: MMP) ("Magellan") today announced
the filing of an investor presentation with the U.S. Securities and
Exchange Commission in connection with our pending merger with
ONEOK, Inc. (NYSE: OKE) ("ONEOK"). The investor presentation is
also available at MaximizingValueforMMPunitholders.com.
"We are confident the pending merger with ONEOK is the best path
forward for Magellan and is in the best interests of Magellan
unitholders," said Aaron Milford,
chief executive officer. "The merger provides significant premium
value to Magellan unitholders, with a meaningful upfront cash
consideration as well as substantial ownership in a stronger
combined company that has greater growth opportunities, scale,
diversification and resilience. We urge all Magellan unitholders to
vote 'FOR' the pending merger today to receive full value for their
units."
Highlights of the presentation include:
Magellan believes the transaction delivers full value to
Magellan unitholders
- Transaction multiple and premium exceed precedent industry
transactions, representing the highest enterprise value to adjusted
EBITDA ("EV / EBITDA") multiple of comparable midstream energy
transactions since 2016, an EV / EBITDA multiple that is 2.5x
higher than Magellan's publicly traded peers1, and, at
22%, the highest premium of comparable midstream transactions since
the pandemic induced a sector re-rating
- Implied value of merger consideration exceeds Magellan's
trading value at any point in approximately 5 years
- Board negotiated 4 price increases, fiduciary out, lower
termination fee, ability to pay pre-closing special distributions
and significant cash component – and carefully evaluated ONEOK
assets, strategy and track record before determining transaction
maximized value
- As shown below, the proposed transaction premium adds to
Magellan's already premium EV / EBITDA trading multiple. If the
transaction fails to close, Magellan's unit price could decline to
a multiple in line with our peers, which would result in a 28%
decline to the implied transaction value
Exhibit 1: Transaction premium adds to an already premium
trading multiple1
Exhibit 2: Potential risk of multiple re-rating if transaction does
not close1
Magellan could face long-term secular risks as a standalone
company; Magellan believes that the valuation offered in the merger
captures fair value for unitholders and that the transaction
mitigates these risks, creating a diversified, scaled and resilient
combined company that is well-positioned for the long
term
- Many respected third parties forecast demand for U.S. refined
products to decline more than 40% from 2022 to 2050; if correct,
these forecasts represent lower demand than we currently expect and
than is represented in the value received in the merger
- Crude oil production to remain below existing pipeline
capacity, placing downward pressure on utilization and
re-contracted rates
- There are more limited attractive growth opportunities in crude
oil and refined products segments
- Significant sector consolidation leaves fewer viable M&A
and other strategic opportunities
- Implementing inorganic growth opportunities would likely result
in paying (rather than receiving) transaction premiums and issuing
equity that we believe has been consistently undervalued absent
this merger
- With enhanced scale and diversification, the combined company
will have greater growth opportunities and be better positioned
across industry cycles
-
- Combined company to have resilient product mix, mirroring that
of larger-scale peers
- Potential uplift of approximately $6.1
billion (approximately $7 per
Magellan unit pro-rata6) from capitalized risked
synergies and significant tax deferral
- Global demand for natural gas and NGL-related products is
expected to increase more than 20% through 20407
- Adds more than $1.5 billion of
diversified annual EBITDA, more than 85% of which is fee-based,
reducing commodity exposure and cash flow volatility
- Increases EBITDA CAGR by approximately 170% through 2025,
with pro forma growth expected to outpace midstream
peers8
