Marathon Petroleum Corporation Announces Merger with MarkWest Energy Partners

Strategic Insights -

Marathon Petroleum Corporation (MPC) has signed a definitive merger agreement with MarkWest Energy Partners, L.P. (MWE) to become a wholly owned subsidiary of MPLX LP, a midstream master limited partnership. The merger is expected to close in the fourth quarter of 2015, creating the fourth-largest MLP with $21 billion in market capitalization. The combination will provide opportunities for MPC to increase its participation in the U.S. energy infrastructure build-out.

Key Takeaways:

  • The merger is a unit-for-unit transaction, generally expected to be tax-free, plus a one-time cash payment to MarkWest unitholders, with an enterprise value for MarkWest of approximately $20 billion, including the assumption of debt of approximately $4.2 billion.
  • MPC will contribute $675 million of cash to MPLX to fund the one-time cash payment.
  • The combined entity expects a 25 percent compound annual distribution growth rate for the combined entity through 2017.
  • The transaction enhances the cash flow profile of the general partner and is consistent with MPC's strategic intent to grow the more highly valued stable cash flow elements of the business.
  • The combination of MarkWest and MPLX eliminates the need for the recently proposed MPLX acquisition of MPC's marine transportation assets in 2015.
  • The merger is subject to approval by MarkWest unitholders, customary closing conditions, and regulatory approvals.
  • MPC will continue as general partner of MPLX and own approximately 19 percent of MPLX's common units.
  • The transaction is expected to close in the fourth quarter of 2015.

Statistics:

  • Enterprise value for MarkWest: approximately $20 billion
  • Assumed debt: approximately $4.2 billion
  • One-time cash payment to MarkWest unitholders: $675 million
  • 25 percent compound annual distribution growth rate for the combined entity through 2017

Sources:

  • Marathon Petroleum Corporation (NYSE: MPC)
  • MarkWest Energy Partners, L.P. (NYSE: MWE)
  • MPLX LP (NYSE: MPLX)
  • Thomson Reuters ONE