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ONEOK Buys Magellan (MMP) for $18.8B, Creates Midstream Giant

Magellan Midstream Partners MMP, a prominent energy infrastructure company, is set to be acquired by ONEOK Inc OKE. in a significant cash-and-stock transaction worth $18.8 billion. This deal is expected to create one of the largest oil and natural gas pipeline companies in the United States.

The agreement represents a current implied value of $67.50 per unit to each Magellan unitholder, for a 22% premium, based on the May 12, 2023, closing prices. ONEOK's acquisition of MMP marks a significant development in the energy infrastructure industry.

The two premier companies have joined forces to create a combined company with a net enterprise value of $60.0 billion. This new midstream giant will have a diversified portfolio of assets across North America and provide services to customers in the energy industry.

Combined Company to Offer a Wide Range of Services

 

The acquisition of Magellan by ONEOK is likely to have a positive impact on the prospects of both companies. MMP has a strong portfolio of assets, including crude oil and refined product pipelines, marine terminals and storage facilities. The company also has a diverse customer base, which includes major oil and gas producers, refiners and marketers.

The buyout will also give OKE access to Magellan's assets and customer base, allowing it to expand operations and create new revenue streams. It is also expected to result in significant cost savings and synergies, thereby improving the combined company’s profitability.

Magellan will continue to operate as a separate entity within the ONEOK organization, retaining its brand and management team. The company's assets and operations will be integrated with the latter’s existing business. This will enable the combined company to provide a wide range of services to its customers.

The acquisition will help diversify Magellan's product mix and boost the company’s earnings. This diversification will be achieved through the addition of stable, fee-based natural gas and NGL-focused businesses, thereby reducing dependence on a single product or market.

Furthermore, MMP unitholders will receive an upfront premium as a result of the acquisition, including a significant cash component. This immediate financial gain will provide a favorable return on investment for the unitholders.

In addition to the cash component, the acquisition will also include an equity component. This will allow the unitholders to participate in the future growth, scale and earnings diversity of the combined entity. By joining forces with ONEOK, Magellan can tap into a larger market and leverage the potential of greater profitability.

OKE's membership in the S&P 500 Index will prove beneficial for MMP unitholders as it will expand investor access and improve unitholder liquidity. This, in turn, will facilitate easier trading and attract more investors to the combined entity.

The acquisition will also provide an opportunity for Magellan's unitholders to take part in ONEOK's strong growth project backlog. This means that they can benefit from OKE’s future projects and initiatives, further boosting their investment potential and returns.

The unitholders are also expected to receive tax deferral benefits from this acquisition. They can potentially reduce their tax burden and improve their financial position.

Strategic Rationale for the Acquisition

ONEOK is a leading midstream service provider in the United States, primarily focused on natural gas gathering, processing, and transportation. The company operates a network of pipelines, processing plants, and storage facilities in the mid-continent and Rocky Mountain regions.

OKE’s buyout of MMP is expected to generate significant cost savings and synergies. ONEOK expects to achieve annual cost savings of approximately $200 million by 2025. The company plans to do so through optimization of assets, streamlining of operations and elimination of redundant positions.

Conclusion

The abovementioned acquisition marks an exciting chapter in the growth and development of ONEOK and Magellan. It also signals the companies’ commitment toward driving innovation and adding value to the energy industry.

Zacks Rank and Key Picks

Currently, both Magellan and ONEOK carry a Zacks Rank #3 (Hold).

A couple of better-ranked stocks for investors interested in the energy sector are Evolution Petroleum EPM, sporting a Zacks Rank #1 (Strong Buy), and Archrock AROC, holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Evolution Petroleum: EPM is worth approximately $219.16 million. EPM currently pays a dividend of 48 cents per share, or 7.38%, on an annual basis.

The company currently has a forward P/E ratio of 6.07. In comparison, its industry has an average forward P/E of 7.50, which means EPM is trading at a discount to the group.

Archrock: AROC is valued at around $1.55 billion. It delivered an average earnings surprise of 26.27% for the last four quarters and its current dividend yield is 6.06%.

Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.

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Magellan Midstream Partners, L.P. (MMP) : Free Stock Analysis Report

ONEOK, Inc. (OKE) : Free Stock Analysis Report

Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report

Archrock, Inc. (AROC) : Free Stock Analysis Report

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