Marathon Petroleum Investor Calls for Three-Way Company Split

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FINDLAY, Ohio — Three years ago, Marathon Petroleum Corp. (MPC) rejected calls from a shareholder group to spin off its retail network, Speedway LLC. Now, it faces calls for the company to split into three.

"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," the company said in a statement.

According to MPC, since becoming an independent company in 2011, it has generated total shareholder return of 254 percent, exceeding the S&P, which has returned 174 percent. In addition, it returned more than $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," MPC explained.

"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," it added.

On Sept. 25, Elliot Management Corp., which manages funds that collectively own common stock and economic equivalents representing approximately a 2.5-percent economic interest in MPC, call on MPC's board to "create three strong, independent companies — each a leader in its sector."

According to Elliot Management, the companies would break out as followed:

  1. RetailCo would become standalone Speedway, which upon separation would be the largest U.S.-listed convenience store operator;
  2. MidstreamCo would become standalone MPLX, which upon separation would be a top-five U.S. midstream operator by enterprise value; and
  3. RefiningCo would become New Marathon, which following the transactions, would be the largest independent merchant refiner by U.S. throughput.

As Elliot stated, it believes the board can unlock more than $22 billion in value for shareholders with no change in the operating assumptions — an increase to today's stock price of 61 percent. The board can also unlock an incremental $17 billion in value through achieving the operating full potential of Marathon’s asset – a total potential upside of more than 100 percent.

Previous Spinoff Call

In November 2016, Elliot Management Corp. sent a letter to the MPC board stating the company was "severely undervalued and that there are readily available steps by which the board can unlock $14–$19 billion in value for shareholders," as Convenience Store News previously reported.

The group recommended the board drop down all MLP-qualifying assets to MPLX and conduct a full strategic review to reassess Marathon's current structure. Elliot Management called for the review "to evaluate whether a tax-free separation of Speedway or a full tax-free separation of the company into three separate standalone businesses (Speedway, Refining Co., and Midstream Co.) best serves shareholders over the long term."

In its recent letter to the board, Elliott said it "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. Those promises have not been kept, and Elliott continues to believe that Marathon is severely undervalued."

For the latest letter and presentation to the MPC board, click here.

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