Marathon Petroleum Corporation (MPC - Free Report) plans to defer its Speedway gas station spin-off to early 2021, per a filing with the U.S. Securities and Exchange Commission. The separation, which was initially scheduled to take place by the end of 2020, is being postponed due to coronavirus-induced weak market scenario.
Notably, this Findlay, OH-based leading independent refiner, transporter and marketer of petroleum products is working toward establishing the largest U.S. listed convenience store operator by separating Speedway from its parent platform into an independent publicly traded company.
However, over the past few months, the oil and gas industry has been in a disarray, thanks to the coronavirus pandemic that crippled most sectors until now. Global fuel demand is visibly depressed in the aftermath of large-scale travel restrictions imposed globally. As a result, the outlook for all industries in the energy sector business remains dull. In fact, the pandemic-borne uncertainty was behind the breakdown in negotiations with Japanese retail group Seven & i Holdings, which was interested in acquiring Speedway branded gas stations but later backed off.
Based on the impact of the pandemic on market conditions, Marathon Petroleum continues to assess the timeline for the Speedway separation. Management further stated that the separation remains contingent on its board of directors’ final approval.
Rationale Behind the Spin-Off
Claiming that the company remained undervalued for long in the equity market, Paul Singer’s Elliott Management Corp had last year recommended a split to help Marathon Petroleum better its business scale and enhance its shareholder value at the same time.
In this proposal, Elliott had advised the company to disintegrate into three distinct independent concerns, namely RetailCo turning into an autonomous Speedway, MidstreamCo converting to MPLX LP (MPLX - Free Report) and RefiningCO transforming into New Marathon.
Elliott, which holds 2.5% stake in Marathon Petroleum, believes that with this split, the latter will be able to boost to its shareholder value by $22-billion as well as earn a $17-billion incentive to enable the company to develop its refining, retailing and marketing businesses. Further, the same could drive its stock value by almost 61% from the current levels.
Shares of this Zacks Rank #3 (Hold) company have plunged more than 22% over the past year, underperforming its closest refining peers like Phillips 66 (PSX - Free Report) , which has been down 12% and Valero Energy Corporation (VLO - Free Report) , which has declined 17.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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