You are here
FINDLAY, Ohio — Marathon Petroleum Corp. (MPC) is coming out against a call by a shareholder group to spin off its retail network, Speedway LLC.
Speedway, an MPC subsidiary, owns and operates the nation's second-largest convenience store chain, with approximately 2,770 convenience stores in 22 states.
In a letter to MPC's board of directors, Elliot Management Corp. said MPC is "severely undervalued and that there are readily available steps by which the board can unlock $14–$19 billion in value for shareholders."
Elliot Management manages funds that collectively beneficially own 4 percent of the common stock and equivalents of MPC. To read the full letter and view Elliot Management's presentation, click here.
The group offers two recommendations to the board:
1. Drop Down All MLP-Qualifying Assets to MPLX Immediately: "Marathon can take direct, immediate action to simplify its midstream operations and structure that will result in a lower cost of capital for the midstream business and a forced revaluation for Marathon shareholders."
2. Conduct a Full Strategic Review to Reassess Marathon's Current Structure: "The board should not ask whether Marathon's current structure merely maximizes the value of Marathon's refining assets or the flexibility of its refineries. Rather, its goal must be to maximize the value of the overall Marathon enterprise. Marathon should evaluate whether a tax-free separation of Speedway or a full tax-free separation of the company into three separate standalone businesses (Speedway, Refining Co., and Midstream Co.) best serves shareholders over the long term."
"We have a history of engaging with shareholders on the important issues facing our company and have always considered their views objectively," said Gary R. Heminger, MPC's chairman, president and CEO. "We agree with Elliott Management that there is upside to our valuation, which we are addressing with the value-creating actions we announced last month, but we disagree with their letter and presentation."
Specifically, Heminger pointed to MPC's previously announced actions that include a schedule of substantial dropdown transactions to MPLX LP designed to support continued strong distribution growth of MPLX and drive value back to MPC.
"As discussed with Elliott, there are tax and other impediments to an immediate dropdown of all the assets to MPLX. In addition, we are evaluating strategic opportunities to highlight and capture the value of MPC's general partner interest in MPLX and optimize the cost of capital for MPLX. We also are assessing changes to our segment reporting structure related to our midstream assets," he explained.
According to the CEO, MPC has "delivered substantial value through our integrated and diversified model, including our Speedway retail business with its best-in-class EBITDA per store." MPC has generated total shareholder return of 140 percent since its spinoff and the company has returned more than $10 billion to shareholders and tripled its stable cash flows, he added.
"MPC has a strong and longstanding track record of taking aggressive actions to increase shareholder value. We are confident our plan will deliver substantial shareholder value and we are moving ahead expeditiously on each of these actions," Heminger said.
Elliot Management is known for taking its recommendations directly to the boards of companies. In April 2013, the activist investor group hosted the meeting at New York's Le Parker Meridien hotel in an effort to encourage Hess Corp. shareholders to vote for its five proposed board of director nominees at the oil company's annual meeting in May 2013. It had repeatedly stated Hess' stock price was considerably undervalued, as CSNews Online previously reported.
The meeting came on the heels of Hess' decision to sell its retail network of 1,361 convenience stores and gas stations. Speedway was the ultimate winner of that retail network. The $2.82-billion transaction with Hess closed in the fall of 2014.
Findlay-based MPC is the nation's third-largest refiner, with a crude oil refining capacity of approximately 1.8 million barrels per calendar day in its seven-refinery system. Marathon brand gasoline is sold through approximately 5,400 independently owned retail outlets across 19 states. Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream master limited partnership.