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ONEOK (OKE) Signs $18.8B Merger Agreement With Magellan

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ONEOK, Inc. (OKE - Free Report) and Magellan Midstream Partners, L.P. announced that they have signed a formal merger agreement. Per the contract, ONEOK will buy all of Magellan's outstanding units for $18.8 billion in cash and stock.

Each outstanding MMP common unit will receive $25 in cash and 0.6670 shares of ONEOK as payment for the consideration. This represents a current implied value of $67.50 per unit to each Magellan unitholder for a 22% premium, based on May 12, 2023, closing prices.

Benefits of the Merger

This agreement will open up Magellan's primarily fee-based refined products and crude oil transportation business to ONEOK. The infrastructure company is expected to generate stable cash flows through diverse commodity cycles.

The combined company will have 44% of its business in natural gas liquids, and 21% in refined products. It will own more than 25,000 miles of liquid-oriented pipelines, with significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs.

The transaction is expected to close in the third quarter of 2023, subject to shareholder and regulatory approvals. For the cash portion, ONEOK acquired fully committed bridge financing of $5.25 billion.

In the first four years following the anticipated transaction closure, the combined company is expected to generate an average annual amount of $1 billion. This represents a significant improvement in the free cash flow after dividends and growth capital.

Oil & Gas Sector’s Consolidation

The oil and gas sector has experienced significant consolidation over the years, with many large companies acquiring smaller competitors. This trend is expected to continue as companies look to streamline operations and reduce costs.

Other companies like Chevron Corporation (CVX - Free Report) and Liberty Energy (LBRT - Free Report) are also expanding their operations through mergers and acquisitions.

In 2020, Chevron acquired Noble Energy for $5 billion. The addition of the latter’s assets expanded CVX’s presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico.

In 2022, CVX acquired Renewable Energy Group (“REG”), under outstanding shares of REG in an all-cash transaction, valued at $3.15 billion or $61.50 per share. The acquisition combined the latter’s growing renewable fuels production and leading feedstock capabilities with Chevron’s large manufacturing, distribution and commercial marketing position.

The Zacks Consensus Estimate for CVX's 2023 earnings is pegged at $14.30 per share. It delivered an average earnings surprise of 7.7% in the last four quarters.

In April 2023, Liberty Energy announced the purchase of Siren Energy — an integrated natural gas compression and CNG transportation company with a Permian focus. The latter offered transportation, logistics and pressure-reduction services in addition to two expandable Permian sites with a 16-MMcf-per-day capability for natural gas compression. Subject to customary closing adjustments, Liberty Energy paid an overall cash price of $78 million to acquire Siren.

The Zacks Consensus Estimate for LBRT's 2023 earnings is pinned at $3.53 per share, indicating a 67.3% year-over-year rise. The company delivered an average earnings surprise of 64.34% in the last four quarters.

Price Performance

Over the last six months, ONEOK’s shares have lost 12.2% compared with the sector’s 12.9% decline.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

Zacks Rank

ONEOK currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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