- 4.0x step-up in free cash flow after distributions to
approximately $1 billion average
annually (2024 to 2027), enabling increased spending on
value-creating organic growth projects
- Strong pro forma balance sheet creates financial flexibility to
increase capital deployment at attractive returns, while also
returning capital to shareholders through substantial dividends and
share repurchases
- Increased scale provides more trading liquidity, a broader
investor base and inclusion in the S&P 500 index
Exhibit 3: Combined company has stronger growth outlook than
standalone MMP
Exhibit 4: MMP unitholders will gain exposure to a resilient asset
profile, with higher growth than standalone MMP
Exhibit 5: Risk-weighted synergy opportunities
Magellan board carefully reviewed alternative opportunities,
structures and tax implications
- Transaction offers greater net proceeds than an open-market
sale prior to announcement would have and greater certainty than
holding out for a higher open-market price in the future
- Merger is likely superior to a future Magellan sale when
considered in present value terms: future after-tax proceeds are
not likely to be as high and a comparable market premium may not be
available
- Transaction is also superior to converting Magellan to a
C-Corp. as a standalone strategy due to the merger's known premium
and inclusion in S&P 500, versus the uncertain results of a
C-corp. conversion
- One investor has publicly opposed the transaction, but its
analysis is flawed:
-
- Misconstrues the true current tax situation by assuming all
longer-tenured unitholders never sell
- Ignores prospective market value and related upside of stronger
combined company
- Focuses mainly on a near-term dividend model with no terminal
value and ignores the high present value of the after-tax cash
consideration offered
- Determines after-tax value for Magellan standalone of just
$29.50 per unit, based on its
long-term dividend discount model–less than 55% of the after-tax
merger consideration
- The same investor has misrepresented the tax implications of
the transaction:
-
- The merger does not create any new tax liability (beyond that
associated with the premium) – the return on MLP units is
tax-deferred, not tax-free
- This analysis generally ignores the existing tax liability of
Magellan unitholders or alternatively references the amount today
as relevant in the future when in fact this liability will continue
to grow (estimated to more than double to approximately
$20 per unit on average by 2027)
- The transaction premium, like any premium, increases a
unitholder's overall tax liability to reflect a higher gain than
the unitholder would have incurred absent the transaction, but also
delivers a greater after-tax return than an open-market sale
- Comparing after-tax merger proceeds with pre-tax trading prices
is misleading – any monetization triggers a taxable event and more
than 60% of Magellan unitholders typically sell within five
years
- Comparing the higher after-tax proceeds of the merger to the
lower after-tax proceeds of an open-market sale prior to the merger
being announced is a more meaningful analysis than comparing
premium received to taxes owed
The special meeting of unitholders will be held virtually on
Sept. 21, 2023 at 10:00 a.m. Central Time. Magellan unitholders of
record at the close of business on July 24,
2023 are entitled to vote at, or submit proxies in advance
of, the special meeting. The Magellan board of directors
unanimously recommends that Magellan unitholders vote "FOR" the
proposals related to Magellan's merger with ONEOK.
Magellan unitholders
who need assistance in completing the proxy card, need additional
copies of the
proxy materials or have questions regarding the upcoming special
meeting should contact Magellan's proxy solicitors:
|
|
Morrow Sodali,
LLC
|
MacKenzie Partners,
Inc.
|
Phone: (800)
662-5200 or (203) 658-9400
|
Phone: (800) 322-2885
or (212) 929-5500
|
Email: MMP@info.morrowsodali.com
|
Email:
proxy@mackenziepartners.com
|
About Magellan Midstream Partners, L.P.
