US pipeline operator ONEOK moves into oil and products with $18.8 billion Magellan deal

(Reuters) – ONEOK Inc (OKE.N) on Sunday agreed to buy US pipeline operator Magellan Midstream Partners (MMP.N) in a cash and stock deal valued at about $18.8 billion including debt, putting the focus on natural gas. . ONEOK in the transportation of refined products and oil.

ONEOK will pay $25 and 0.6670 shares of ONEOK common stock for each outstanding common unit of Magellan, which is a premium of 22% based on the closing price of Magellan shares on May 12. The buyer will also assume Magellan’s $5 billion debt pile.

The transaction will give ONEOK, to date, an NGL and natural gas carrier, access to Magellan’s refined products and crude oil transportation business. According to a presentation, the combined company will own 44% of its natural gas liquids business and 21% in refined products.

“The combination of ONEOK and Magellan will create a diversified North American infrastructure company with predominantly fee-based earnings, a strong balance sheet and significant financial flexibility,” said Pierce H. Norton II, ONEOK CEO, who will chair the combined company. a permit.

The deal comes as natural gas prices in the United States have struggled this year on concerns of oversupply. Crude oil prices traded in 2023 on fears of a potential recession, although natural gas isn’t quite as bad.

It will create “a more resilient energy infrastructure company that is expected to produce stable cash flows through diversified commodity cycles,” according to the statement.

The deal, expected to close in the third quarter of 2023, should accrue ONEOK earnings per share starting in 2024, with EPS accruing at 3% to 7% annually from 2025 through 2027.

Analysts at Raymond James said that although the valuation ONEOK was paying Magellan was “rich”, the move was “bold”, with strong financials for a combined company that could be considered “top class from a scope and diversification perspective”.

Goldman Sachs & Co LLC serves as the principal financial advisor to ONEOK. Morgan Stanley & Co LLC acts as financial advisor to Magellan.

Additional reporting by Jyoti Narayan in Bengaluru; Editing by Cynthia Osterman

Our standards: Thomson Reuters Trust Principles.