M&A cycle continues to accelerate in energy-land.
Following WSJ indication last night, MPC announced this morning acquisition of ANDV for $35.6B EV, including $23.3B of total equity value. ANDV holders will receive 1.87 MPC shares or $152.27 in cash, a 24.4% premium to Friday's close. MPC will offer up to 15% of deal size in cash. Transaction is expected to close in 2H18.
· MPC expects to realize > $1b in annual run rate cost savings and operating synergies within the first three years.
· MPC board has authorized an incremental $5b share repurchases
· ANDV CEO/Chairman Greg Goff will join MPC as Executive Vice Chairman
· $600MM termination fee, 2.6% of transaction value
Quick Thoughts: M&A continues to heat up in the sector and MPC is clearly looking to expand its portfolio leverage to key assets in West Texas (WNR) where the majority of US production growth is expected to occur along with premier West Coast refining and logistics assets. Combined company would be the largest independent refiner in the US, with ~$92B EV. Likely increases discussions about further consolidation within downstream, DK looking the most likely target. ANDV G&A in 2017 was $742MM, making the run rate synergies look relatively conservative and the increased repurchase authorization is a strong indication of confidence from the MPC board and should satisfy pushback from the 'return of capital' bulls'. After a monster 2017, ANDV has underperformed MPC by 16% YTD18, which likely helped to facilitate the transaction and ANDV is trading at the 29th percentile vs MPC on a 5yr basis and 19th over the past year. Both stocks are relative longs in terms of positioning, so the 'street impacts' should be relatively positive. Anti-trust concerns are always front of mind with consumer sensitive industries, especially in California but the asset overlap is minimal. Combined entity would be 50% larger than the second largest US refiner now.
Feedback appreciated as always.
ANDV a timely acquisition?
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