Magellan Midstream Partners, L.P. (NYSE: MMP) is a publicly
traded partnership that primarily transports, stores and
distributes refined petroleum products and crude oil. Magellan owns
the longest refined petroleum products pipeline system in the
country, with access to nearly 50% of the nation's refining
capacity, and can store more than 100 million barrels of petroleum
products such as gasoline, diesel fuel and crude oil. More
information is available at www.magellanlp.com.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This communication contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical fact,
included in this communication that address activities, events or
developments that ONEOK or Magellan expects, believes or
anticipates will or may occur in the future are forward-looking
statements. Words such as "estimate," "project," "predict,"
"believe," "expect," "anticipate," "potential," "create," "intend,"
"could," "would," "may," "plan," "will," "guidance," "look,"
"goal," "future," "build," "focus," "continue," "strive," "allow"
or the negative of such terms or other variations thereof and words
and terms of similar substance used in connection with any
discussion of future plans, actions, or events identify
forward-looking statements. However, the absence of these words
does not mean that the statements are not forward-looking. These
forward-looking statements include, but are not limited to,
statements regarding the proposed transaction between ONEOK and
Magellan (the "Proposed Transaction"), the expected closing of the
Proposed Transaction and the timing thereof and as adjusted
descriptions of the post-transaction company and its operations,
strategies and plans, integration, debt levels and leverage ratio,
capital expenditures, cash flows and anticipated uses thereof,
synergies, opportunities and anticipated future performance,
including maintaining current ONEOK management, enhancements to
investment-grade credit profile, an expected accretion to earnings
and free cash flow, dividend payments and potential share
repurchases, increase in value of tax attributes and expected
impact on EBITDA. Information adjusted for the Proposed Transaction
should not be considered a forecast of future results. There are a
number of risks and uncertainties that could cause actual results
to differ materially from the forward-looking statements included
in this communication. These include the risk that ONEOK's and
Magellan's businesses will not be integrated successfully; the risk
that cost savings, synergies and growth from the Proposed
Transaction may not be fully realized or may take longer to realize
than expected; the risk that the credit ratings of the combined
company or its subsidiaries may be different from what the
companies expect; the possibility that shareholders of ONEOK may
not approve the issuance of new shares of ONEOK common stock in the
Proposed Transaction or that unitholders of Magellan may not
approve the Proposed Transaction; the risk that a condition to
closing of the Proposed Transaction may not be satisfied, that
either party may terminate the merger agreement or that the closing
of the Proposed Transaction might be delayed or not occur at all;
potential adverse reactions or changes to business or employee
relationships, including those resulting from the announcement or
completion of the Proposed Transaction; the occurrence of any other
event, change or other circumstances that could give rise to the
termination of the merger agreement relating to the Proposed
Transaction; the risk that changes in ONEOK's capital structure and
governance could have adverse effects on the market value of its
securities; the ability of ONEOK and Magellan to retain customers
and retain and hire key personnel and maintain relationships with
their suppliers and customers and on ONEOK's and Magellan's
operating results and business generally; the risk the Proposed
Transaction could distract management from ongoing business
operations or cause ONEOK and/or Magellan to incur substantial
costs; the risk of any litigation relating to the Proposed
Transaction; the risk that ONEOK may be unable to reduce expenses
or access financing or liquidity; the impact of a pandemic, any
related economic downturn and any related substantial decline in
commodity prices; the risk of changes in governmental regulations
or enforcement practices, especially with respect to environmental,
health and safety matters; and other important factors that could
cause actual results to differ materially from those projected. All
such factors are difficult to predict and are beyond ONEOK's or
Magellan's control, including those detailed in the joint proxy
statement/prospectus (as defined below). All forward-looking
statements are based on assumptions that ONEOK and Magellan believe
to be reasonable but that may not prove to be accurate. Any forward
looking statement speaks only as of the date on which such
statement is made, and neither ONEOK nor Magellan undertakes any
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
NON-GAAP FINANCIAL MEASURES
This communication includes certain projections of non-GAAP
financial measures. Due to the high variability and difficulty in
making accurate forecasts and projections of some of the
information excluded from these projected measures, together with
some of the excluded information not being ascertainable or
accessible, Magellan and ONEOK are unable to quantify certain
amounts that would be required to be included in the most directly
comparable GAAP financial measures without unreasonable effort.
Consequently, no disclosure of estimated comparable GAAP measures
is included, and no reconciliation of the forward-looking non-GAAP
financial measures is included.
