DENVER, Dec. 19, 2017 /PRNewswire/ -- John M. Fox today released the following open letter to the board of directors of MPLX responding to Marathon Petroleum Corporation's announcement to demand over $10 billion for its GP economic interest in MPLX.
The full text of the letter follows:
December 19, 2017
Board of Directors
200 East Hardin Street
FINDLAY, OH 45840-3229
Attention: The Board of Directors of MPLX GP
As you have seen from my letter to you and the MPC board yesterday the price contemplated for MPLX's purchase of MPC's IDRs (incentive Distribution Rights) is extraordinarily excessive. As Chairman of MPLX's General Partner it is incumbent on you to ensure that the Conflicts Committee reviewing and approving the proposed IDR take-out transaction act in good faith and "subjectively believe that the determination . . . is not adverse to the best interests of the Partnership Group". The words in quotes are from the Third Amended and Restated Agreement of Limited Partnership of MPLX LP dated as of October 31, 2016 (as amended) and it appears to me that the proposed transaction value is adverse to the best interests of the Partnership Group in that the Partnership Group is paying an unjustified price to eliminate the GP IDR interest, diluting all unitholders. Moreover, I believe the price agreed to by MPLX would not be one agreed to by truly independent directors.
Therefore, I sincerely hope your press release dated December 15, 2017 does not represent the final deal terms. As I outlined in my letter to you on December 5, 2017, any multiple in excess of 14x is both well above the precedent set by the market, and will destroy value for both MPLX and MPC. With a 4.8% single-day decline in the value of MPLX units after your announcement of the transaction, it is clear that investors are voting with their feet.
MPLX is being asked to pay for the MPC IDRs with 275,000,000 new units which is equivalent to 17 times the value of the IDRs being purchased. With approximately 800,000,000 outstanding units following the issuance of these new units, I estimate pro forma distributions will equate to $2.40 per unit. However, without the IDR elimination, I estimate you would be distributing $2.50 - $2.55 per unit. How, then, can the IDR elimination be considered accretive to MPLX as you indicate in your press release?
By MPC insisting on 275,000,000 units of MPLX rather than a more justifiable number of 215,000,000 units you, in effect, cripple MPLX and its value creating potential for MPC. Where is the logic in doing that?
I support MPC's decision to eliminate the IDRs and MPLX's desire to purchase the IDR burden, but it must be done at a multiple which will actually create long-term value for MPLX and its unitholders, MPC included. I urge MPLX to reconsider the inflated multiple it is paying for the IDRs so that it do not lose an opportunity to create real value for its unit holders.
It is not too late to do the right thing!
About John M. Fox
John Fox is the co-founder of MarkWest Hydrocarbon, former CEO, Chairman and Director of MarkWest Energy GP, L.L.C. ("MarkWest GP"), which was the general partner of MarkWest Energy Partners, L.P. ("MarkWest"), and beneficial owner of 1,544,172 MPLX common units, and 20,900 shares of Marathon Petroleum Company, through its merger with MarkWest in 2015 and from follow-on investments. Mr. Fox worked to eliminate the Incentive Distribution Rights (IDRs) at MarkWest in 2007, creating tremendous value that ultimately led to the successful acquisition of MWE by MPLX in 2015. MarkWest generated a 143.3% total return and grew from a $1.2 billion market cap to an $8.6 billion market cap for the period of September 5, 2007, when the IDRs were eliminated, to December 4, 2015.
John Fox is providing this material for general informational purposes only. None of the information provided herein is intended to be relied upon as investment advice. The opinions expressed in this letter are those of Mr. Fox as of December 19, 2017 and are subject to change at any time due to changes in market, economic conditions, or new public information. These opinions are Mr. Fox's alone, and do not reflect the opinions of any other member of the Fox family. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Mr. Fox to be reliable and are not necessarily all-inclusive. Mr. Fox does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made by any party will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
More information can be found at www.itjustmakessensegary.com.
SOURCE John M. Fox