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By Jyoti Narayan and David French
(Reuters) -ONEOK Inc agreed on Sunday to purchase U.S. pipeline operator Magellan Midstream (NYSE:) Companions in a cash-and-stock deal valued at about $18.8 billion together with debt, bringing pure gas-focused ONEOK (NYSE:) into transporting refined merchandise and oil.
ONEOK can pay $25 and 0.6670 shares of ONEOK widespread inventory for every excellent Magellan widespread unit, representing a premium of twenty-two% primarily based on Magellan shares’ closing worth on Might 12. The customer will even assume Magellan’s $5 billion debt pile.
The deal will give ONEOK, till now a transporter of liquids and pure gasoline, entry to Magellan’s refined merchandise and transportation enterprise. The mixed firm could have 44% of its enterprise in NGLs, and 21% in refined merchandise, in response to a presentation.
“The mixture of ONEOK and Magellan will create a diversified North American midstream infrastructure firm with predominately fee-based earnings, a robust steadiness sheet and vital monetary flexibility,” ONEOK CEO Pierce H. Norton II, who will head the mixed firm, stated in a press release.
The deal comes as U.S. pure gasoline costs have struggled this 12 months due to oversupply considerations. Crude costs have traded off in 2023 on potential recession fears, though not as badly has pure gasoline.
It would create a “extra resilient vitality infrastructure firm that’s anticipated to provide steady money flows by way of numerous commodity cycles”, per the assertion.
The deal, anticipated to shut within the third quarter of 2023, ought to be accretive to ONEOK’s earnings per share starting in 2024, with EPS accretion of three% to 7% per 12 months from 2025 by way of 2027.
Analysts at Raymond James stated that though the valuation ONEOK was paying for Magellan was “wealthy”, the transfer was “daring,” with sturdy financials for a mixed firm that might be thought of “high of the category from a scale and diversification perspective”.
Goldman Sachs & Co (NYSE:) LLC is serving as lead monetary advisor to ONEOK. Morgan Stanley & Co LLC (NYSE:) is serving as monetary advisor to Magellan.