IMPORTANT ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the Proposed Transaction, on July 25, 2023, ONEOK and Magellan each filed with
the Securities and Exchange Commission (the "SEC") a definitive
joint proxy statement/prospectus (the "joint proxy
statement/prospectus"), and each party has and will file other
documents regarding the Proposed Transaction with the SEC. Each of
ONEOK and Magellan commenced mailing copies of the joint proxy
statement/prospectus to shareholders of ONEOK and unitholders of
Magellan, respectively, on or about July 25,
2023. This communication is not a substitute for the joint
proxy statement/prospectus or for any other document that ONEOK or
Magellan has filed or may file in the future with the SEC in
connection with the Proposed Transaction. INVESTORS AND SECURITY
HOLDERS OF ONEOK AND MAGELLAN ARE URGED TO CAREFULLY AND THOROUGHLY
READ THE JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING ALL AMENDMENTS
AND SUPPLEMENTS THERETO, AND OTHER RELEVANT DOCUMENTS FILED OR THAT
WILL BE FILED BY ONEOK AND MAGELLAN WITH THE SEC BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT ONEOK AND MAGELLAN, THE
PROPOSED TRANSACTION, THE RISKS RELATED THERETO AND RELATED
MATTERS.
Investors can obtain free copies of the joint proxy
statement/prospectus and other relevant documents filed by ONEOK
and Magellan with the SEC through the website maintained by the SEC
at www.sec.gov. Copies of documents filed with the SEC by ONEOK,
including the joint proxy statement/prospectus, are available free
of charge from ONEOK's website at www.oneok.com under the
"Investors" tab. Copies of documents filed with the SEC by
Magellan, including the joint proxy statement/prospectus, are
available free of charge from Magellan's website at
www.magellanlp.com under the "Investors" tab.
NO ADVICE
This communication has been prepared for informational purposes
only and is not intended to provide, and should not be relied on
for, tax, legal or accounting advice. Magellan unitholders should
consult their own tax and other advisors before making any
decisions regarding the Proposed Transaction.
- Analysis based on market data and street consensus estimates as
of May 12, 2023 (last trading day
prior to transaction announcement). Peer group includes ENB,
TRP, WMB, EPD, KMI and ET
- Represents EV / 2023E EBITDA multiple implied by
transaction
- Reflects average EV / EBITDA multiple of ENB, TRP, WMB,
EPD, KMI and ET
- Weighted average after-tax value
- Analysis based on market data and street consensus estimates as
of May 12, 2023 (last trading day
prior to transaction announcement)
- Total potential uplift of approximately $6.1 billion (calculated as $415 million annual pre-tax synergies (the upper
end of estimated risked synergies) capitalized at 11x plus
$1.5 billion present value of tax
deferrals) multiplied by Magellan's approximately 23% pro forma
ownership in the combined company divided by Magellan's fully
diluted units outstanding at time of transaction announcement
- Source: EIA and Wood Mackenzie
- EBITDA CAGR for MMP and OKE based on financial projections
as disclosed in the definitive joint proxy statement / prospectus
filed with the SEC on July 25, 2023
(the "joint proxy statement / prospectus"), including $415 million of run-rate synergies (high case for
risk-weighted synergies); peer EBITDA forecast reflects street
consensus estimates as of May 12,
2023 (last trading day prior to transaction
announcement)
- EBITDA CAGR for MMP and OKE based on financial projections
as disclosed in the joint proxy statement / prospectus; peer EBITDA
forecast reflects street consensus estimates as of May 12, 2023 (last trading day prior to
transaction announcement)
- Based on pro forma financial projections as disclosed in the
joint proxy statement / prospectus, including $415 million of synergies (the upper end of
estimated risked synergies) in 2025E
- Reflects the pro forma entity's 2022A operating income plus
equity earnings; reflects 2022E EBITDA breakdown for peers
- Source: ONEOK Second Quarter 2023 Earnings
Presentation
Contact:
|
Investors:
|
Media:
|
|
Paula
Farrell
|
Bruce Heine
|
|
(918)
574-7650
|
(918)
574-7010
|
|
paula.farrell@magellanlp.com
|
bruce.heine@magellanlp.com
|
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SOURCE Magellan Midstream Partners, L.P.