Published: May 18, 2023 | Share This

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ONEOK, and Magellan Midstream Partners have executed a definitive merger agreement under which ONEOK will acquire all outstanding units of Magellan in a cash-and-stock transaction valued at approximately $18.8 billion including assumed debt, resulting in a combined company with a total enterprise value of $60.0 billion.

“ONEOK has a long history and track record of being at the forefront of transformational transactions. The combination of ONEOK and Magellan will create a diversified North American midstream infrastructure company focused on delivering essential energy products and services to our customers and continued strong returns to investors,” said Pierce Norton II, ONEOK president and chief executive officer.

“Our expanded products platform will present further opportunities in our core businesses as well as enhance our ability to participate in the ongoing energy transformation with an increased presence in sustainable fuel and hydrogen corridors. We are excited about the future of our combined companies and look forward to welcoming Magellan’s well-respected employees to ONEOK,” added 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 pleased to join them in creating a stronger, more diversified midstream company,” said Aaron Milford, Magellan president and chief executive officer.

“We believe the premium offered maximizes value creation for Magellan’s unitholders and reflects the essential nature of Magellan’s assets and service offerings as well as the quality of our talented and innovative employees. This transaction provides a significant upfront cash component and an opportunity for Magellan investors to benefit from the attractive cash dividend offered by the combined company going forward,” added Milford.

STRATEGIC RATIONALE

• Brings together two premier energy infrastructure businesses with strong returns on invested capital and diverse free cash flow generation:
The transaction adds a leading, and primarily fee-based, refined products and crude oil transportation business to ONEOK. Magellan’s stable, primarily demand-driven businesses are expected to generate significant free cash flow due to low capital expenditure requirements. This acquisition creates a more resilient energy infrastructure company that is expected to produce stable cash flows through diverse commodity cycles.

• Expect to achieve immediate financial benefits, including cost, operational and tax synergies, supporting meaningful expected accretion:
The transaction is expected to be earnings per share (EPS) accretive beginning in 2024 with EPS accretion of 3 percent to 7 percent per year from 2025 through 2027, and free cash flow per share accretion averaging more than 20 percent from 2024 through 2027. Base forecasted synergies are expected to total at least $200 million annually.

From a tax perspective, ONEOK expects to benefit from the step-up in Magellan’s tax basis from the transaction, thus deferring the expected impact of the new corporate alternative minimum tax from 2024 to 2027. The benefit from the basis step-up has an estimated total value of approximately $3 billion, which has an estimated net present value of approximately $1.5 billion. Utilization of expected tax attributes could increase if additional capital projects are put into service or acquisitions are completed, which may increase the net present value of future tax deferrals.

• Compelling long-term value proposition driven by consistent and disciplined capital allocation philosophy:
The combined company is expected to experience a step change in free cash flow after dividends and growth capital by generating an average annual amount of approximately $1 billion in the first four years following the expected transaction close. The increase in free cash flow will provide additional cash for debt reduction, growth capital and value returned to shareholders through dividends and/or repurchasing shares. ONEOK remains committed to growing both EPS and its common dividend while targeting a payout ratio of less than 85 percent.

• Complementary and diversified asset positions with potential for additional cost and commercial synergies over time:
The combined company will own more than 25,000 miles of liquids-oriented pipelines, with significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs. ONEOK anticipates this combined liquids-focused portfolio will present significant potential for enhanced customer product offerings and increased international export opportunities. ONEOK believes these activities could potentially result in total annual transaction synergies exceeding $400 million within two to four years.

TRANSACTION DETAILS

Magellan will be merged into a newly created 100 percent wholly-owned subsidiary of ONEOK.

The transaction is expected to close in the third quarter of 2023 and has been unanimously approved by the board of directors of both companies. ONEOK has secured $5.25 billion in fully committed bridge financing for the proposed cash consideration. The closing of the transaction is subject to customary closing conditions, including the approvals of both ONEOK shareholders and Magellan unitholders, as well as Hart Scott Rodino Act clearance.

Following the close of the transaction, Pierce Norton will continue to serve as chief executive officer of the combined company. ONEOK intends to seek and nominate one or two director(s) serving on the board of Magellan’s general partner.

ONEOK is a leading midstream service provider and owns one of the nation’s premier natural gas liquids (NGL) systems, connecting NGL supply in the Rocky Mountain, Permian, and Mid-Continent regions with key market centers and owns an extensive network of gathering, processing, fractionation, transportation, and storage assets.

Magellan Midstream Partners primarily transports, stores, and distributes refined petroleum products and crude oil. Magellan owns the longest refined petroleum products pipeline system in the country, with access to nearly 50 percent of the nation’s refining capacity, and can store more than 100 million barrels of petroleum products such as gasoline, diesel fuel, and crude oil.

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