Andeavor Logistics LP (ANDX) tumbled in October, falling 19.6%, according to data provided by S&P Global Market Intelligence. While a sell-off in the stock market put some additional weight on the master limited partnership (MLP) last month, the main driver of the decline was that the company's new parent, Marathon Petroleum (MPC 3.48%), began evaluating its financial business plan for the entity.
Marathon Petroleum closed its acquisition of fellow refiner Andeavor in October. Shortly after completing that transaction, the company began evaluating the financial business plans of Andeavor's MLP. It aims to move that entity's financial policies to be more consistent with the approach of Marathon's other MLP, MPLX (MPLX 1.17%). That includes having the company boost its distribution coverage level and reduce its leverage so that it can self-fund expansion.
The company has a range of options to achieve those aims. One of which is to reduce Andeavor Logistics' sky-high 10.4%-yielding distribution to a lower level. In addition to that, Marathon Petroleum is working with advisors to explore its strategic options for these MLPs, which could include MPLX acquiring Andeavor Logistics or vice versa.
With Marathon Petroleum now in control, it likely means changes are ahead for Andeavor Logistics, which could include a combination with MPLX and a lower yielding payout. The uncertainty surrounding the terms of a potential transaction, which will dictate the future payout level for investors, is weighing on the company and will likely continue to do so until Marathon finalizes a deal. While that eventual transaction could boost Andeavor's value, investors would still probably be better off buying MPLX instead since it's one of the top MLPs in the sector.