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Speedway Spinoff Moves Closer to Reality

Separation on table as Marathon conducts ‘full and thorough’ review of retail network’s value

FINDLAY, Ohio -- Marathon Petroleum Corp.’s (MPC) Speedway convenience-store chain will get a “full and thorough” review to ensure that it is delivering optimum value to shareholders over the long term and to consider whether it should be spun off from the refiner.

As reported in a McLane/CSP Daily News Flash, MPC has announced that a special committee of the board will conduct a review of Speedway, the third-largest convenience-store chain in North America, with the assistance of an independent financial adviser.

The review “will include a tax-free separation of Speedway to MPC shareholders and other strategic and financial alternatives,” the company said. It expects to provide an update on the review by mid-2017.

With this review, MPC will "show to the market how we see the value of Speedway, inside the company or not," president and CEO Gary Heminger during a Jan. 3 conference call. The review will be "robust," he said.

Shareholder Elliott Management Corp. has been pushing Marathon Petroleum to spin off the retail network. Heminger has said that he disagrees with Elliott Management’s conclusions and has expressed previously that the company continues to value an integrated supply chain.

New York-based Elliott manages funds that collectively own about 4% of MPC common stock, reportedly making it one of the refiner-marketer’s largest shareholders. In a November 2016 letter to Heminger and the MPC board, Quentin Koffey, portfolio manager for Elliott Management, argued that MPC is “severely undervalued” and should consider two specific moves to unlock up to $19 billion in additional shareholder value:

  • Drop down all MLP-qualifying assets to MPLX and consider spinning off Speedway; or
  • Separate Marathon into three separate, stand-alone businesses: retail, refining and midstream operations.

Downplaying the role of Elliott Management in driving the announcement, Heminger said, “We are a management team with a long track record of taking aggressive actions to create value. … Driving long-term value for our shareholders has always been and remains our top priority, and we outlined several significant value-enhancing initiatives recently which continue that track record. We have been working diligently over the last several months on each of them. This work has positioned us to announce a significant update to our plan.”

In a statement, Heminger also said, “We believe MPC is undervalued in the public markets and have been working diligently to execute the initiatives we announced in late October.”

In the same press statement, Koffey, speaking for Elliott Management, said, “We are pleased with the additional decisive actions MPC announced today that will accelerate value creation for all shareholders. We appreciate the open and candid dialogue we have had with the management team, and expect these additional actions to be important elements of the value realization MPC continues to drive for its shareholders.”

On the call, Heminger said, “We are pleased that Elliott Management has expressed its support for our plan, and look forward to constructive engagement with all of our shareholders.”

MPC also has announced plans to significantly accelerate its dropdown of assets with an estimated $1.4 billion of master limited partnership (MLP)-eligible annual earnings before interest, taxes, depreciation and amortization (EBITDA) to MPLX LP, a midstream MLP, to be completed as soon as practicable in 2017, subject to requisite approvals and regulatory clearances, including tax.

And the company has announced that it has completed its initial evaluation of strategic alternatives for its MPLX general partner (GP) interests, including incentive distribution rights (IDRs), indicating that it expects to exchange its economic interests in the GP for newly issued MPLX common units along with completing the dropdowns. The company said it expects to announce the details following receipt of the requisite approvals and tax clearance for all dropdowns.

Findlay, Ohio-based Marathon Petroleum is the nation’s third-largest refiner. Marathon-branded gasoline is sold through approximately 5,400 independently owned retail outlets across 19 states. In addition, Enon, Ohio-based Speedway LLC, an MPC subsidiary, owns and operates approximately 2,770 convenience stores in 22 states.

MPC owns the general partner of MPLX LP. MPC’s fully integrated system provides operational flexibility to move crude oil, natural gas liquids, feedstocks and petroleum-related products through the company’s distribution network and midstream service businesses in the Midwest, Northeast, East Coast, Southeast and Gulf Coast regions.

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