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Marathon Petroleum's Shareholders Love MPLX's Acquisition, but MPLX's Shareholders Don't

By Tyler Crowe - Jul 13, 2015 at 11:52AM

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Buying MarkWest Energy Partners seems to be having a rather polarizing effect on these two...

What: Shares of Marathon Petroleum (MPC -1.72%) are up more than 10% on early morning trading on the annoucement that its partially owned master limited partnership MPLX (MPLX -0.83%) has agreed to acquire MarkWest Energy Partners (NYSE: MWE). Coincidentally, that same news has sent shares of MPLX plunging by more than 15% at the time of this writing.

So What: Shares of all three companies mentioned here all went into a fenzy on Monday morning following the announcement of the deal that will give MarkWest shareholdres 1.09 units of MPLX per MarkWest unit as well as a cash consideration to help grease the skids. The deal values MarkWest at $15.8 billion with the assumption of MarkWest's debt adding $4.2 billion to the entire package. 

The reason that some investors in MPLX may be a little skiddish of the deal is the simple fact that MPLX is, based on market capitalization, just over one-fourth the size of MarkWest at the time of the deal. Also, considering that MPLX will be paying a 32% premium for MarkWest's units, there is always the fear that the buyer is overspending for assets. 

As for Marathon Petroleum, the reason this deal looks so attractive is that will do two things. 1) It will give its subsidiary partnership a much more robust infrastructure network to source feedstocks for its refineries. And 2)Since it will own 21% of the new entity as well as the incentive distribution rights, Marathon Petroleum will be able to rake in some large distribution payouts over the next couple of years as the combined partnership will increase its distribution by 25% annually between now and 2017. 

Now What: The fears of MPLX taking on a large acquisition like this one may be a little overstated. After all the partnership is financially backed by Marathon Petroleum that has a $35 billion market cap and an investment grade rating. In fact, this merger should help both MPLX and MarkWest get closer to generating an investment grade rating itself now that it has a much larger scale and maintains a modest debt portfolio. Overall, this deal should work out quite well for all parties involved, even if MPLX's shares don't seem indicate as much today. As for Marathon, it looks like it will benefit rather nicely as well. 

Tyler Crowe has no position in any stocks mentioned.  You can follow him at Fool.com or on Twitter @TylerCroweFool.

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Stocks Mentioned

Marathon Petroleum Corporation Stock Quote
Marathon Petroleum Corporation
MPC
$95.21 (-1.72%) $-1.67
MPLX LP Stock Quote
MPLX LP
MPLX
$32.15 (-0.83%) $0.27

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