Marathon Petroleum Corp. and MPLX LP Announce Agreement for Approximately $8.1 billion Dropdown to MPLX, and MPC initiates offer to exchange its general partner interests, including its IDRs, in MPLX

Source Press Release
Company Marathon Petroleum CorporationMPLX LP 
Tags Pipelines/ tankers/ distribution, Asset Deals, Deals, Refining & Marketing Activities
Date November 13, 2017

Marathon Petroleum Corp. (NYSE: MPC) and MPLX LP (NYSE: MPLX) today announced an agreement for the dropdown of refining logistics assets and fuels distribution services to MPLX for total consideration of approximately $8.1 billion. The transaction is expected to close on Feb. 1, 2018, and be immediately accretive to MPLX's distributable cash flow per unit.

These assets and services are projected to generate annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $1 billion. MPC is contributing these assets and services in exchange for $4.1 billion in cash and MPLX equity valued at approximately $4 billion. The equity to be issued will consist of 111.6 million MPLX common (LP) units and 2.3 million general partner (GP) units to maintain MPC's 2 percent GP interest in MPLX.

"We are very pleased to have reached agreement on the terms for the remaining dropdown to MPLX outlined in our strategic actions," said Gary R. Heminger, chairman and CEO of both MPC and MPLX. "The addition of these high-quality, fee-based revenue streams to MPLX further diversifies the partnership's earnings and contributes substantially to the distributable cash flow base of the partnership."

Year-to-date through October, MPC has returned $2.75 billion to its shareholders and plans further return of capital with the after-tax cash proceeds of this dropdown once the transaction closes, in a manner consistent with managing its current investment grade credit profile.

The dropdown agreement was approved by the MPLX board of directors following the approval of the terms of the transaction by its independent conflicts committee. The conflicts committee was advised by Jefferies LLC as to financial matters and Andrews Kurth Kenyon LLP as to legal matters. MPC was advised by Tudor, Pickering, Holt & Co. as to financial matters. The closing of the dropdown transaction is subject to customary conditions, including tax and regulatory review.

Michael J. Hennigan, president of MPLX, added, "We are very enthusiastic about this drop and the substantial benefits it provides to the partnership. The ability to add these stable earnings streams, particularly the fuels distribution services, which require no maintenance capital, is a unique opportunity to supplement the financial strength of the partnership. It also supports our focus on growing distribution coverage while building a sustainable and attractive growth path for LP distributions well into the future."

Today, MPC also offered to the MPLX board an exchange of its GP economic interests in MPLX, which include incentive distribution rights (IDRs), for newly issued MPLX common units. This transaction is expected to provide a clear valuation for MPC's GP interests in MPLX, and reduce MPLX's cost of capital to support the sustainable long-term growth of the partnership. MPC will continue to own the non-economic general partner interest in MPLX. This transaction is now under review by the conflicts committee of the MPLX board of directors. Subject to approval of the MPLX board, the exchange is expected to close on Feb. 1, 2018, in conjunction with the closing of the dropdown.

In connection with entering into the dropdown agreement, MPLX entered into a commitment letter with Mizuho Bank, Ltd.; Bank of America Merrill Lynch; The Bank of Tokyo-Mitsubishi UFJ, Ltd.; Barclays Bank PLC; JPMorgan Chase Bank, N.A.; and Wells Fargo Bank, N.A. for a $4.1 billion 364-day term-loan facility to be funded upon the closing of the dropdown transaction expected on Feb. 1, 2018. The proceeds from the term-loan facility will be used to fund the cash portion of the dropdown consideration. These commitments are subject to customary conditions, including the closing of the dropdown transaction. 

Source: EvaluateEnergy® ©2018 EvaluateEnergy Ltd