ONEOK to buy Magellan in $18.8bn cash and stock deal

August 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

August 2023 Issue

ONEOK Inc has agreed to acquire US pipeline operator Magellan Midstream Partners in a cash-and-stock deal valued at about $18.8bn including debt. The merger will create one of the US’ largest pipeline operators with a total enterprise value of $60bn.

Under the terms of the deal, ONEOK will pay $25 and 0.6670 shares of ONEOK common stock for each outstanding Magellan common unit, representing a premium of 22 percent based on Magellan shares’ closing price on 12 May, the last day of trading before the deal was announced. ONEOK will also assume Magellan’s $5bn debt pile. ONEOK said it had secured $5.25bn in fully committed bridge financing for the proposed cash consideration.

The deal has been unanimously approved by the board of directors of both companies. The closing of the transaction is subject to customary closing conditions, including the approvals of both ONEOK shareholders and Magellan unitholders, as well as regulatory clearance.

The deal is expected to be accretive to ONEOK’s earnings per share beginning in 2024 and is slated to conclude in the third quarter of 2023. Upon completion, the newly merged company will own about 50,000 miles of pipelines and related infrastructure. Assets will be roughly evenly divided between natural gas and liquids, which range from crude oil and natural gas liquids to refined products. And the company will be a national player, servicing basins from the Bakken in the upper Midwest to the Rockies and Gulf Coast. The combined company will own more than 25,000 miles of liquids-oriented pipelines alone, with significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs.

In a statement announcing the deal, the companies noted that the merger will bring together two “premier” energy infrastructure businesses with “strong returns” on invested capital and diverse free cash flow generation.

“ONEOK has a long history and track record of being at the forefront of transformational transactions,” said Pierce H. Norton II, president and chief executive of ONEOK. “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 focused on delivering essential energy products and services to our customers and continued strong returns to investors.

“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,” he added.

“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,” said Aaron Milford, president and chief executive of Magellan. “We believe ONEOK shares these priorities, and we are pleased to join them in creating a stronger, more diversified midstream company,” said Aaron Milford, president and chief executive of Magellan. “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,” he added.

In May, ONEOK reported in its latest results statement a net income of $1.05bn, diluted earnings per common share of $2.34, and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $1.72bn for the first quarter of this year. In the first quarter of 2022, the company reported a net income of $391m, diluted earnings per common share of 87 cents, and adjusted EBITDA of $864m. The company’s operating income in Q1 2023 was $1.49bn, compared to $662m in the corresponding period last year, and its operating costs were $296m, compared to $264m in Q1 2022.

Richard Summerfield