Marathon Petroleum’s $23.3bn Merger with Andeavor

By Harvey George, Ilya Korzinkin (LSE) 04/10/2018 |


Overview of the deal

  • Acquirer: Marathon Petroleum Inc.

  • Advisors: Goldman Sachs Co.

  • Target: Andeavor Corporation

  • Advisors: Barclays Plc

  • Estimated transaction value: $23.3bn

  • Announcement date: April 2018

On the back of rising Oil prices squeezing global refiners’ profit margins, as well as a looming change in fuel preferences towards low-sulphur products (IMO 2020), the need for diversification for global refiners is paramount. This merger aims to not only consolidate two companies’ asset portfolios ahead of anticipated market trends, but to also capitalise on a wide variety of synergies that could make the combined entity an undisputed market leader in the US refinery industry.

Marathon Petroleum has purchased all outstanding shares of Andeavor, in a transaction that has been unanimously approved by the boards of both companies at a valuation of $23.3bn. Andeavor shareholders will have the option to choose 1.87 shares of Marathon stock or $152.27 in cash subject to a proration mechanism that will result in 15% of Andeavor’s fully diluted shares receiving cash consideration. When the integration is complete, Marathon and Andeavor shareholders will own about 66% and 34% of the combined company, respectively. The NewCo will operate under the Marathon Petroleum name, and will have a combined 26% market share with 17 refineries across the US. The NewCo’s closest competitor will be Valero Energy who own only 13. The transaction is expected to yield $1bn in cost-saving efficiency gains.

“Marathon’s gambit feels like a milestone in the remaking of the country’s place in the global oil market. It would cement a distinct gap between a “big three” and a set of smaller, more regional independent refiners. Just being bigger isn’t necessarily better, obviously. Marathon will have to prove its optionality has actual value” -Bloomberg

Company details (Marathon Petroleum)

Marathon Petroleum core business is refining, marketing, retailing and transporting petroleum in the US. The firm was spun-off from Marathon Oil in 2011 and it currently owns 6 refineries across the US.

- Incorporated in 2009, Headquartered in Findlay, Ohio, US

- President and CEO: Gary Heminger

- Number of employees: 43,000

- Market Cap: $37.7bn - EV: $52.4bn

- LTM Revenue: $75.4bn - LTM EBITDAX: $6.1bn

- LTM EV/Revenue: 0.7x - LTM EV/EBITDAX: 8.5x

Company details (Andeavor)

Andeavor (formerly Tesoro Corp. until 2017) is a petroleum refining, logistics and marketing company, operating across the United States. The company owns 11 refineries located in Western regions of the United States.

- Founded in 1968, Headquartered in San Antonio, Texas, US

- President and CEO: Gregory Goff

- Number of employees: 14,300

- Market Cap: $22.9bn - EV: $31.1bn

- LTM Revenue: $34.2bn - LTM EBITDAX: $2.9bn

- LTM EV/Revenue 0.9x: - LTM EV/EBITDAX: 10.7x

Projections and assumptions

  • Short-term consequences