CXO Concho Resources Inc

By Dana Cimilluca, Dana Mattioli and Bradley Olson 

Marathon Petroleum Corp. agreed to buy pipeline and refining company Andeavor for $23.3 billion, a deal that would create the largest U.S. refiner, the companies said Monday.

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, and many analysts see refiners in a prime position to capitalize on the U.S. energy boom.

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 5,000 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.

In premarket trading Monday, Marathon shares fell 5.2% to $77.19, while Andeavor rose 17% to $143.

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

April 30, 2018 09:28 ET (13:28 GMT)

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