DENVER, Dec. 5, 2017 /PRNewswire/ -- John M. Fox,
beneficial owner of 1,544,172 MPLX common units and 20,900 shares
of Marathon Petroleum Company, today released the following open
letter to the board of directors of Marathon Petroleum Corporation
(MPC) outlining how valuation of the proposed IDR elimination is
the key to generating long-term MPC and MPLX value for holders.
Please see disclosures at the end of this release. The
information and opinions contained in this material are derived
from proprietary and non-proprietary sources deemed by Mr. Fox to
be reliable and are not necessarily comprehensive. Mr. Fox does not
guarantee the accuracy or completeness of this information. There
is no guarantee that any forecasts made by any party will come to
pass. Reliance upon information in this material is at the sole
discretion of the reader.
A new slide deck highlighting key points on growth and valuation
implications can be found at www.itjustmakessensegary.com.
The full text of the letter follows:
December 5, 2017
Board of Directors
Marathon Petroleum Corporation
539 S Main St
FINDLAY, OH 45840-3229
Attention: Gary Heminger,
Chairman, President and Chief Executive Officer
To the Board of Directors of Marathon Petroleum Corporation:
I support Marathon Petroleum Corporation's (MPC) decision to
eliminate the Incentive Distribution Right (IDRs) burden on MPLX
and am aligned with you to ensure the best possible path
forward. However, I strongly disagree on the valuation MPC
management is placing on MPLX's GP. As MPLX's largest holder,
I am concerned that such a valuation will destroy long-term value
for both MPLX and MPC. MPC management estimates the IDR
Elimination will transact between 15x-20x the pro forma value of
the GP's IDRS. This valuation is unjustified compared
to established benchmarks for this type of transaction. It is
really very simple, every new share that MPLX issues as a result of
an inflated IDR valuation puts pressure on current distribution and
future growth potential.
Based on recent transactions including Plains All American
Pipeline (11.6X), Andeavor Logistics (13.1X), and HollyFrontier
(14.1X), there is a clear precedent for a 12x-14x multiple.
Additionally, based on my analysis, at any valuation above 13.7x,
pro forma MPLX distributions will need to be cut and value
destroyed as the additional shares to MPC will strain returns on
equity and the associated growth rates.
Based on my experience and countless hours my team and I spent
at MarkWest analyzing the many disincentives associated with the
IDRs, I know first-hand the drag that can be caused by the IDR
structure. As a result, I strongly support Marathon Petroleum
Corporation's commitment to exchange its IDRs for LP units in MPLX.
However, the valuation of the IDR transaction has material
impacts on MPC's long-term value, and could vastly diminish growth
prospects at MPLX ultimately raising the cost of capital and
destroying value for both companies.
As MPC will remain MPLX's largest long-term holder, it is
imperative to approach valuation of the IDR elimination with value
creation in mind. MPLX has meaningful organic growth
potential that will drive growth for MPLX and MPC. I urge
you to revise your valuation estimates for the IDR elimination to
12x – 14x, creating a clear path to long-term value growth for
MPLX. It just makes sense!
Sincerely,
John Fox
About John M. Fox
John Fox is the co-founder of
MarkWest Hydrocarbon, former CEO, Chairman and Director of MarkWest
Energy GP, L.L.C. ("MarkWest GP"), which was the general partner of
MarkWest Energy Partners, L.P. ("MarkWest"), and beneficial owner
of 1,544,172 MPLX common units, and 20,900 shares of Marathon
Petroleum Company, through its merger with MarkWest in 2015 and
from follow-on investments. Mr. Fox worked to eliminate the
Incentive Distribution Rights (IDRs) at MarkWest in 2007, creating
tremendous value that ultimately led to the successful acquisition
of MWE by MPLX in 2015. MarkWest generated a 143.3% total return
and grew from a $1.2 billion market
cap to an $8.6 billion market cap for
the period of September 5, 2007, when
the IDRs were eliminated, to December 4,
2015.
Disclosure:
John Fox is providing this
material for general informational purposes only. None of the
information provided herein is intended to be relied upon as
investment advice. The opinions expressed in this letter are those
of Mr. Fox as of December 5, 2017 and
are subject to change at any time due to changes in market,
economic conditions, or new public information. These opinions are
Mr. Fox's alone, and do not reflect the opinions of any other
member of the Fox family. The information and opinions
contained in this material are derived from proprietary and
non-proprietary sources deemed by Mr. Fox to be reliable and are
not necessarily all-inclusive. Mr. Fox does not guarantee the
accuracy or completeness of this information. There is no guarantee
that any forecasts made by any party will come to pass. Reliance
upon information in this material is at the sole discretion of the
reader.
Contact:
John Fox
Johnfox@itjustmakessensegary.com
720-213-6439
www.itjustmakessensegary.com
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SOURCE John M. Fox