Marathon Petroleum, Texas-based Andeavor to Form Largest U.S. Oil Refining Company

The Suncor refinery in Edmonton, Canada seen here on June 17, 2015, has a capacity of refining 142,000 barrels of light oil a day, according to the company. It is run entirely on bitumen from the oil sands in Northern Alberta. AFP PHOTO/GEOFF ROBINS
Geoff Robins/AFP/Getty Images

Marathon Petroleum Corporation (MPC), the second largest oil company in the United States, will buy Texas petroleum refiner and pipeline owner Andeavor for more than $23 billion, creating the largest independent oil refinery in the nation, the companies announced jointly on Monday.

“This transaction combines two strong, complementary companies to create a leading U.S. refining, marketing, and midstream company, building a platform that is well positioned for long-term growth and shareholder value creation,” said Gary R. Heminger, MPC chairman and chief executive officer, in a press release.

MPC and Andeavor executives say this deal will overtake San Antonio-based Valero Energy Corp. as the top U.S. refinery. Valero has a capacity of 3.1 million barrels per day (bpd) across 15 refineries located stateside, in Canada, and the United Kingdom, according to their website. They also have 11 ethanol plants in the U.S. that have a combined production capacity of roughly 1.45 billion gallons per year. Valero employs roughly 10,000 and has approximately 7,400 branded service stations. Valero ranks 37th on the Fortune 500.

“Each of our operating segments are strengthened through this transaction, as it geographically diversifies our refining portfolio into attractive markets, increases access to advantaged feedstocks, enhances our midstream footprint in the Permian basin, and creates a nationwide retail and marketing portfolio that will substantially improve efficiencies and enhance our ability to serve customers,” stated Heminger.

To date, MPC, headquartered in Findlay, Ohio, has been the nation’s second largest refiner. It possesses a capacity of 1.9 million bpd in a six refinery system. In Texas, their strategic refining operations are in Galveston Bay and Canton. They also list refinery operations in Louisiana, Kentucky, Illinois, and Michigan. The company’s branded gasoline is sold through approximately 5,600 independently owned service stations in 20 states and the District of Columbia, according to the company’s website. They have 43,800 employees.

According to the announced terms of the merger, MPC will acquire all of Andeavor’s outstanding shares, representing an equity value of $23.3 billion. The enterprise value totals $35.6 billion after factoring in Andeavor’s debt.

The union of these two companies will form one company with an “initial enterprise value” of more than $90 billion, according to Heminger. He said they expect to generate approximately $1 billion in “tangible annual run-rate synergies” within the first three years and enhance their “long-term cash flow generation profile.” Heminger also said the board approved an incremental $5 billion share buy back program. Andeavor stockholders will be given the option to choose 1.87 shares of MPC stock for each share of Andeavor, or receive $152.27 in cash, a 24 percent increase over closing stock prices on Friday, April 27.

“As a combined company, we will continue our balanced approach to investing in the business and returning cash to our investors, while maintaining our commitment to an investment-grade credit profile,” said Heminger.

Formerly known as Tesoro, Andeavor operates 10 refineries, has a capacity of roughly 1.2 million bpd and more than 5,300 miles of pipeline. They employ more than 13,000 individuals in 18 states and provide gasoline to more than 3,100 service stations. The company is based in San Antonio.

Andeavor Chairman and Chief Executive Officer Gregory Goff will serve as executive vice chairman of the merged company. Goff and three other Andeavor executives will receive seats on the Marathon Petroleum board of directors, according to the press release.

“This strategic combination provides our shareholders with a premium for their shares and the opportunity to benefit from substantial future value creation at MPC,” said Goff. “As the largest refiner by capacity in the U.S., with a best-in-class operating capability and a strong capital structure, the combined company will be exceptionally well-positioned to deliver on its synergy and earnings targets. We look forward to working together to deliver on the full potential of this powerful combination.”

The deal is expected to close during the second half of 2018. MPC will remain headquartered in Findlay, Ohio, and maintain an office in San Antonio.

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