ONEOK’s plan to buy Magellan Midstream faces opposition

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One of the top shareholders in Tulsa’s Magellan Midstream Partners has come out against ONEOK’s $18.8 billion planned acquisition of the company.

Energy Income Partners LLC, a 20-year old company that manages $5.1 billion, announced it intends to vote against ONEOK’s deal. It is the fourth largest shareholder in Magellan and has a 3% stake in the company.

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It made the announcement in a letter addressed to Magellan’s board explaining that the taxes paid by its funds and investors will exceed the premium offered by ONEOK and any potential benefits from the merger, reported Reuters.

James Murchie, Co-Founder and CEO of Energy Income Partners, LLC issued the letter to the board of Magellan informing of its intent to vote against the proposed combination.

“EIP intends to vote against the proposed combination of Magellan Midstream Partners, L.P. (“Magellan”) and ONEOK, Inc. (“ONEOK”) because we believe the taxes paid by our funds and investors will exceed the premium offered by ONEOK and any potential benefits from the merger.  Moreover, we want to see Magellan remain as a stand-alone entity whose returns on invested capital are far superior to ONEOK,” he wrote.

James J. Murchie | EIP Funds

He also raised tax issues.

“Since the average Magellan unitholder has held their units longer than EIP, their tax bill would be higher on average. Such a tax bill paid by all 202 million units outstanding would amount to well over $2 billion.  Compared to the purported tax benefit to the combined ONEOK/Magellan entity of $1.5 billion, only 23% of which would accrue to Magellan unitholders post-merger, this deal represents an enormous transfer of value from Magellan unitholders to the Internal Revenue Service and ONEOK shareholders.”

Murchie also raised the issue of portfolio diversification, saying unitholders would lose the ability to hold ONEOK share and Magellan units.

“If EIP wanted to own an investment that is 77% ONEOK and 23% Magellan, which we do not, we can do that by purchasing more ONEOK on the open market without incurring this enormous tax liability.”

ONEOK said last month that it would acquire Magellan in a cash-and-stock deal valued at about $18.8 billion.

Source: Reuters