Two midstream MLPs to combine
On May 8, Marathon Petroleum (MPC), MPLX LP (MPLX), and Andeavor Logistics LP (ANDX) announced that MPLX would acquire ANDX. As per the deal, each ANDX public unit holder will get 1.135x MPLX common units, and MPC will get 1.0328x MPLX common units for each ANDX common unit.
The blended exchange ratio stands at 1.07x, indicating an equity value of $9 billion. The transaction is expected to close in the second half of 2019 subject to the requisite approvals.
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MPLX’s and ANDX’s adjusted EBITDAs stood at $889 million and $319 million, respectively, in the first quarter. The acquisition will be immediately accretive to MPLX. It will create a large midstream MLP with fee-based cash flows. The combination will also result in a vast network of assets capable of creating operational efficiency and growth opportunities. Let’s look at the benefits in more detail.
The acquisition will provide MPLX with deeper penetration in the Permian region. It will also strengthen MLPX’s foothold in the Marcellus region. MPLX will remain focused on its path to increase its fee-based cash flows and improve its export capabilities.
The collective assets will provide MPLX with an opportunity to focus on competitive assets for future growth. The company can then selectively incur capex on high-return projects.
The combination is expected to result in a substantial, diversified, fee-based cash flow model. The company is committed to maintaining its credit grade and self-funding the equity portion of its capital investment.
A word from management
Gary R. Heminger, MPC’s chair and CEO, said in the company’s first-quarter earnings release, “The combined entity will have an expanded geographic footprint with enhanced long-term growth opportunities in some of the best basins in the U.S. We are confident about the midstream growth and value-creation opportunities that exist across this combined platform.”