Energy Income Partners (“EIP”) managed funds and accounts are long-term owners of Magellan Midstream Partners, LP units, aggregating approximately 3% of its outstanding units making EIP the fourth largest unitholder.
EIP believes that a merger is only desirable if :
The proposed merger ONEOK-Magellan has neither and the most important factor in our decision to vote against this deal is our unwillingness to exchange our ownership of a top-tier company for a mediocre one.
We encourage Magellan Unitholders to look past the adjectives put forth by Management and look to the numbers - which in our view clearly indicate the ONEOK Merger is value-destructive for all unitholders.
The deal undervalues Magellan’s industry leading returns on invested capital and stable earnings profile.
These factors negate any argument that the combined Newco offers either diversification or a better future than a stand-alone Magellan as investors can buy ONEOK in their portfolios if they choose.
The proposed combination of ONEOK and Magellan generates de minimis synergies that are more than offset by additional interest charges related to the debt to consummate the deal.
Financial projections in the S-4 show the annualized return on ONEOK’s new growth capital invested is just 5% or that the base business EBITDA is declining.
Magellan did not conduct a proper process or invite other bids, nor did they provide any financial analysis of alternatives Magellan considered, specifically as a standalone C-Corporation using a 351a conversion.
Magellan failed to outline alternative ways of structuring the transaction in a way that is more tax efficient for its unitholders.
The deal premium is more than offset by unitholder taxes and lost dividend income as the $2.7 billion tax payment from Magellan unitholders provides a direct benefit to the Newco of which Magellan unitholders would have only a 23% share.
The Magellan Board has not responded to our two letters to engage in any way to further this discussion or defend their lack of analysis of alternatives.
This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card. Energy Income Partners, LLC is not able to vote your proxies, nor does this communication contemplate such an event. The proponent urges shareholders to vote against the proposed merger or not vote which will have the same effect as voting no.
The views expressed are those of Energy Income Partners, LLC as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable.
This piece is for informational purposes and should not be construed as a research report.
Energy Income Partners, LLC conducted its own analysis based upon information available to it at the time of the analysis which may change at any time without notice and does not make any warranty as to the accuracy or completeness of any analysis, data point, assumption or opinion presented herein.
Distribution of this letter, regardless of the means or format of its delivery, does not constitute the provision of tax advice by EIP, nor should any general analysis piece be relied upon for the formulation of any targeted tax strategy. For more information regarding specific personal or corporate tax matters, including, but not limited to, personal tax implications relating to specific portfolio transactions, please consult a qualified tax professional.
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