Marathon Petroleum Corp. (MPC) has responded to hedge fund Elliott Management Corp., which in a letter to MPC’s board alleged that the company is extremely undervalued and that it should consider a break up of the firm to unlock value.
The Wall Street Journal reported that Elliott’s letter implored MPC to review its current structure and consider moves such as a full, tax-free separation of the company into three stand alone business: Speedway, the refining business and the midstream business. It also asked the company to simplify its midstream operations and structure, which it said would bring a lower cost of capital for the midstream business and a forced revaluation for Marathon Petroleum’s shareholders.
Marathon Petroleum Corp. (MPC) issued the following statement in response to the letter released by Elliott Management to MPC’s Board of Directors:
“We have a history of engaging with shareholders on the important issues facing our company and have always considered their views objectively,” said Gary Heminger, MPC’s chairman, president and chief executive officer. “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.”
“On Oct. 27, we announced several sound, aggressive actions, including a schedule of substantial dropdown transactions to MPLX 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.”
“We have 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% since our spinoff (vs. 86% for S&P 500).i We have returned over $10 billion to shareholders and tripled our stable cash flows.”
Heminger concluded: “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.”
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. In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation’s second-largest convenience store chain, with approximately 2,770 convenience stores in 22 states. MPC owns, leases or has ownership interests in approximately 8,400 miles of crude and light product pipelines and more than 5,500 miles of gas gathering and natural gas liquids (NGL) pipelines. MPC also has ownership interests in 54 gas processing plants, 13 NGL fractionation facilities and two condensate stabilization facilities. Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream master limited partnership. MPC’s fully integrated system provides operational flexibility to move crude oil, NGLs, feedstocks and petroleum-related products efficiently through the company’s distribution network and midstream service businesses in the Midwest, Northeast, East Coast, Southeast and Gulf Coast regions.