Marathon Petroleum Corp. has agreed to buy rival Andeavor for USD $23.3 billion in the biggest-ever deal for an oil refiner and creating the largest independent fuel maker in the United States.
Growing fuel demand, both in the U.S. and Latin America, and a shale boom that’s expanded access to relatively inexpensive domestic supply have given American refiners a leg up against foreign competitors.
“Why wouldn’t you do this deal?” Greg Goff, Andeavor’s chief executive officer, said on a conference call Monday. “The time is right now, because for this industry, the wind is behind our backs.”
Marathon is focused in the Midwest and Gulf Coast, while Andeavor concentrates on the western U.S., including refineries and pipelines it acquired in a 2017 merger with Western Refining Inc. The combination, which will use the name Marathon, would overtake Valero Energy Corp. as the biggest in U.S.-based oil refiner by capacity, generating about 16 percent of the nation’s total.
Matthew Blair, director of refining research at Tudor Pickring Holt & Co., called Andeavor a “big winner” in a deal that is “extremely positive.” As for Marathon, meshing the two giant companies will be key, said Blair, adding that regulatory problems should be minimal, “given the disparate geographical markets of each company.”
The companies said they expect annual cost and operating synergies of approximately USD $1 billion within the first three years. Given projected cash-flow generation, Marathon’s board also approved share buybacks of USD $5 billion. Marathon CEO, Gary Heminger, will be chief executive and Goff will become executive vice chairman.
The boards of both companies unanimously approved the deal, which is expected to close in the second half of this year, subject to regulatory and shareholder approvals.