Current MPC Stock Info

On Dec. 15, 2017 Marathon Petroleum Corp. (ticker: MPC) and MPLX LP (ticker: MPLX) announced a definitive agreement for MPC to exchange its general partner (GP) economic interests in MPLX, which include incentive distribution rights (IDRs), for 275 million newly issued MPLX common (LP) units valued at approximately $10.1 billion based on the volume-weighted average price of MPLX over the past 10 days. The full MPC/MPLX release can be found here.

On Dec. 18, John M. Fox, founder and former CEO of MarkWest Energy Partners released the first open letter to the board of directors of Marathon Petroleum Corporation (MPC) responding to management’s announcement “to demand over $10 billion for its GP economic interest in MPLX.”

Then, on Dec. 19, John M. Fox released a second open letter to the board of directors of MPLX. The second letter can be found below, after the first letter.


The full text of the letter follows:

December 18, 2017

Board of Directors
Marathon Petroleum Corporation
539 S Main St
FINDLAY, OH 45840-3229

Attention: Gary Heminger, Chairman, President and Chief Executive Officer

To the Board of Directors of Marathon Petroleum Corporation:

I was frustrated to see Marathon Petroleum Corporation’s Board of Directors continues to push an unjustified inflated price for its Incentive Distribution Right (IDR) burden on MPLX.  Therefore, I sincerely hope your press release dated December 15, 2017 does not represent the final deal terms. As I outlined in my letter to you on December 5, 2017, any multiple in excess of 14x is both well above the precedent set by the market, and will destroy value for both MPLX and MPC. With a 4.8% single-day decline in the value of MPLX units after your announcement of the transaction, it is clear that investors are voting with their feet.

Based on the volume-weighted average price of MPLX over the past 10 days which MPC’s management is using to value the newly issued MPLX common (LP) units, the IDR elimination will be executed at a multiple of 17x the pro forma value of the GP’s IDRs. Given expectations of available Distributable Cashflow to the LP for 2018 of $1.9 billion and approximately 796 million outstanding units following the issuance of your 275 million new units as part of the elimination, pro forma distributions will equate to $2.40 per unit.  However, if you didn’t do the IDR elimination, I estimate you would be distributing $2.50 – $2.55 per unit.  How, then, can the IDR elimination be considered accretive as you indicate in your press release?

Over the past 13 days since my last letter, I have had an overwhelming response from many large institutional holders of MPC and MPLX that share my concern over the valuation.  Your more than $10 billion valuation announced on Friday is destructive not only to MPLX but also to MPC who would own two thirds of MPLX if this gets done on these terms!

Gary, you and others have emphasized that a significant part of your effort to create value for MPC shareholders is to enhance the value of your ownership of MPLX where MPC is the largest unit holder.  Yet by insisting on a value-destroying multiple from MPLX you are in effect shooting MPLX in the foot!

By insisting on 275,000,000 units of MPLX rather than a more justifiable number of 215,000,000 units you, in effect, cripple MPLX and its value creating potential for MPC.  Where is the logic in doing that?

I support MPC’s decision to eliminate the IDRs, but it must be done at a multiple which will actually create long-term value for MPLX and its unitholders, MPC included. I urge you to reconsider the inflated multiple you have set to this deal so that you do not lose an opportunity to create real value for MPLX.

It is not too late to do the right thing!

Sincerely,

John Fox

 


On Dec. 19, Fox responded to the Marathon announcement with a second letter to Marathon Chairman Gary Heminger.

 

The text of Fox’s letter follows:

 

December 19, 2017

 

Board of Directors

MPLX LP

200 East Hardin Street

FINDLAY, OH 45840-3229

 

Attention: The Board of Directors of MPLX GP

 

Dear Gary,

As you have seen from my letter to you and the MPC board yesterday the price contemplated for MPLX’s purchase of MPC’s IDRs (Incentive Distribution Rights) is extraordinarily excessive. As Chairman of MPLX’s General Partner it is incumbent on you to ensure that the Conflicts Committee reviewing and approving the proposed IDR take-out transaction act in good faith and “subjectively believe that the determination  . . . is not adverse to the best interests of the Partnership Group”.

The words in quotes are from the Third Amended and Restated Agreement of Limited Partnership of MPLX LP dated as of October 31, 2016 (as amended) and it appears to me that the proposed transaction value is adverse to the best interests of the Partnership Group in that the Partnership Group is paying an unjustified price to eliminate the GP IDR interest, diluting all unitholders.  Moreover, I believe the price agreed to by MPLX would not be one agreed to by truly independent directors.

Therefore, I sincerely hope your press release dated December 15, 2017 does not represent the final deal terms. As I outlined in my letter to you on December 5, 2017, any multiple in excess of 14x is both well above the precedent set by the market, and will destroy value for both MPLX and MPC. With a 4.8% single-day decline in the value of MPLX units after your announcement of the transaction, it is clear that investors are voting with their feet.

MPLX is being asked to pay for the MPC IDRs with 275,000,000 new units which is equivalent to 17 times the value of the IDRs being purchased.   With approximately 800,000,000 outstanding units following the issuance of these new units, I estimate pro forma distributions will equate to $2.40 per unit.  However, without the IDR elimination, I estimate you would be distributing $2.50 – $2.55 per unit.  How, then, can the IDR elimination be considered accretive to MPLX as you indicate in your press release?

By MPC insisting on 275,000,000 units of MPLX rather than a more justifiable number of 215,000,000 units you, in effect, cripple MPLX and its value creating potential for MPC.  Where is the logic in doing that?

I support MPC’s decision to eliminate the IDRs and MPLX’s desire to purchase the IDR burden, but it must be done at a multiple which will actually create long-term value for MPLX and its unitholders, MPC included. I urge MPLX to reconsider the inflated multiple it is paying for the IDRs so that it do not lose an opportunity to create real value for its unit holders.

It is not too late to do the right thing!

Sincerely,

John Fox


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