$23.3 Billion Mega Deal Creates Largest U.S. Refiner

Marathon Petroleum Corp will buy Andeavor for US$23.3 billion in a deal that will create the largest U.S. refiner by capacity and a top-five refiner worldwide, the companies said on Monday.

Marathon Petroleum (NYSE:MPC) and Andeavor (NYSE:ANDV) have entered into a definitive merger agreement under which Marathon Petroleum will buy all outstanding Andeavor shares for either 1.87 shares of MPC stock or US$152.27 in cash—which is a premium of 24.4 percent to ANDV’s closing price on Friday.

The boards of directors have unanimously approved the deal, which is expected to close in the second half this year, pending regulatory and other customary closing conditions, including approvals from the shareholders of both companies.

The combined company expects to keep its current capital allocation strategies, including continued dividend growth. Incremental cash generated by the transaction will exceed US$5 billion over the first five years, the companies said.

“Given the confidence in the robust cash flow expected to be generated by the combined business, our board also authorized an incremental $5 billion of share repurchases,” Gary R. Heminger, MPC chairman and chief executive officer, said in the statement.

Andeavor’s refineries in California, the Mid-Continent and the Pacific Northwest will complement MPC’s existing Gulf Coast and Midwest refining capacities. The combined capacity will create the no.1 U.S. refiner by capacity and a top-five refinery globally, with throughput capacity of more than 3 million bpd. Marathon Petroleum is currently the second-biggest crude oil refiner in terms of capacity with some 1.9 million bpd in its six-refinery system, while Andeavor operates 10 refineries with a combined capacity of around 1.2 million bpd in the mid-continent and western United States.

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According to Bloomberg calculations, the merger will create a company holding 16 percent of the U.S.-based refining capacity that would overtake by capacity the current leader, Valero Energy.

In the midstream segment, the combined company will have presence in the Marcellus, the Permian, and the Bakken, which raises significantly midstream growth opportunities, Marathon said.

According to Matthew Blair, director of refining research at Tudor Pickering Holt & Co, Andeavor is a big winner in this “extremely positive” deal that will also create synergies for Marathon. Blair doesn’t expect big issues to arise at the regulatory scrutiny because of the “disparate geographical markets” of the two companies.

By Tsvetana Paraskova for Oilprice.com

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