Refined business model

The entities spun off in Marathon’s split-up plan look to be able to handle the changes and to benefit the shareholders.

The Editorial Board
Sat, 30 Nov 2019 05:00:00 GMT

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It’s a forced split up and change in leadership, but the future of northwest Ohio’s largest company should be solid.

Marathon Petroleum Corp., an oil refining and marketing company based in Findlay, is embarking on a separation demanded by some large activist investors. It soon will be just an oil refining firm, and its pipeline operations and its 4,000 Speedway gas stations and convenience stores will each be separate businesses.

The Findlay firm will still be big, but the splintered operations, each with public stock, are designed all together to create more value for shareholders. And, after next spring’s shareholders meeting, the chief executive officer of Marathon Petroleum will no longer be Gary Heminger, the only leader the company has had since it spun off in 2011 from Marathon Oil.

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Elliott Management Corp., a hedge fund, advocated the company’s split up and the Heminger departure because Marathon Petroleum has lagged behind its peers in stock value in the last year after its $23 billion purchase of rival Andeavor.

The company’s stock has, however, quadrupled during Mr. Heminger’s tenure.

Marathon Petroleum has been a giant in northwest Ohio. The Hancock County company, an oddity because it unusual to have an oil refining business headquartered outside of Texas and other coastal states, reported $97 billion in revenue last year, ranking it No. 31 on the Fortune 500 list.

The separation into three companies would raise shareholder value by as much as $40 billion, according to Elliott Management. The division is to occur in 2020.

After the split up, the company will operate what it says is the nation’s largest refining system with the ability to refine in total more than 3 million barrels a day of crude oil at 16 refineries.

Its Speedway stores subsidiary, which has bulked up in the past few years by purchases of smaller chains, has about $1.5 billion in earnings before taxes and depreciation.

The operation, which is expected to keep its division headquarters in Enon, Ohio, in the Dayton area, would be the largest U.S.-listed convenience store operator. It has stores in 36 states.

Its separation plan would have Speedway raising new debt and paying a dividend to Marathon Petroleum, which it will use to pay down its debt.

The company created a pipeline spinoff called MPLX LP in 2012 after demands by Elliott Management, but that master limited partnership will now become a traditional corporation, giving it a cleaner separation from Marathon Petroleum.

This grand split-up plan will dismantle a powerful force in the nation’s oil refining and marketing industry, but the separate parts seem poised to satisfactorily handle the changes and to benefit shareholders.