In connection with the merger of MPLX LP (NYSE: MPLX) and MarkWest Energy Partners LP (NYSE: MWE), MPLX has agreed to increase the amount of the cash consideration payable to MarkWest common unitholders by $400 million, from $675 million to $1.075 billion.
Under the revised terms of the merger agreement, MarkWest common unitholders will receive 1.09 MPLX common units plus a one-time cash payment of approximately $5.21 per MarkWest common unit, for a total consideration of approximately $52.93 per MarkWest common unit, based on fully diluted units currently outstanding and the closing price of MPLX’s common units on Nov. 10.
The increase in cash merger consideration is being contributed to MPLX by its sponsor, Marathon Petroleum Corp. (NYSE: MPC), under which no new equity units will be issued to MPC. In addition, as part of the original transaction, MPC will contribute $225 million, based on the price of MPLX’s common units on Nov. 10, to maintain its 2% general partner interest in MPLX. These proceeds will be retained by the partnership to support its growth.
All other terms of the merger agreement announced on July 13 remain the same. The merger is recommended by the boards of directors of MPC, MPLX, and MarkWest, and the executive management of both partnerships also support the transaction and its revised terms.
The proposed transaction will combine MarkWest, the second-largest processor of natural gas in the US and largest processor and fractionator in the Marcellus and Utica shale plays, with MPLX, a crude oil and refined products logistics partnership sponsored by MPC. The combination will create one of the largest master limited partnerships (MLPs) and is expected to generate a mid-20% compound annual distribution growth rate through 2019.
Even in a challenging environment of lower MLP valuations and higher yields, and in continued support of the combination, MPLX recently affirmed its guidance that creates a mid-20 percent compound annual distribution growth profile through 2019, including a 25 percent distribution growth rate in 2016. Gary R. Heminger, MPLX chairman and CEO, noted that MPC, as the sponsor and general partner, has options available to support the growth profile of the combined partnership, including dropping down the large and growing $1.6 billion inventory of MLP-qualifying earnings before interest, taxes, depreciation, and amortization.
“The increased cash consideration and ownership of a higher-growth MLP with a strong sponsor provides even more compelling value for MarkWest unitholders, who will own approximately 73% of the combined partnership when the transaction is completed,” Heminger said. “Both partnerships’ unitholders can share in the strong upside potential of a combined partnership with multiple operational platforms, as well as significant growth and commercial synergy opportunities. Coupled with MarkWest’s $1.5 billion average annual organic capital growth program over the next five years, our substantial resources and strong sponsor will support the combined partnership in unlocking an incremental $6 billion to $9 billion of potential organic growth projects.”
Frank M. Semple, MarkWest chairman, president, and CEO, said, “Our Board continues to support the combination with MPLX and recommends that MarkWest unitholders vote in favor of the merger proposal. The long-term strategic value of the combination with MPLX and the support from Marathon Petroleum is compelling. The increased cash contribution of $400 million substantially enhances the value of the transaction for our unitholders. We are excited to complete the transaction and to continue the important work of developing critical midstream projects for our producer customers, and delivering significant unitholder value over the long term.”
The transaction is subject to approval by MarkWest unitholders and other customary closing conditions, and is expected to close in December. The date of the special meeting of MarkWest common unitholders is Dec. 1. MarkWest unitholders of record as of Oct. 5 will be entitled to vote on approval of the merger and the associated proposals.
MPLX is a fee-based, growth-oriented master limited partnership formed in 2012 by Marathon Petroleum Corp. to own, operate, develop, and acquire pipelines and other midstream assets related to the transportation and storage of crude oil, refined products, and other hydrocarbon-based products.
MarkWest Energy Partners is a master limited partnership that owns and operates midstream service businesses, with a presence in US shale plays.