Marathon Petroleum Corp. agreed to exchange its general partner economic interests in MPLX LP for about $10.1 billion worth of newly issued MPLX common units, a move that will simplify the corporate structure and provide a "clear valuation" for its general partner economic interests in the partnership.
The general partner economic interests, including incentive distribution rights, will be exchanged for 275 million MPLX units. The deal is expected to close Feb. 1, 2018, subject to the immediate closing of the $8.1 billion drop down of refining logistics assets and fuels distribution services, according to a Dec. 15 release.
"The elimination of the rapidly growing [incentive distribution rights] obligation improves the partnership's cost of capital permanently," said Michael Hennigan, president of MPLX. "We believe this buy-in creates one of the fastest paths to accretion compared with similar GP transactions, and positions the partnership extraordinarily well for the future."
Upon deal closing, Marathon Petroleum will continue to control MPLX through its non-economic general partner interest and will own about 64% of the outstanding MPLX units. The exchange will remove the general partner cash distribution requirements of the partnership and is expected to be profitable to distributable cash flow attributable to common unitholders in the third quarter and for the full year of 2018.
"This exchange fully aligns the interests of MPC and MPLX and facilitates predictable and growing distributions to all unitholders of MPLX, including MPC," said Gary Heminger, chairman and CEO of both Marathon and MPLX.
The exchange was unanimously approved by the boards of both companies. Jefferies LLC was the financial adviser to MPLX's conflicts committee and Andrews Kurth Kenyon LLP was the legal adviser. Marathon Petroleum was advised by Citi on financial matters and Vinson & Elkins LLP on legal matters.
