Did Marathon Just Open the Door to a Speedway Spinoff?
By Greg Lindenberg on Dec. 16, 2016FINDLAY, Ohio -- The board of Marathon Petroleum Corp. (MPC) has approved an amendment to the company’s bylaws to extend the date by which stockholders can nominate directors to the board from Dec. 16, 2016, to Jan. 9, 2017. The change, which MPC announced in a U.S. Securities and Exchange Commission (SEC) filing on Friday, comes at a time when shareholder Elliott Management Corp. is pushing MPC to spin off its Speedway convenience-store network.
The SEC filing does not offer any reasons for the deadline change.
As reported in CSP Daily News, Findlay, Ohio-based MPC is considering strategic opportunities to capture additional value in its stock price, but has been pushing back against Elliott Management’s proposals.
New York-based Elliott Management manages funds that collectively own about 4% of MPC common stock, reportedly making it one of the refiner-marketer’s largest shareholders.
Speedway LLC, Enon, Ohio, is one of the largest c-store chains in the United States with nearly 2,800 locations.
In a letter and presentation in late November to MPC chairman, president and CEO Gary Heminger and the 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:
- Immediately drop down all MLP-qualifying assets to MPLX. This, the fund argued, would remove any uncertainty that currently pressures MPLX’s cost of capital.
- Consider spinning off Speedway or separating MPC into three separate, stand-alone businesses—Speedway, refining and midstream operations—to better serve shareholders. Even in a base case, where each of the three businesses traded at the lowest multiple of their peers, restructuring MPC could unlock around $12 billion in value, or boost its stock by more than 50%.
“We agree with Elliott Management that there is upside to our valuation,” Heminger said in official comments about Elliott Management’s letter. “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,” he said. “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 [from Marathon Oil Corp.] vs. 86% for the S&P 500. We have returned over $10 billion to shareholders and tripled our stable cash flows.”
He 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.”
In MPC’s second-quarter 2016 earnings call in July, Heminger said Speedway “will be a continuing source of value” to Marathon and said that the company has no intention of spinning it off.
The two sides can either reach an agreement before the new Jan. 9 deadline to give Elliott Management some kind of board representation, or they continue the fight and the hedge fund nominates its own board members.
In 2013, Elliott Management urged New York-based Hess Corp. to divest its retail network, which MPC and Speedway acquired in 2014.