LONDON, UK / ACCESSWIRE / March 2, 2017 / Active Wall St. blog coverage looks at the headline from Marathon Petroleum Corp. (NYSE: MPC) and MPLX L.P. (NYSE: MPLX). Marathon Petroleum announced on March 01, 2017, that it has closed a transaction with MPLX L.P. ("MPLX"), pursuant to which Marathon Petroleum has contributed certain terminal, pipeline, and storage assets to MPLX for a total consideration of about $2.015 billion. Register with us now for your free membership and blog access at:
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Breaking down the Agreement
This agreement between the two Companies is viewed as a strategic action to generate greater value for shareholders. On October 27, 2016, Marathon Petroleum announced several initiatives to enhance shareholder value, of which the primary motive is to generate value from its portfolio of high-quality midstream assets. MPC is probably the nation's third-largest refiner with a crude oil refining capacity of approximately 1.8 million barrels per calendar day in its seven-refinery system.
Initially, under the strategic plan to deliver greater value to shareholders, Marathon Petroleum offered assets contributing a total of roughly $350 million by the end of FY17, subject to market and other conditions. The initial drop-down transactions led Marathon Petroleum to an estimated $1 billion of annual EBITDA which could eventually be dropped into MPLX to support the continued strong growth of partnerships while enhancing the value delivered to each Company.
Assets under Consideration
The assets contributed by Marathon Petroleum, include:
- 62 light product terminals with approximately 24 million barrels of storage capacity.
- 11 pipeline systems consisting of an estimated 604 miles of pipeline
- 73 tanks with approximately 7.8 million barrel of storage capacity.
- A crude oil truck unloading facility at Marathon Petroleum's refinery in Canton, Ohio.
- Eight natural gas liquid storage caverns in Woodhaven, Michigan, with about $1.8 million barrels of capacity, will be delivered to MPLX under the terms of the agreement.
Financial Matters
Marathon Petroleum is contributing this asset for the transaction in exchange of $504 million in MPLX's equity and $1.511 billion in cash. The equity to be issued under the transaction represents MPLX's common units and general partner units to maintain Marathon Petroleum's 2% general partner interest in MPLX. The valuation of units will be fixed on the basis of 10-day volume weighted average price of MPLX common units prior to the closing. The net consideration for these assets surpasses the net earnings of $250 million before taxes, interest, depreciation, and amortization over the next 12 months, by over 8 times. This transaction is expected to be immediately accretive to MPLX's 2017 distributable cash flow.
A Long-term Partnership
Prior to this agreement concerning the sale of high-value assets, Marathon Petroleum and MPLX executed definitive agreements on March 14, 2016, to sell Marathon's Petroleum inland marine business to MPLX. Additionally, MPLX issued equity to Marathon Petroleum valued at $600 million at an approximate price of $26.09 per unit with 98% of the equity in the form of common units and remainder in general partner units. The inland marine business comprised of 18 tow boats and 205 barges which account for nearly 60% of the total volume shipped by Marathon Petroleum through its inland marine vessels.
Future Growth and Dropdown Strategy
Marathon Petroleum views growth through these drop-down transactions where this first agreement is viewed as a predecessor to other possible deals. Such agreements would strengthen the current partnerships between the two Companies while offering enhanced value to Marathon Petroleum's limited and general partner interests in MPLX. Marathon Petroleum plans to execute these transactions over the next 3 years, subject to pending requisite approvals.
Stock Performance
Marathon Petroleum's stock climbed by 2.80%, closing Wednesday's session at $50.99 on volume of 5.17 million shares. The stock has surged 22.44% and 52.20% in the last six months and past twelve months, respectively. Moreover, the stock has advanced 2.00% since the start of the year. The Company's shares are trading at a PE ratio of 23.95 and have a dividend yield of 2.82%. At Wednesday's closing price, the stock's net capitalization stands at $27.09 billion.
On Wednesday, March 01, 2017, the stock closed the trading session at $38.02, climbing 2.18% from its previous closing price of $37.21. A total volume of 1.63 million shares have exchanged hands, which was higher than the 3-month average volume of 1.55 million shares. MPLX L.P.'s stock price rallied 18.36% in the last three months, 16.65% in the past six months, and 52.20% in the previous twelve months. Furthermore, since the start of the year, shares of the Company have gained 11.35%. The stock has a dividend yield of 5.47% and currently has a market cap of $14.02 billion.
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SOURCE: Active Wall Street