(Updates share price in sixth paragraph.)
Feb. 1 (Bloomberg) -- Marathon Petroleum Corp., the crude refiner that was spun off from Marathon Oil Corp. in June, will consider an initial public offering for its pipeline assets that may be worth as much as $6.2 billion.
Marathon Petroleum may hold an IPO for its pipeline assets as soon as the second half of 2012 and buy back as much as $2 billion in shares, the company said in a statement today. The announcement came less than two weeks after hedge fund Jana Partners LLC bought a 5.5 percent stake and began talks with the company.
Before Jana Partners began buying shares, Marathon Petroleum’s Chief Executive Officer Gary Heminger said the Findlay, Ohio-based company’s refineries and pipelines shouldn’t be broken up. The offering would be for units of a master- limited partnership, or MLP, the company said today.
“It’s a victory for Jana,” Sam Margolin, an analyst with Global Hunter Securities LLC in New York, who rates Marathon Petroleum a “buy” and doesn’t own the stock, said in a telephone interview today. “We’re all operating under the assumption that they came into the company with an activist lean. The buyback and the MLP were the two most obvious things the company could do to create value.”
If the partnership includes all of Marathon Petroleum’s 9,600 miles (15,450 kilometers) of pipelines and other logistics assets, it may raise the company’s value by as much a $17.40 a share, or $6.2 billion, Chi Chow, an analyst in Denver with Macquarie Group Ltd., said yesterday in a note to clients.
Marathon Petroleum had its largest increase since August 9. The shares rose 9.6 percent to $41.88 at the close in New York. The shares traded at a 29 percent premium to the average price of $32.58 Jana paid for 18.8 million shares, excluding options, according to data compiled by Bloomberg.
Jana Partners, based in New York, disclosed in a Jan. 19 U.S. Securities and Exchange Commission filing that it had bought 19.7 million shares, including options, valued at $636 million beginning Nov. 22 and begun talks with Marathon Petroleum management about the company’s corporate structure.
“We had very productive discussions with management and found them to be smart, engaged and open to all avenues to creating value, and we’re very pleased that they’re now taking these bold steps to maximize value for all shareholders,” Barry Rosenstein, managing partner of Jana Partners, said in an e- mailed statement today.
Heminger said last year the company wouldn’t consider forming an MLP. The company’s crude and fuel transportation system provided flexibility and allowed it to buy cheaper oil and boost profit margins, Heminger told investors Nov. 15.
“Today, an MLP is not the direction that we see fits our opportunity the best,” he said at a conference. “I don’t want to have to ask permission to go move a barrel from point A to point B.”
Jana Partners has pressured other companies to make changes that boost share prices. On May 16, Jana Partners said it had increased to about 4 percent its stake in El Paso Corp., a natural-gas producer and pipeline company. Eight days later, the company said it would spin off its exploration and production unit.
MLPs pay no corporate income tax. They pay most of their cash to owners of limited partnership units, which are traded like shares in a public corporation. The partnership owners become responsible for paying taxes individually.
Some profits also flow back to the parent company, which typically becomes a general partner that operates and appoints directors for the newly created entity.
Marathon would join other energy companies in shifting assets to a master-limited partnership. Tesoro Corp., the largest independent refiner in the western U.S., created a partnership last year for its pipelines and fuel terminals. Tesoro Logistics Partners LP held an initial public offering April 19 that raised about $273 million.
Tesoro sold about half its pipeline and terminal assets, Global Hunter’s Margolin said.
Exploration companies including Chesapeake Energy Corp. and Anadarko Petroleum Corp. have created partnerships to own and manage their pipeline systems.
Marathon Petroleum, which owns six refineries in the Midwest and on the U.S. Gulf Coast, today reported a fourth- quarter loss. The company had a net loss of $75 million, or 21 cents a share, compared with profit of $230 million, or 64 cents, a year earlier.
Independent refiners don’t explore for or produce crude.
--With assistance from Mike Lee in Dallas and Zachary R. Mider in New York. Editors: Jessica Resnick-Ault, Jasmina Kelemen
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