ONEOK (NYSE: OKE ) is acquiring Magellan Midstream Partners (NYSE: MMP ) in a deal valued at nearly $19 billion, the companies disclosed in a joint statement.
The companies noted in the statement that they have entered into a definitive merger agreement under which ONEOK will acquire all outstanding units of Magellan in a cash and stock transaction valued at approximately $18.8 billion, including assumed debt, “giving resulting in a combined company with a total enterprise value of $60 billion.”
The consideration will consist of $25.00 in cash and 0.6670 ONEOK shares for each outstanding Magellan common unit, the companies said, adding that this represents a 22 percent premium to the closing price of Magellan on May 12.
Under the deal, Magellan will merge with a newly created subsidiary, 100 percent wholly owned by ONEOK, the statement revealed. The transaction is expected to close in the third quarter of this year and has been unanimously approved by the board of directors of both companies, the press release highlights. The closing of the transaction is subject to customary closing conditions, including the approvals of both ONEOK stockholders and Magellan unitholders, as well as Hart Scott Rodino Act clearance.
Outlining the strategic rationale for the deal, the companies said in the statement that it brings together two “premier” energy infrastructure companies with “strong returns” on invested capital and diverse generation of free cash flow.
“This acquisition creates a more resilient energy infrastructure company that is expected to produce stable cash flows through multiple commodity cycles,” the companies said.
The companies also disclosed that they expect to realize immediate financial benefits, including cost, operating and tax synergies, “supporting significant expected accretion.”
“The transaction is expected to be accretive to earnings per share (EPS) from 2024, with EPS accretion of three percent to seven percent annually between 2025 and 2027, and free cash flow per share averaging more than 20 percent between 2024 and 2027,” they said in the statement.
“Expected core synergies are expected to add at least $200 million annually,” the companies added.
Commenting on the deal, ONEOK Chairman and CEO Pierce H. Norton II said, “ONEOK has a long history and track record of being at the forefront of transformative transactions.”
“The combination of ONEOK and Magellan will create a diversified US midstream infrastructure company with predominantly fee-based earnings, a strong balance sheet and significant financial flexibility focused on providing essential energy products and services to our customers and a strong continuous return to investors”. added.
“Our expanded product platform will present more opportunities in our core businesses, as well as enhance our ability to participate in the ongoing energy transformation with a greater presence in the sustainable fuel and hydrogen corridors. We are excited about the future of our combined companies and we look forward to welcoming Magellan’s respected employees to ONEOK,” Norton continued.
Aaron Milford, president and CEO of Magellan, said: “For more than 20 years as a publicly traded company, Magellan has remained focused on safe and responsible operations, financial discipline and long-term value for investors” .
“We believe ONEOK shares these priorities and are pleased to join them in creating a stronger and more diversified mid-sized company,” Milford added.
“We believe the premium offered maximizes value creation for Magellan’s shareholders and reflects the core nature of Magellan’s assets and service offerings, as well as the quality of our innovative and talented employees,” he continued.
“This transaction provides a significant upfront cash component and an opportunity for Magellan investors to benefit from the attractive cash dividend that the combined company offers going forward,” Milford said.
First quarter results
Earlier this month, ONEOK reported in its latest earnings statement net income of $1.05 billion, diluted earnings per common share of $2.34 and adjusted EBITDA of $1.72 billion for the first quarter of this year. In the first quarter of 2022, the company reported net income of $391 million, diluted earnings per common share of 87 cents and adjusted EBITDA of $864 million, ONEOK’s latest statement highlighted.
The company’s operating income in the first quarter was $1.49 billion, compared to $662 million in the corresponding period last year, and its operating costs were $296 million, compared to with $264 million in the first quarter of 2022, according to the statement. The company’s capital expenditures in the first quarter were $289 million, compared with $257 million in the first quarter of 2022, it showed.
“The strong first quarter results were supported by continued earnings growth in each of our businesses,” Norton II said in a company statement at the time.
“Higher volumes of natural gas and natural gas liquids in our system provided a solid start to 2023 and continue to drive positive financial results,” he added.
“We remain well positioned financially, with strong balance sheet strength and significant flexibility to support continued growth,” he said.
In its latest earnings statement, ONEOK highlighted that, in April 2023, Moody’s upgraded ONEOK’s credit rating to Baa2 from Baa3. During the same month, ONEOK declared a quarterly dividend of 95.5 cents per share, or $3.82 per share on an annualized basis, the company noted in the earnings statement.
On May 4, Magellan reported in its Q1 earnings call net income of $274 million, diluted net income per common unit of $1.34 and free cash flow of $281 million of dollars In the first quarter of 2022, Magellan’s net income was $166 million, its diluted net income per common unit was 78 cents and its free cash flow was $240 million, it noted the latest statement from the company.
“Magellan began 2023 with strong financial results that exceeded our initial expectations, as a result of an improved pricing environment that benefited our commodity-related activities and continued strong demand for our transportation services and terminals,” Milford said in a company statement at the time.
“Our overall full-year financial forecast has also been strengthened, supported by our strong first quarter results as well as our updated outlook on mid-year rate adjustments for our product pipeline system refined,” he added.
“Magellan remains committed to safely and reliably moving critical essential fuels for our nation and the world, while maximizing long-term investor value,” Milford continued.
ONEOK describes itself as a leading midstream service provider that owns “one of the nation’s leading natural gas liquids systems.” Magellan is described as a publicly traded partnership that primarily transports, stores and distributes petroleum products and crude oil based in Tulsa, Oklahoma.
To contact the author, please send an email andreas.exarcheas@rigzone.com
