MMP Stock: Why Is Magellan Midstream Up 15% Today?

Advertisement

  • ONEOK (OKE) is buying Magellan Midstream (MMP) for $18.8 billion.
  • ONEOK is a natural gas pipeline company, and Magellan is mainly an oil and products pipeline.
  • ONEOK will use Magellan’s tax structure to add $1 billion to its cash flow.
MMP stock - MMP Stock: Why Is Magellan Midstream Up 15% Today?

Source: bht2000 / Shutterstock.com

Magellan Midstream Partners (NYSE:MMP) stock jumped over 15% over the weekend after ONEOK (NYSE:OKE) said it will buy the pipeline company for $18.8 billion.

ONEOK is offering $25 per share in cash, plus stock, to deliver $67.20 per MMP share. That’s a premium of 22% over MMP’s May 12 close. The overnight jump in Magellan’s stock price means it opened at nearly $64 per share. After opening, MMP stock rose another 15%.

ONEOK investors will own 77% of the combined company. OKE stock fell about 6% overnight, opening at about $60 per share. Its market capitalization is approximately $26.75 billion. After opening, OKE stock started tumbling even further by about 8%.

The resulting company will be the second-largest in the industry by market cap, trailing only Energy Products Partners (NYSE:EPD).

ONEOK’s Big Bite

ONEOK was founded in 1906 and is known as a “midstream” natural gas player. This means it moves natural gas and liquids from wells, filters out the liquids for sale, and transports the gas to utilities. It is active in Texas, North Dakota, and the Rocky Mountains.

Magellan was formerly part of the Williams Companies (NYSE:WMB) and was spun out in 2001. It has about 2,200 miles of oil pipeline and 9,800 miles of refined product pipeline, as well as storage facilities. In 2022 MMP earned $872 million, $4.94 per share fully diluted, on revenue of $3.35 billion. ONEOK had a huge first quarter, with net income of $1 billion, $2.34 per share, on revenue of $4.5 billion.

In a joint press release, the companies said their deal would increase earnings through “cost, operational and tax synergies.” ONEOK CEO Pierce Norton is known as a gas man. He previously ran ONE Gas (NYSE:ONG), a regulated natural gas utility in Oklahoma. The deal is expected to increase cash flow by $1 billion.

MMP Stock: What Happens Next?

ONEOK’s success moving natural gas and liquids this year allowed it to buy Magellan’s oil-based infrastructure. Magellan paid hardly any tax last year, while ONEOK paid over $500 million. ONEOK will use Magellan’s tax advantages to grow its bottom line. Analysts seem pleased with the deal.

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2023/05/mmp-stock-why-is-magellan-midstream-up-15-today/.

©2024 InvestorPlace Media, LLC