Magellan Midstream Partners’ (NYSE:MMP) plans for an $18.8B merger with Oneok (NYSE:OKE) have been criticized by some investors, leaving CEO Aaron Milford scrambling to win investor support before a vote on September 21.
Milford told The Financial Times in a Sunday interview that opportunities to grow as a company focused on crude oil and refined products had become increasingly “challenging” after a construction boom that ran its course, but hooking up with Oneok (OKE), a pipeline company that primarily ships natural gas and NGLs, would create a “more powerful growth engine” with more room to expand as an energy transition drives demand for gas at power plants and other sectors.
Energy Income Partners, Magellan’s (MMP) fourth largest unitholder with a 3% stake, has ripped the proposed merger, saying it undervalues Magellan’s “industry leading” returns and that any premium is outweighed by the tax drag it would trigger.
Milford told FT that EIP’s argument dismissed the $200M-$400M in annual cost savings the deal would create, as the combined group could ship crude oil, refined products and natural gas liquids such as propane on the same pipeline systems, and that any tax payment would come due regardless.
“There’s a higher growth profile for this company going forward [with Oneok] than we have standalone,” according to Milford. “You combine the high cash flow generating business that we have with a faster-growing potential of NGLs and natural gas, and you obviously create a much more powerful growth engine over the next few decades.”