Precision Drilling oil rig operators prepare to install a bit guide on the floor of a Royal Dutch Shell Plc oil rig near Mentone, Texas, U.S., on Thursday, March 2, 2017. Exxon Mobil Corp., Royal Dutch Shell and Chevron Corp., are jumping into American shale with gusto, planning to spend a combined $10 billion this year, up from next to nothing only a few years ago. Photographer: Matthew Busch/Bloomberg
NEW YORK: ONEOK Inc agreed on Sunday to buy US pipeline operator Magellan Midstream Partners in a cash-and-stock deal valued at about US$18.8bil (RM84.6bil) including debt, bringing natural gas-focused ONEOK into transporting refined products and oil.
ONEOK will pay US$25 (RM112.46) and 0.6670 shares of ONEOK common stock for each outstanding Magellan common unit, representing a premium of 22% based on Magellan shares’ closing price on May 12.
The buyer will also assume Magellan’s US$5bil (RM22.6bil) debt pile.
Pipeline operators are increasingly turning to mergers and acquisitions for growth as the transition to renewable energy pares the need for new links and threatens to make some of their existing assets redundant.
The acquisition will give ONEOK, which currently transports only natural gas and its byproducts, access to a network of crude oil and refined products conduits and terminals sprawling from Texas to Minnesota.
The combined company will have 44% of its business in natural gas liquids, and 21% in refined products, according to a presentation.
The combined company will have a total enterprise value of US$60bil (RM270bil). That would put it among the five largest US pipeline operators by that criteria, according to reports.
“The combination of ONEOK and Magellan will create a diversified North American midstream infrastructure company with predominately fee-based earnings, a strong balance sheet and significant financial flexibility,” ONEOK CEO Pierce H Norton II, who will head the combined company, said in a statement.
The deal comes as US natural gas prices have struggled this year because of oversupply concerns.
Crude prices have traded off in 2023 on potential recession fears, although not as badly as natural gas.
It will create a “more resilient energy infrastructure company that is expected to produce stable cash flows through diverse commodity cycles”, the statement said.
The deal, expected to close in the third quarter of 2023, should be accretive to ONEOK’s earnings per share (EPS) beginning in 2024, with EPS accretion of 3% to 7% per year from 2025 through 2027.
Analysts at Raymond James said that although the valuation ONEOK was paying for Magellan was “rich”, the move was “bold,” with strong financials for a combined company that would be considered “top of the class from a scale and diversification perspective”.
Goldman Sachs & Co LLC is serving as lead financial advisor to ONEOK. — Reuters
