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Investor Calls for Marathon Petroleum Split

Elliott Management says corporation should be divided into three independent businesses
Photograph courtesy of Marathon Petroleum

NEW YORK — Elliott Management Corp. has sent a letter and presentation to the board of Marathon Petroleum Corp. (MPC) calling for the refiner-marketer to split into three separate companies.

Elliott Management manages funds that represent approximately a 2.5% economic interest in Marathon Petroleum.

In the presentation, Elliott outlines “a path forward for Marathon to remedy the company’s chronic underperformance, to improve its businesses and to unlock significant and sustainable value for its shareholders,” the letter said. “To unlock the value currently trapped in Marathon’s conglomerate structure, Elliott believes the company must immediately initiate a separation into three independent entities, which will create three strong, independent companies, each a leader in its sector.”

The three companies would include:

  • Speedway LLC as a stand-alone retail company, which upon separation would be the largest U.S.-listed convenience-store operator. Speedway is No. 3 in CSP’s 2019 Top 202 ranking of c-store chains by number of company-owned retail outlets.
  • MPLX LP as a stand-alone midstream company, which upon separation would be a top-five U.S. midstream operator by enterprise value.
  • Marathon Petroleum as a refining company, which, following the transactions, would be the largest independent merchant refiner by U.S. throughput.

Elliott said it believes the board can unlock more than $22 billion in value for shareholders with no change in the operating assumptions, an increase to the current stock price of approximately 61%. It also believes the board can unlock an incremental $17 billion in value through achieving the operating full potential of Marathon’s asset base, a total potential upside of more than 100%, it said.

“Elliott previously engaged with the current management extensively regarding ideas to create value, which concluded with promises from management and the board that certain steps would be taken to improve performance,” New York-based Elliott Management said in the letter. “Those promises have not been kept, and Elliott continues to believe that Marathon is severely undervalued.”

In a response to Elliott Management’s proposal provided to CSP Daily News, Marathon Petroleum said, “MPC engages in regular communication with its shareholders and welcomes constructive input related to enhancing shareholder value. The company’s board of directors and management team remain focused on delivering long-term value for shareholders, and will continue to take actions to achieve that objective.

“MPC’s management team and independent board have a strong track record of taking action to deliver shareholder value," Marathon continued. "Since becoming an independent company in 2011, MPC has generated total shareholder return of 254%, exceeding the S&P, which has returned 174%. At the same time, MPC has returned over $20 billion to shareholders through dividends and share repurchases. Our strong operational results and cash flow generation have allowed us to build upon our commitment to returning capital to our shareholders, having returned approximately $850 million to our shareholders in the second quarter of 2019 and more than $2.1 billion year to date through a mix of dividends and share repurchases.

“We look forward to maintaining an ongoing dialogue with our shareholders as we continue to evaluate opportunities to deliver more value for our shareholders. We will thoroughly evaluate Elliott's proposal and look forward to continuing our constructive engagement around these issues.”

In November 2016, Elliott Management sent a letter to Marathon Petroleum recommending it take specific actions to add $14 billion to $19 billion of value for shareholders. Elliott recommended that Marathon Petroleum immediately drop down all master limited partnership (MLP)-qualifying income to MPLX, the company’s midstream energy infrastructure MLP subsidiary. Also, Elliott suggested conducting a full strategic review, giving careful consideration to a potential spinoff of Speedway, the company’s approximately 2,750-unit c-store segment.

Marathon initially signaled disagreement with Elliott’s plan but later announced steps to pursue value-creating actions, including substantial dropdowns to MPLX. It also conducted an independent review of Speedway, deciding against a sale or spinoff. Elliott eventually voiced its support for the decision to retain Speedway.

Marathon Petroleum is an integrated downstream energy company based in Findlay, Ohio. It operates 16 refineries, and its marketing system includes approximately 7,800 branded locations across the United States, including about 5,600 Marathon brand retail outlets. Its subsidiary, Speedway, based in Enon, Ohio, owns and operates more than 4,000 U.S. convenience stores. Marathon Petroleum also owns the general partner and majority limited partner interest in midstream marketing company MPLX.

Houston-based Marathon Oil Corp. spun off Marathon Petroleum in 2011 to focus on the upstream petroleum segment.

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