Marathon Petroleum Corp. submitted its “final offer” to buy MarkWest Energy Partners LP on Nov. 17—doling out nearly 20% more cash to the MLP’s unitholders.

Marathon increased its cash consideration to $1.28 billion, the second time in seven days the company bumped up the cash portion of the deal.

The merger between Marathon’s MLP, MPLX LP, and MarkWest was initially valued at $15.7 billion and is largely a unit-for-unit purchase transaction. MarkWest unitholders are scheduled to vote on the deal on Dec. 1. If the deal closes, MarkWest will become a wholly owned subsidiary of MPLX.

But the cash portion of the deal has evolved as voting day nears for Marathon:

  • Initial offering was $675 million cash;
  • Added $400 million on Nov. 10; and
  • Added another $205 million on Nov. 17.

Marathon, with a $30 billion market cap, has nearly doubled its initial cash offer and will pay $225 million to maintain its 2% general partner interest in MPLX.

Along with diminished returns from the deal, the company’s near-term cash available for share repurchases or dividends would also be affected, said Roger D. Read, senior analyst, Wells Fargo Securities LLC.

Marathon said Nov. 17 that three of MarkWest’s largest unitholders, Kayne Anderson Capital Advisors LP, Tortoise Capital Advisors LLC and The Energy & Minerals Group have all entered into agreements to vote in favor of the transaction. Together, they represent more than 15% of MarkWest’s outstanding units entitled to vote.

Other investors may be having second thoughts.

Doubters

Former MarkWest CEO John Fox is actively campaigning to kill the deal.

He said MarkWest unitholders would see their distributions cut in half with a return to parity in 3 to 5 years.

On a Nov. 17 webcast, Fox remained resolutely against the transaction and said the increased cash consideration was essentially meaningless.

“The fundamentals have not changed,” he said. “This is a pennies-on-the-dollar increase for a really bad deal.”

Fox also said some unitholders have a misconception that voting down the deal will trigger a $625 million breakup fee.

“If MarkWest votes this deal down there is no breakup fee,” he said.

Fox also said the company is better off on its own, illustrated by the agreement giving Marathon a significant portion of MarkWest’s income.

“This deal is far more important to Marathon than to MarkWest,” Fox said.

Marathon shareholders may also be growing weary of the deal.

While the economics of the deal remain attractive, Marathon’s decision to suddenly and repeatedly raise its offer may be concerning to the market, said Paul Y. Cheng, analyst, Barclays Equity Research.

“Many MPC investors may prefer the company to walk away from the deal rather than to continue to raise their offer,” Cheng said.

In The Pipeline

Despite misgivings among some investors, the combined companies would make for an impressive midstream venture.

Marathon said the combination would create one of the largest MLPs and is “expected to generate a mid-20% compound annual distribution growth rate through 2019.”

The proposed transaction combines MarkWest, the second-largest processor of natural gas in the United States and largest processor and fractionator in the Marcellus and Utica shale plays, with MPLX, a rapidly growing crude oil and refined products logistics partnership sponsored by Marathon.

Together, MPLX and MarkWest would control 6.8 billion cubic feet per day (Bcf/d) of processing capacity, 379,000 barrels per day (bbl/d) of fractionation capacity and about 7,600 miles of pipeline.

Marathon and its MLP would assume all of MarkWest’s cash and about $4.2 billion in outstanding debt. MarkWest would also gain access to a portfolio of $1.6 billion in MLP-eligible EBITDA, the companies said.

Marathon’s final offer represents $6.20 in cash and 1.09 MPLX units for total consideration of $51.74 per MarkWest unit, said Jeff Dietert, analyst, Simmons & Co. International.

However, as the deal stands, MarkWest unitholders would realize a 14% premium on their unit price. MarkWest unitholders were offered a 32% premium in July.

Darren Barbee can be reached at dbarbee@hartenergy.com