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Andeavor launches $3.8B buy-in of MLP; partnerships ink $1.8B merger deal

Andeavor Logistics LP announced Aug. 14 it has struck a merger agreement with Western Refining Logistics LP in a unit-for-unit deal worth about $1.8 billion. Their parent company, Andeavor Corp., also initiated a financial repositioning of Andeavor Logistics through a $3.8 billion buy-in of the partnership's incentive distribution rights.

Under the agreement, Andeavor Logistics will acquire Western Refining at a blended exchange ratio of 0.4921, representing an equity value of $1.5 billion based on Andeavor Logistics' closing unit price of $48.31 as of Aug. 11, according to a news release. The deal's enterprise value also includes the assumption of about $310 million of Western Refining's net debt.

Western Refining unit holders will receive 0.5233 Andeavor Logistics unit for each Western Refining common unit they own, valued at $25.28 per Western Refining unit, which reflects a 6.4% premium on Western Refining's closing unit price as of Aug. 11 and a 6.9% premium to the volume weighted average closing price over the last 30 trading days.

As part of the merger deal, Andeavor Logistics agreed to issue 78.0 million of its common units to Andeavor, valued at $3.8 billion based on Andeavor Logistics' closing unit price on Aug. 11. In exchange, Andeavor Logistics' IDRs will be cancelled immediately after merger closing. Andeavor's economic general partner interest will also be converted into a non-economic general partner interest.

The buy-in will result in an effective implied exchange ratio of 0.4639 Andeavor Logistics unit for each Western Refining unit held by Andeavor, which does not represent a premium to both partnerships' closing unit prices on April 13.

Together, the transactions result in the blended exchange ratio, also valued at $23.77 per Western Refining unit. They are expected to simplify the corporate structure and generate about 93 million newly issued Andeavor Logistics units to Andeavor, bringing the parent's total ownership to about 127 million units or roughly 59% of outstanding units. Andeavor's position is valued at $6.1 billion.

In addition, Andeavor plans to increase distribution waivers by $60 million to $160 million from 2017 to 2019. There will be no increase in 2017's $50 million distribution waiver. It will increase by $10 million to $60 million in 2018 and add a $50 million distribution waiver for 2019. With the increases, Andeavor anticipates Andeavor Logistics to benefit from accelerated near-term distributable cash flow accretion as well as strong financial metrics.

"We view these transactions as incredibly important to enable Andeavor Logistics continued growth plans and further strengthen Andeavor logistics as a premier customer-focused logistics company with an enhanced capital structure to better support long-term sustainable growth," Andeavor CEO Gregory Goff said on an Aug. 9 earnings call. "With more stable market conditions and the possibilities to improve Andeavor Logistics' competitive position, we're excited about our future and ability to grow value for our unit holders."

In terms of strategy, Andeavor Logistics aims for an annual distribution growth of 6% or greater and $400 million to $500 million per year on drop-down investment. Andeavor's drop-down portfolio has at least $750 million of estimated annual earnings composed of refinery infrastructure, logistics assets, assets under development and its wholesale fuels business.

Goff would retain his position as chairman and CEO and Steven Sterin as president and CFO of the general partner of Andeavor Logistics. The deals are scheduled to close in the fourth quarter of 2017.

On Aug. 1, Tesoro Corp. and Tesoro Logistics LP changed their names to Andeavor Corp. and Andeavor Logistics LP.