Marathon Petroleum Corporation (NYSE: MPC) announced that MPLX LP (NYSE: MPLX), the midstream master limited partnership (MLP) sponsored by MPC, has signed a definitive merger agreement with MarkWest Energy Partners, L.P. (NYSE: MWE) (MarkWest) whereby MarkWest would become a wholly owned subsidiary of MPLX. The merger would be a unit-for-unit transaction, generally expected to be tax-free, plus a one-time cash payment to MarkWest unitholders, that implies an enterprise value for MarkWest of approximately $20 billion, including the assumption of debt of approximately $4.2 billion, as of the close of trading on Friday, July 10, 2015. MPC would contribute $675 million of cash to MPLX to fund the one-time cash payment.
MarkWest, an MLP that owns and operates midstream service businesses in several liquids-rich natural gas resource plays in the U.S., is the nation's second largest processor of natural gas and the largest processor and fractionator in the Marcellus and Utica shale regions.
"This combination is a significant step in executing MPC's strategy to grow its higher-valued, stable cash flow midstream business, by transforming MPLX into a large-cap, diversified master limited partnership," said President and Chief Executive Officer Gary R. Heminger, noting that the combination would create the fourth-largest MLP with $21 billion in market capitalization. "We are very pleased that MPLX and MarkWest will join forces and provide us with opportunities to increase our participation in the U.S. energy infrastructure build-out."
Heminger said that MPLX affirms its anticipated distribution growth of 29 percent this year and expects a 25 percent compound annual distribution growth rate for the combined entity through 2017. "MPC's strong balance sheet and liquidity will enable MarkWest to accelerate organic growth in some of the nation's most economic and prolific liquids-rich natural gas resource plays," Heminger said. "We expect the combination of these projects and MPC's MLP-eligible midstream assets to support a strong distribution growth profile over an extended period of time for MPLX." Heminger noted that the transaction also 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 and diversify its asset base by having multiple platforms from which to grow.
Heminger also noted that the combination of MarkWest and MPLX eliminates the need for the recently proposed MPLX acquisition of MPC's marine transportation assets in 2015. As a result, that transaction has been indefinitely deferred.
The transaction between MPLX and MarkWest, which is subject to approval by MarkWest unitholders, customary closing conditions and regulatory approvals, is expected to close in the fourth quarter of 2015. Upon completion of the transaction, MPC would continue as general partner of MPLX and own approximately 19 percent of MPLX's common units.
MPC is the nation's fourth-largest refiner, with a crude oil refining capacity of approximately 1.7 million barrels per calendar day in its seven-refinery system. Marathon brand gasoline is sold through approximately 5,500 independently owned retail outlets across 19 states.