MPLX to buy MarkWest for $15.63 billion, creating fourth-largest MLP

Marathon Petroleum Corp's (MPC.N) master limited partnership (MLP), MPLX LP (MPLX.N), will buy natural gas processor MarkWest Energy Partners LP (MWE.N) for about $15.63 billion, a deal that will create the fourth-largest MLP by market value.The acquisition, which will create an MLP with a market value of $21 billion, will add natural gas processing facilities to MPLX's crude-heavy portfolio.
The deal comes less than a month after Energy Transfer Equity's (ETE.N) unsolicited $48 billion offer for Williams Cos Inc (WMB.N).
Tax-advantaged MLPs have found favor with investors because they pay out most of their cash flow as dividends. To grow their dividends, MLPs use acquisitions to expand their asset base.
MPLX expects the combined company's dividend to
grow by 25 percent through 2017, Chief Executive Gary Heminger said. The company maintained its target of 29 percent dividend growth for 2015.
"MPC's strong balance sheet and liquidity will enable MarkWest to accelerate organic growth in some of the nation's most economic and prolific liquids-rich natural gas resource plays," Heminger said.
MarkWest, which processes and transports natural gas, has gained from the U.S. shale boom, operating in fields such as Pennsylvania's Marcellus shale and Oklahoma's Utica shale, among others.
MPLX operates a network of crude oil and product pipelines in the U.S. Midwest and Gulf Coast regions.
MarkWest unitholders will get 1.09 common units of MPLX and $3.37 in cash for every unit held.
MarkWest's shares were trading at $71.29 before the bell, below the offer price of $78.64. The offer price is a premium of about 32 percent to MarkWest's Friday close.
Marathon Petroleum, which set up MPLX in 2012, will contribute $675 million to fund the cash component of the deal.
MPLX will also assume MarkWest's debt of about $4.2 billion, giving the combined company an enterprise value of $20 billion, the companies said.
The deal is expected to close in the fourth quarter.
MPLX also said on Monday it would "indefinitely" defer its planned acquisition of Marathon Petroleum's marine transportation assets.
UBS Investment Bank is MPLX's financial adviser for the deal and Jones Day its legal adviser. Jefferies LLC is MarkWest's financial adviser and Cravath, Swaine & Moore LLP its legal adviser.
Up to Friday's close, MarkWest's shares had fallen 11 percent this year, while MPLX's shares had fallen 6 percent.