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(Bloomberg) – Elliott Management Corp. reiterated its request to split Marathon Petroleum Corp. in three, which decision, according to the hedge fund, would unlock more than 22 billion dollars.
Marathon is expected to split into several retail, midstream and refining companies, the billionaire Paul Singer announced in a statement on Wednesday. Elliott said he owns about 2.5% of Marathon.
D.E. Shaw, who held a 0.9% stake at the end of June, also prompted the second-largest US oil refiner to explore ways to generate value, according to people close to the record. A representative of D.E. Shaw declined to comment.
Marathon posted the best performance of the day in the S & P 500 Index, gaining up to 8.4%, its record since January 2017. The company will evaluate the Elliott proposal, according to a statement sent by e-mail.
"The refinery's management team and independent board of directors have a solid track record of taking action to generate shareholder value," the release said.
Marathon is struggling to gain investor confidence after buying rival Andeavour last year for about $ 22 billion. Although the company agreed earlier this year to merge its pipeline units Andeavor and MPLX LP, Elliott explained that the company's structure remained excessively complex. The refiner has been one of the poorest fuel manufacturers in the United States, with weaker companies than Phillips 66 and Valero Energy Corp.
Carving Marathon up would create a way to address "the chronic underperformance of the company, enhance its business and generate meaningful and sustainable value for its shareholders," said Elliott.
According to Elliott's plan, Marathon would be split into three companies: Speedway convenience stores, MPLX pipeline assets and refining operations.
MPLX, a master limited partnership, would become a traditional company in order to broaden its base of potential investors and "eliminate the overhang of a controlling company sponsor", according to a presentation. The new entity would be owned 63% by Marathon shareholders and 37% by current MPLX investors, Elliott said.
This is not the first time Elliott insists that changes be made to Marathon. In 2016, the group similarly asked the company to split its three main activities. The Findlay, Ohio-based refiner took steps to streamline its pipeline partnership a year later, at the request of the hedge fund, but rejected a proposal to split Speedway.
What Bloomberg Intelligence says
Marathon seeks to reduce the loss of value of MPLX's almost 10% return, but will likely withstand Elliott's willingness to divest its primary growth platform. A rebound seems unlikely given Marathon's leverage and MPLX's size, but Elliott could accelerate planned asset sales.
– Fernando Valle and Michael Kay, Senior Industry Analysts
Click here to read the research
Marathon Petroleum has been separated from Marathon Oil Corp. in 2011 and has since faced several battles of activists. The Elliott campaign in 2016 comes after Marathon was able to appease Jana Partners' complaints by transferring certain assets to a limited liability company.
Marathon shares slid by more than 30% over the past year as the energy sector struggled to attract investors' capital in a context of volatile crude prices. Last month, Chief Executive Officer Gary Heminger told investors that he continued to focus on portfolio optimization, "which could include divesting assets in order to streamline strategically our integrated asset base ".
While companies such as Phillips 66 and Valero posted total returns of 23% and 21%, respectively, in the two-year period ending at Tuesday's close, Marathon recorded a gain of less than 8%. Only PBF Energy Inc. is behind this result with a return of 6.4%. These figures are based on the performance of the share price plus reinvestment of dividends.
(Updates with Marathon's comments in fourth, fifth paragraphs)
– With the help of Joe Carroll, Rachel Adams-Heard, Tina Davis and Christine Buurma.
To contact the reporters on this story: David Wethe in Houston at [email protected], Scott Deveau in New York at [email protected], Catherine Ngai in New York at [email protected]
To contact the editors responsible for this story: Simon Casey at [email protected], Christine Buurma
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