May 14 (Portal) – 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 US$18.8 billion -dollars including debt increasing, making the focus on natural gas ONEOK in the transportation of refined products and oil.
ONEOK will pay $25 and 0.6670 ONEOK common shares for each outstanding Magellan common share, a premium of 22% based on Magellan’s closing price on May 12. The buyer will also take on Magellan’s $5 billion debt.
The deal gives ONEOK, formerly a liquid natural gas and natural gas transportation company, access to Magellan’s refinery products and crude oil transportation business. According to a presentation, the combined company will have 44% of its business in NGLs and 21% in refined products.
“The combination of ONEOK and Magellan creates a diversified North American midstream infrastructure company with predominantly fee-based revenues, a strong balance sheet and significant financial flexibility,” said Pierce H. Norton II, CEO of ONEOK, who will lead the combined company in a statement.
The deal comes as US natural gas prices have come under pressure this year amid oversupply concerns. Crude oil prices have turned negative in 2023 due to possible recession fears, but not as much for natural gas.
It will create a “more resilient energy infrastructure company that is expected to generate stable cash flows across commodity cycles,” the statement said.
The deal, which is expected to close in the third quarter of 2023, should be accretive to ONEOK’s earnings per share beginning in 2024, with earnings per share growing at 3% to 7% per year from 2025 to 2027.
Analysts at Raymond James said that while the valuation ONEOK paid for Magellan was “high,” the move was “bold,” with strong financials for a combined company that would be considered “best-in-class” in terms of size and diversification .
Goldman Sachs & Co LLC is acting as lead financial advisor to ONEOK. Morgan Stanley & Co LLC is acting as financial advisor to Magellan.
Reporting by Jyoti Narayan in Bengaluru; Edited by Cynthia Osterman
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