Daily Management Review

Oil Refining Company Andeavor To Be Acquired By Rival Marathon For $23.3 Billion


Oil Refining Company Andeavor To Be Acquired By Rival Marathon For $23.3 Billion
U.S. Oil refining company Andeavor would be acquired by Marathon Petroleum Corp. in a deal valued at $23.3 billion. This deal will result in he creation of the largest fuel manufacturer in the U.S.
While Andeavor’s refineries and pipelines are situated in western states, Marathon is concentrated in the Midwest and Gulf Coast. Both the companies have flourished in the shale boom era in the U.S. and they have ready access to plenty of supplies at low prices. the new entity would be larger than Valero Ene3rgy Corp to become the largest oil refining capacity based in the U.S. The new entity would be able to generate about 16 percent of U.S.’s total output.
“Wow!,” wrote Matthew Blair, director of refining research at Tudor Pickering Holt & Co. The report noted Andeavor to be a “big winner” and the deal as being “extremely positive.” Blair said that big synergies would be very important for Marathon. He added there should not be much problem with anti-trust agencies, “given the disparate geographical markets of each company.”
“This transaction combines two strong, complementary companies to create a leading U.S. refining, marketing, and midstream company, building a platform that is well positioned for long-term growth and shareholder value creation,” Marathon Chairman and Chief Executive Officer Gary Heminger said in a statement on Monday.
Within the first three years of the deal, the new entity would be able to achieve annual cost and operating synergies of about $1 billion, expects the CEO. Marathon’s board also approved share buybacks of $5 billion because of the projected cash-flow generation.
It is expected that the deal would be closed by second half of this year.
There was a drop of 5.2 per cent in the shares of Marathon in in pre-market trading while there was 17 per cent hike in share prices of Andeavor.
Based on market capitalization, the Ohio-based Marathon Petroleum is placed third among U.S. refineries. It is valued at approximately $38.6 billion. The Speedway convenience store chain of the company sold 5.8 billion gallons of fuel last year.  
With a valuation of $18.7 billion in market capitalization, the San Antonio, Texas-based Andeavor is the fourth largest refiner in the U.S. The largest U.S. refinery is Philips 66 with a market valuation of $51.9 billion. 40 marine, rail and storage terminals and 5.300 miles of pipelines are owned by Andeavor.
Two joint ventures that will help move crude oil from West Texas to the coast where operations are set to begin in late 2019 were announce3d by Andeavor last week.
The first project is aimed to move about 700,000 barrels per day of crude oil from the Permian Basin to the Corpus Christi, Sweeny and Freeport area through a network of pipes. This project will be majorly owned by Phillips 66.
The second venture includes taking up a share in a new marine terminal that is under construction by Buckeye Partners LP. This project would ultimately get connected to the pipeline that Andeavor and Phillips 66 are planning to build.