FINDLAY — Oil refiner and marketer Marathon Petroleum Corp. said Tuesday that it has opted not to spin off its Speedway gas stations into a separate company and instead will keep the chain as a fully integrated business within Marathon.
Since January, the Findlay company has been studying the idea of a spinoff, but Chief Executive Gary Heminger said that after examining numerous scenarios, the company concluded that the best move financially for enhancing long-term shareholder value was to keep the status quo.
The decision appeared to be at odds with previously stated desires of institutional shareholders that Speedway’s 2,730 stations become their own company.
Last year, Elliott Management Corp., a New York hedge fund and activist shareholder that owns about 4 percent of Marathon Petroleum stock, called on the oil refiner to further unlock shareholder value by spinning off Speedway.
On Tuesday, it appeared the hedge fund would accept Marathon Petroleum’s decision not to do so.
"Over the past year, MPC has taken significant steps to create value for shareholders. Elliott is supportive of those steps and appreciates the constructive dialogue with the company," John Pike, senior portfolio manager at Elliott Management, said in a statement. "...While we see value in a spin of Speedway, [Tuesday's] decision to maintain an integrated Speedway came after a full, rigorous, and independent review. We are also confident in the company's commitment to take further action as needed to realize the upside in the company's value."
Mr. Heminger, who made a presentation Tuesday to Wall Street analysts attending the Barclays CEO Energy-Power Conference in New York, said a Marathon committee “looked at many scenarios” in which it would spin off Speedway, but each ended up in the company spending money and incurring more debt than profiting. “It really wasn’t a zero-sum game. It would have been a negative at the end of the day,” he said.
Before the presentation Marathon said it will repurchase about $450 million of its shares by the end of September. The stock buyback will be funded partially by after-tax cash proceeds from a drop-down announced last week, and another $550 million in the fourth quarter.
A drop-down is when a parent company transfers or “drops down” assets into its master limited partnership.
In Marathon Petroleum’s case, the company recently transferred a $1.05 billion ownership stake in various pipelines and storage facilities to its wholly-owned subsidiary MPLX master limited partnership.
Mr. Heminger updated investors about Marathon Petroleum’s refineries near Houston following Hurricane Harvey. The CEO said he visited the Galveston Bay refinery in Texas City, Texas, southeast of Houston, which the company had idled for 36 hours.
Some facilities owned by other refiners were hit hard, with those in the Port Arthur and Beaumont areas of Texas suffering flooding, the CEO said. But Marathon’s huge Galveston Bay facility, which processes 459,000 barrels of crude a day, was mostly unscathed. It also has a smaller refinery, the Texas City Refinery that processes 86,000 barrels a day, and it, too, was undamaged.
“The (Galveston Bay) refinery was fine. We had very little wind damage,” Mr. Heminger said. Its chief difficulty was being unable transport refined products out of the plant or bring crude oil stocks in, he added.
The docks at Galveston Bay were shut down for five days, Mr. Heminger said. “I counted 118 tankers waiting to unload or get in to get exports,” he said.
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