ONEOK’s Strategic Acquisition of Magellan Midstream Partners: Enhancing Energy Infrastructure and Driving Long-Term Value

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The energy sector in the United States has been experiencing a period of significant transformation, with a shift towards renewable energy and the need for efficient transportation and distribution of both traditional and emerging energy sources. This backdrop has led to an increase in merger and acquisition (M&A) activity as companies seek to consolidate their positions and adapt to market changes.

 

Company Background

ONEOK, Inc.

ONEOK is a Fortune 500 company and a leading midstream service provider, owning one of the nation’s premier natural gas liquids (NGL) systems. It connects NGL supply from the Rocky Mountain, Permian, and Mid-Continent regions with key market centers. ONEOK also owns an extensive network of gathering, processing, fractionation, transportation, and storage assets.

Magellan Midstream Partners, L.P.

Magellan Midstream Partners is a publicly traded partnership primarily involved in the transportation, storage, and distribution of refined petroleum products and crude oil. It owns the longest refined petroleum products pipeline system in the U.S., with access to nearly 50% of the nation’s refining capacity, and can store over 100 million barrels of petroleum products.

 

The Merger

ONEOK acquired all outstanding units of Magellan Midstream Partners in a cash-and-stock transaction valued at approximately $18.8 billion, including assumed debt. This resulted in a combined company with a total enterprise value of $60 billion. The consideration for each Magellan unit was $25.00 in cash and 0.6670 shares of ONEOK common stock, representing a 22% premium based on May 12, 2023, closing prices.

 

Significance

  1. Market Impact: The merger enhances ONEOK’s position as a leading North American midstream infrastructure company, with a more diversified product platform and increased resilience across commodity cycles. The combined company will own over 25,000 miles of liquids-oriented pipelines and have significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs.

  2. Strategic Synergies: The combined company anticipates potential for enhanced customer product offerings, increased international export opportunities, and operational and construction expertise, which could result in total annual transaction synergies exceeding $400 million within two to four years.The merger also provides a strong investment-grade credit rating with enhanced scale and diversification, expecting pro-forma 2024 year-end net debt-to-EBITDA of approximately 4.0 times.

  3. Long-Term Value Proposition:

    The merger is driven by a consistent and disciplined capital allocation philosophy, aiming to increase free cash flow and provide additional cash for debt reduction, growth capital, and value returned to shareholders. The combined entity is well-positioned for future success, with a focus on delivering essential energy products and services while adapting to the ongoing energy transformation.