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IRS Ruling May Foil Marathon-Ashland Deal

COVINGTON, Ky. -- An impending tax ruling could halt a $3 billion deal in which Marathon Oil Corp. would consolidate ownership in Marathon Ashland Petroleum by buying Ashland Inc.'s interest, reported the Associated Press.

Ashland, which owns 38 percent of the gasoline refiner and marketer, said it feared that the ruling from the Internal Revenue Service (IRS) could leave it with an unknown amount of tax liability for gains from the transaction.

Ashland shares fell $1.03 per share to $56.67, and Houston-based Marathon fell 21 cents to $37.11, both on the New York Stock Exchange.

In a research note Monday, Prudential Equity Group analyst Andrew Rosenfeld said both companies have strong commercial interests in completing the deal, one way or another. He assumes they'll eventually agree to split the taxes based on their current ownership. That would cost Ashland about $3.25 per share, based on its 38-percent stake in MAP and a maximum tax bill of $625 million, he said.

Marathon said Monday that it if the pending deal falls through it would consider other alternatives, including exercising its call option that would force Ashland to sell its 38-percent stake. In that case, it would have to pay Ashland a 15 percent premium over fair value, according to the terms of its original agreement that established MAP in 1998.

MAP owns seven oil refineries, including one outside Ashland, Ky., as well as interstate pipelines, the Speedway SuperAmerica gas station chain, and other assets. It's also a major supplier of oil products to Ashland's Valvoline subsidiary and of chemicals to its Ashland Distribution business.
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