A co-founder and former CEO of Denver’s MarkWest Energy Partners is looking to scuttle one of the largest energy deals of the year, saying that the company’s shareholders are coming up short in the transaction now valued at roughly $10 billion.
John Fox, who helped found MarkWest in 1988 and later served in the roles of chairman and CEO, on Wednesday published a letter urging shareholders to reject the
“This is, in effect, a deal that the big refining company Marathon Petroleum … needs worse than we do,” Fox said in an interview with The Denver Post Wednesday afternoon.
Marathon’s operational structure is such that it would extract exorbitant fees from MarkWest, seeping away potentially $2 billion in cash during the next five years, Fox alleged. Additionally, investors’ dividends would be cut in half, he said.
As a stand-alone company, MarkWest would not have those concerns, nor would it be hindered in investing in infrastructure or the expansion of its holdings in the Marcellus/Utica gas field, Fox said.
Fox said he was mystified as to why MarkWest could sell after making billions in investments in operations, stabilizing the company’s leadership position as the second-largest gas processor in the U.S. and the largest processor in the Marcellus/Utica field underlying New York, Ohio, Pennsylvania and West Virginia.
Fox has delivered a letter outlining his concerns to MarkWest’s board and CEO Frank Semple, and said he plans to mount a campaign to sway other shareholders. The company will hold a special meeting to vote on the transaction on Dec. 1.
MarkWest didn’t respond to requests for comment.
Semple told analysts in a post-earnings release call that MarkWest’s organic growth has its limitations and partnering with a giant such as Marathon would bolster the company’s future operations.
“That is going to simply enhance our ability to compete … with a stronger balance sheet, with a parent that is not only very supportive, but also able to drive a significant amount of demand in the areas that Marathon operates in the Midwest and Gulf Coast,” Semple said, according to transcripts posted on Seeking Alpha.
Under the terms of the deal struck in July, MarkWest investors would receive $3.37 in cash and 1.09 shares of Marathon’s pipeline partnership, MPLX LP, per share. That made the deal worth $15.8 billion. But MPLX shares have fallen sharply, so the total consideration for the deal is now valued at about $50 a share based on Tuesday’s prices, compared with more than $78 when it was first announced.
Analysts have speculated that Marathon might have to sweeten its offer, as the 32 percent premium implied by the initial deal has faded away.
Jay Hatfield, a portfolio manager of the Infrastructure MLP ETF, which owns share in both MarkWest and MPLX, said the combination boosts Marathon Petroleum at the expense of both partnerships, though he said mounting an opposition campaign is a long shot.
Fox, who retired as CEO in 2003 and left the board in 2010, said he owns or controls more than 1.3 million shares of MarkWest. That is less than 1 percent of the company.
Marathon didn’t immediately respond to a request for comment.
But its CEO, Gary Heminger, told analysts last week that he thinks “this deal is still very, very compelling.”
The same forces that have pummeled shares of Marathon’s partnership could also make it harder for MarkWest to remain alone or find a better buyer.
Morgan Stanley analyst Evan Calio wrote recently that the outlook for MarkWest is bleaker than it was a few months ago because partnerships that own energy infrastructure have been battered by investors and are having a harder time raising money.
Denver Post Staff Writer Alicia Wallace contributed to this report.
