May 14 (Reuters) – ONEOK Inc ( OKE.N ) agreed on Sunday to buy U.S. pipeline operator Magellan Midstream Partners ( MMP.N ) in a cash-and-stock deal valued at about $18.8 billion including debt, which which brings natural gas-focused ONEOK to transport refined products and oil.
ONEOK will pay $25 and 0.6670 shares of ONEOK common stock for each outstanding Magellan common unit, representing a 22% premium based on Magellan̵[ads1]7;s May 12 closing price. The buyer will also take over Magellan’s $5 billion debt pile.
The agreement will give ONEOK, until now a carrier of natural gas liquids and natural gas, access to Magellan’s refined products and crude oil transportation business. The combined company will have 44% of its business in NGLs and 21% in refined products, according to a presentation.
“The combination of ONEOK and Magellan will create a diversified North American midstream infrastructure company with predominantly fee-based earnings, a strong balance sheet and significant financial flexibility,” said ONEOK CEO Pierce H. Norton II, who will lead the combined company. a statement.
The deal comes as U.S. natural gas prices have struggled this year amid concerns about oversupply. Crude oil prices have traded off in 2023 on potential recession fears, although not as bad as natural gas.
It will create a “more resilient energy infrastructure company that is expected to produce stable cash flows through various commodity cycles,” according to the statement.
The deal, which is expected to close in the third quarter of 2023, should add to ONEOK’s earnings per share starting in 2024, with EPS growth of 3% to 7% per year from 2025 to 2027.
Analysts at Raymond James said that while the valuation ONEOK paid for Magellan was “rich”, the move was “bold”, with strong financials for a combined company that would be considered “top of the class from a scale and diversification perspective”.
Goldman Sachs & Co LLC is acting as financial advisor to ONEOK. Morgan Stanley & Co LLC is acting as financial advisor to Magellan.
Reporting by Jyoti Narayan in Bengaluru; Editing by Cynthia Osterman
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