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Magellan Midstream Partners’ (NYSE:MMP) Chief Executive Aaron Milford is urging unitholders to vote in favor of the company’s $18.8 billion cash and stock sale to Oneok Inc. (NYSE:OKE) as a crucial vote approaches later this month.
“We really have to make sure we’re communicating with all retail holders, and they understand it’s imperative that they vote and to vote for the transaction because the benefits are just so obvious to us,” Milford told Seeking Alpha in an interview on Friday.
Milford’s campaign to convince holders started back in May when Oneok (OKE), a pipeline company that primarily ships natural gas and NGLs, announced it would combine with Magellan Midstream (MMP), which mainly ships crude oil and refined products through pipelines.
Milford has faced opposition from one of MMP’s largest holders, Energy Income Partners, the company’s fourth largest unitholder with a 3% stake, who has argued that the premium in the deal doesn’t justify the tax bill that unitholders will have to pay.
“It’s a 22% premium over where we were trading before,” Milford said. “It’s one of the highest multiples achieved in this space in many years, and so when you just look at it from a value perspective, it’s really compelling. And then on top of all that, uniholders will benefit from a stronger, higher growth potential company going forward.”
The transaction is also expected to offer $200 million to $400 million in synergy savings a year through the combination, according to Milford.
“So by taking this really healthy business that’s focused on crude oil and refined products, and combining it with natural gas liquids and natural gas, the natural gas liquids and natural gas space has a higher fundamental growth rate to it,” Milford said. “So what we’re able to do is take our really healthy business that generates a lot of cash flow, combine it with a higher growth business, have more investment opportunities, and lead to higher growth potential longer term.”
Milford explained that while Magelllan Midstream (MMP) investors may be concerned about the tax implications of the deal, at some point they would have to pay tax anyway if they sold their shares.
“So if you’re an investor, you owe the taxes anyway; the question is, do you want the premium in the deal? Milford said. “Because you’re better off. Do you want $45 after the tax-free deal, or would you prefer $55 now with the upside of the pro forma because what I think is misunderstood is that this transaction is not creating these taxes; these taxes exist in either scenario, and anytime a unit holder wants to sell a unit, they’re going to pay taxes.”
“And when you look at it practically, if you look at 10 other transactions in the energy space involving master limited partnerships, half of those have been taxable transactions,” Milford continued. “So the reason I’m making that point is that the idea that we have a taxable transaction here is not unique. It’s not something special or something that’s very different. Taxable transactions in the MLP space are very common.”
The Magellan Midsteam (MMP) push to get shareholders to vote in favor of its sale to Oneok (OKE) comes as the Sept. 21 vote is now only a few weeks away. Milford said in the interview that the most influential proxy advisers, ISS and Glass Lewis, are expected to give their recommendations to MMP shareholders as soon as this week.
“We’ve been at this since May,” Milford told Seeking Alpha. “And we’re going to stay at it. And we have these conversations because, again, the benefits of the transaction are, we think, really, really clear.”
Milford, who said he began the process over a potential deal in September of last year, seemed to suggest that there wouldn’t be any last-minute changes or an attempt to somehow make it tax-free to try to get the deal over the finish line.
“And at the end of the day, the terms of this transaction, after four price increases, after considering all the alternatives that we could possibly think of, and after considering the tax considerations, this was the best deal,” Milford said. “This is the one that maximizes the value for our unit holders. So we’re very comfortable with our process and believe that we’ve ended up with the right deal for our unit holders right now.”
