ONEOK acquires Magellan Midstream Partners for $18.8 billion

The deal brings together two major energy infrastructure companies with strong returns on invested capital and diversified free cash flow generation: The deal adds a leading refined products, primarily fee-based, and crude oil transportation business to ONEOK. New release.

ONEOK said the combined company will own more than 25,000 miles of pipeline destined for liquids, with significant assets and operating experience in market centers in the Gulf Coast and Midcontinent.

“Magellan’s stable, demand-driven business is expected to generate significant free cash flows due to lower capital expenditure requirements. This acquisition creates a more resilient energy infrastructure company that is expected to generate stable cash flows through diversified commodity cycles,” ONEOK said.

The transaction is expected to have cumulative earnings per share (EPS) from 2024 with EPS accumulating 3% to 7% annually from 2025 through 2027, and free cash flow per share growing at an average of over 20% from 2024 through 2024. 2027. The basis of the projected synergies is expected to total at least $200 million per year, ONEOK said.

From a tax perspective, ONEOK expects to benefit from the increase in the Magellan tax base from the transaction, thus deferring the expected impact of the new alternative minimum tax for corporations from 2024 to 2027, it said.

The use of expected tax attributes could increase if additional capital projects come into play or acquisitions are completed, which could increase the net present value of future tax deferrals.

“The combined company is expected to experience a gradual change in post-dividend free cash flow and capital growth by generating an average annual amount of approximately $1 billion in the first four years after the expected transaction closes,” the company said.

She added that the increase in free cash flow would provide additional cash flow for debt reduction, capital growth and value returned to shareholders through dividends and/or share repurchases.

“ONEOK anticipates that this combined liquids-focused portfolio will provide significant potential for improved product offerings to customers and increased international export opportunities,” the statement read.

“We believe these activities could potentially result in gross annual transaction synergies in excess of $400 million within two to four years,” she said.

Norton II, ONEOK President and CEO, said in a statement: “ONEOK has a long history and a proven track record of being at the forefront of transformational transactions.”

“The combination of ONEOK and Magellan will create a diversified North American infrastructure company with predominantly fee-based earnings, a strong balance sheet and significant financial flexibility focused on delivering core energy products and services to our customers and continued strong returns for investors,” he said.

Our expanded product platform will provide more opportunities in our core business as well as enhance our ability to participate in the ongoing energy transition with a growing presence in the sustainable fuel and hydrogen corridors. “We are excited about the future of our combined companies and look forward to welcoming esteemed Magellan employees to ONEOK,” said Norton.

“Throughout more than 20 years as a publicly traded company, Magellan has remained focused on safe and responsible operations, financial discipline and long-term investor value. We believe ONEOK shares these priorities, and we are thrilled to join them in creating the company,” said Aaron Milford, Magellan’s President and CEO. Midstream is stronger and more versatile.”

“We believe the premium offered increases value creation for Magellan’s unitholders and reflects the fundamental nature of Magellan’s assets and service offerings as well as the quality of our talented and innovative employees.

“This transaction provides a significant cash upfront component and the opportunity for Magellan investors to benefit from attractive cash dividends offered by the combined company in the future.”

Tulsa Regional Chamber President and CEO Mike Neal pointed to the long history of companies in Tulsa, ONEOK dating back more than a century and Magellan’s about two decades old.

“The kind of local legacy, which will continue under this acquisition, is something dear to the Tulsa Regional Chamber,” Neal said in a prepared statement. “Both energy infrastructure businesses value community involvement, and we are grateful this combined company will remain in our city.”

The transaction is expected to close in the third quarter of 2023 and has been unanimously approved by the boards of directors of both companies.

Closing of the transaction is subject to the usual closing conditions, including approvals by ONEOK shareholders and Magellan unitholders.

After the transaction closes, Norton will continue to serve as CEO of the combined company. ONEOK intends to seek and nominate one or two directors serving on the board of directors of Magellan’s general partner.