Sunday, May 14, 2023

ONEOK to acquire Magellan Midstream Partners for $18.8B

OneOK building (copy)

The ONEOK building is picture in downtown Tulsa. 

NEOK Inc. announced Sunday that it will acquire Magellan Midstream Partners LP for $18.8 billion, including assumed debt, resulting in a combined company with a total value of $60 billion.

The transaction “brings together two premier energy infrastructure businesses with strong returns on invested capital and diverse free cash flow generation: The transaction adds a leading, and primarily fee-based, refined products and crude oil transportation business to ONEOK,” ONEOK said in a news release.

The combined company will own more than 25,000 miles of liquids-oriented pipelines, with significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs, ONEOK said.

“Magellan’s stable, primarily demand-driven businesses are expected to generate significant free cash flow due to low capital expenditure requirements. This acquisition creates a more resilient energy infrastructure company that is expected to produce stable cash flows through diverse commodity cycles,” ONEOK said.

The transaction is expected to be earnings per share (EPS) accretive beginning in 2024 with EPS accretion of 3% to 7% per year from 2025 through 2027, and free cash flow per share accretion averaging more than 20% from 2024 through 2027. Base forecasted synergies are expected to total at least $200 million annually, ONEOK said.

From a tax perspective, ONEOK expects to benefit from the step-up in Magellan’s tax basis from the transaction, thus deferring the expected impact of the new corporate alternative minimum tax from 2024 to 2027, it said.

Utilization of expected tax attributes could increase if additional capital projects are put into service or acquisitions are completed, which may increase the net present value of future tax deferrals.

“The combined company is expected to experience a step change in free cash flow after dividends and growth capital by generating an average annual amount of approximately $1 billion in the first four years following the expected transaction close,” the company said.

The increase in free cash flow will provide additional cash for debt reduction, growth capital and value returned to shareholders through dividends and/or repurchasing shares, it said.

“ONEOK anticipates this combined liquids-focused portfolio will present significant potential for enhanced customer product offerings and increased international export opportunities,” the release said.

“We believe these activities could potentially result in total annual transaction synergies exceeding $400 million within two to four years,” it said.

“ONEOK has a long history and track record of being at the forefront of transformational transactions,” Pierce H. Norton II, ONEOK president and chief executive officer, said in a statement.

“The combination of ONEOK and Magellan will create a diversified North American midstream infrastructure company with predominately fee-based earnings, a strong balance sheet and significant financial flexibility focused on delivering essential energy products and services to our customers and continued strong returns to investors,” he said.

“Our expanded products platform will present further opportunities in our core businesses as well as enhance our ability to participate in the ongoing energy transformation with an increased presence in sustainable fuel and hydrogen corridors. We are excited about the future of our combined companies and look forward to welcoming Magellan’s well-respected employees to ONEOK,” Norton said.

“Throughout more than 20 years as a publicly traded company, Magellan has remained focused on safe and responsible operations, financial discipline and long-term investor value. We believe ONEOK shares these priorities, and we are pleased to join them in creating a stronger, more diversified midstream company,” said Aaron Milford, Magellan president and chief executive officer.

“We believe the premium offered maximizes value creation for Magellan’s unitholders and reflects the essential nature of Magellan’s assets and service offerings as well as the quality of our talented and innovative employees.

“This transaction provides a significant upfront cash component and an opportunity for Magellan investors to benefit from the attractive cash dividend offered by the combined company going forward.”

The transaction is expected to close in the third quarter of 2023 and has been unanimously approved by the board of directors of both companies.

The closing of the transaction is subject to customary closing conditions, including the approvals of both ONEOK shareholders and Magellan unitholders.

Following the close of the transaction, Norton will continue to serve as chief executive officer of the combined company. ONEOK intends to seek and nominate one or two director(s) serving on the board of Magellan’s general partner.

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