April 30, 2018 10:45 AM, EDT

Marathon to Buy Andeavor in $23.3 Billion Oil-Refining Deal

Paul Rosemeyer/Flickr

Marathon Petroleum Corp. agreed to buy rival oil refiner Andeavor for $23.3 billion in a deal that would create the largest independent fuel maker in the United States.

The offer, payable in either cash or shares, values Andeavor at about $152.27 a share, the companies said in a statement April 30. That’s about a 24% premium over the April 27 closing price.

Marathon is focused in the Midwest and Gulf Coast, while Andeavor’s refineries and pipelines are in Western states. They are among the biggest beneficiaries of the shale boom, with access to abundant supplies at a discount to global prices. The combination would overtake Valero Energy Corp. as the biggest in U.S.-based oil refining capacity, generating about 16% of the nation’s total, according to Bloomberg calculations.

“Wow!,” wrote Matthew Blair, director of refining research at Tudor Pickering Holt & Co., in a report that called Andeavor a “big winner” in a deal that is “extremely positive.” As for Marathon, big synergies will be key, Blair said, adding that regulatory problems should be minimal, “given the disparate geographical markets of each company.”

First in Fuels

“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,” Marathon Chairman and CEO Gary Heminger said in a statement April 30.

The CEO expects annual cost and operating synergies of about $1 billion within the first three years. Given projected cash-flow generation, Marathon’s board also approved share buybacks of $5 billion. Heminger’s counterpart at Andeavor, Gregory Goff, will become executive vice chairman.

The boards of both companies unanimously approved the deal, which is expected to close in the second half of this year, subject to regulatory and shareholder approvals. The Wall Street Journal first reported the acquisition April 29.

Marathon’s shares fell 5.2% in pre-market trading to $77.19, while Andeavor jumped 17% to $143.

Findlay, Ohio-based Marathon Petroleum is the third-largest U.S. refiner by market capitalization, valued at about $38.6 billion, according to data compiled by Bloomberg. Last year, the company sold 5.8 billion gallons of fuel through its Speedway convenience store chain.

Andeavor Assets

San Antonio-based Andeavor, formerly known as Tesoro Corp., is the fourth largest, worth $18.7 billion. Phillips 66 is the largest U.S. independent refiner, valued at $51.9 billion. Andeavor’s assets nclude 5,300 miles of pipelines and 40 marine, rail and storage terminals.

Last week, Andeavor announced two joint ventures to move crude oil from West Texas to the coast that are poised to begin operations in late 2019.

One is a pipeline project majority owned by Phillips 66 to haul up to 700,000 barrels per day of crude from the Permian Basin to the Corpus Christi, Sweeny and Freeport area. The second is a stake in a new marine terminal under development by Buckeye Partners LP that would connect with the pipeline Andeavor and Phillips 66 are planning to build.

Marathon’s natural gas processing capacity also will increase by about 20% under the deal, to more than 10 billion cubic feet per day.