Marathon Petroleum Corp. (MPC) announced that MPLX, the midstream master limited partnership (MLP) sponsored by MPC, has signed a definitive merger agreement with MarkWest Energy Partners, 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 US$20 billion, including the assumption of debt of approximately $4.2 billion, as of the close of trading on Friday, 10 July, 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.
The combination would create the fourth-largest MLP based on a market capitalization of $21 billion. MPLX chairman and CEO, Gary R. Heminger said that as part of the combination, MPLX affirms its anticipated distribution growth of 29% this year and expects a 25% compound annual distribution growth rate for the combined entity through 2017, with the capacity to support a peer-leading distribution growth profile for an extended period of time thereafter.
The complementary aspects of MarkWest's, MPLX's and MPC's highly diverse asset base provide significant additional opportunities across multiple segments of the hydrocarbon value chain. The combined entity would further MarkWest's leading midstream presence in the Marcellus and Utica shales by allowing it to pursue additional dynamic midstream projects. These large-scale strategic projects will allow producer customers to achieve the highest value for their growing production in these important shale regions. In addition, the combination provides significant vertical integration opportunities, as MPC is a large consumer of natural gas liquids.
Heminger 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 is expected to close in the 4Q of 2015. Upon completion of the transaction, MPC would continue as general partner of MPLX and own approximately 19% of MPLX's common units.