Midstream corporation ONEOK announced last month it will acquire MLP Magellan in a cash-and-stock deal valued at $18.8 billion. The merger is expected to close in the third quarter of 2023, subject to ONEOK and Magellan shareholder approval and other customary conditions.
The deal came as a surprise to the industry, but regulatory filings show preliminary discussions about a potential business combination began in the second quarter of 2019. There were no further discussions until August 2022. At that time, the president and CEO of ONEOK believed a potential combination would benefit shareholders due to increased scale, diversified product offerings, and synergies.
Details on the ONEOK-Magellan Deal
A joint proxy statement filed with the SEC last week provided more details on the deal, highlighting the financial considerations and potential synergies.
According to regulatory filings, ONEOK expects Magellan’s stable, primarily demand-driven businesses will generate significant free cash flow due to low capital expenditure requirements. ONEOK also expects the combined business will produce stable cash flows through varied commodity cycles.
Increased scale and access to the water is another key opportunity for the combined company. The combined company will own more than 25,000 miles of liquids-oriented pipelines, with significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs, according to regulatory filings. International export opportunities should increase as a result of this synergy.
ONEOK anticipates the merger will result in synergies of at least $200 million annually, and potentially result in total annual synergies exceeding $400 million within two to four years, according to regulatory filings.
ONEOK expects the combined company will experience an increase in free cash flow, which will provide additional cash for debt reduction, growth capital and value returned to shareholders through dividends and/or repurchasing shares.
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