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Marathon Petroleum announces board, governance changes amid activist campaign

Marathon Petroleum Corp. on Dec. 16 announced board and proposed governance changes as part of an agreement it reached a day earlier with Elliott Management Corp., an activist investor that had been pushing for the integrated oil refiner to split into three businesses.

In October, Marathon announced it would spin off its retail business and evaluate options for its midstream business, and the latest agreement sets the stage for further strategic changes at the integrated refiner.

Effective Dec. 16, Marathon appointed Jonathan Cohen to fill the seat of retiring executive and board member Greg Goff. Cohen will serve on the special committee of Marathon's board established to evaluate options for Marathon's master limited partnership subsidiary MPLX LP as well as on the special committee overseeing the search for Marathon CEO Gary Heminger's replacement. On Oct. 31, Marathon announced Heminger would retire from the company in April 2020, two full years after it announced the acquisition of rival refiner Andeavor.

The agreement also allows Elliott to appoint "an independent individual reasonably acceptable to MPC" to serve as a nonvoting adviser to the committee evaluating options for Marathon's midstream business.

Cohen's background includes founding and leadership roles at midstream companies that were eventually sold to other energy industry players, including Atlas Energy Inc. and Atlas Pipeline Partners LP, which were acquired by Chevron Corp. in 2011, and Arc Logistics Partners LP, which was acquired by a portfolio company of Warburg Pincus in 2017. Elliott portfolio managers John Pike and Phillip Zeigler said Cohen's "extensive energy experience and financial expertise … will add a valuable perspective" to Marathon's strategic evolution.

Marathon said it would propose and recommend that shareholders approve an amendment to its certificate of incorporation to declassify its board, which would provide for the annual election of all board members. Under the current structure, board members are split into three classes that serve staggered three-year terms. Shareholder approval of the declassification amendment would have directors elected in 2020 and each year thereafter serving one-year terms, effectively ending classification of Marathon's board of directors at the company's 2022 annual shareholder meeting.

In its September proposal to "remake" Marathon, Elliott said Marathon's current board structure is "in the small minority of S&P 500 companies without annual elections," which has led to an "insular board with numerous professional and interpersonal connections."

During a standstill period, which expires at the earlier of Oct. 12, 2020, or 35 days prior to the first day of Marathon's advance notice period for the nomination of directors at the company's 2021 annual shareholder meeting, the agreement gives Elliott a say in appointing both Cohen's replacement and the nonvoting adviser's replacement as long as Elliott beneficially owns at least a 2% net-long position in Marathon's outstanding shares of common stock.

In return, Elliott agreed to standstill restrictions that, among other things, prohibit it from soliciting "proxies or consents with respect to the election or removal of directors or any other matter or proposal with respect to MPC" or acquiring voting control of more than 9.9% of Marathon's outstanding shares.