The activist hedge fund said that Marathon Petroleum by splitting into three independent companies will unlock more than £17.8bn in value for shareholders


Image: Corporate headquarters of Marathon Petroleum in Findlay, Ohio. Photo: courtesy of Marathon Petroleum Corporation.

Elliott Management has asked Marathon Petroleum to split itself into three independent entities to unlock the value that is “currently trapped” in the latter’s conglomerate structure.

The US activist hedge fund, through certain funds managed by it, holds a stake of 2.5% in Marathon Petroleum.

Elliott Management said that the purpose of its letter is to show the direction to the Ohio-based petroleum refining company to remedy its repeat underperformance, to boost its businesses, and to create considerable and sustainable value for its shareholders.

The hedge fund claimed that the company’s management and the board did not fulfil the promises of implementing certain agreed measures to improve performance. The promises were said to be made by the management and the board following a previous engagement with Elliott Management.

The investment management firm wants Marathon Petroleum to immediately initiate a separation, which it expects to create three strong, independent companies, with each of them to have a leading position in their respective sectors.

The suggested new companies are RetailCo, MidstreamCo, and RefiningCo, which Elliott Management believes will generate more than $22bn (£17.8bn) in value for shareholders without any change in the operating assumptions. Furthermore, Marathon Petroleum’s board can make use of an incremental $17bn (£13.75bn) in value by realising the operating full potential of its asset base, said the hedge fund.

Elliott Management said that RetailCo is expected to become the largest US-listed convenience store operator, while MidstreamCo will be among the top five US midstream operators in terms of enterprise value. The third new entity – RefiningCo is expected to become the largest independent merchant refiner in the US, claimed the hedge fund.

The latest letter from Elliott Management comes almost a year after Marathon Petroleum completed the $23.3bn (£18.85bn) merger of its rival refining company Andeavor.

Marathon Petroleum responds to Elliott Management’s suggestion

Marathon Petroleum, in its response to the letter, stated: “We look forward to maintaining an ongoing dialogue with our shareholders as we continue to evaluate opportunities to deliver more value for our shareholders. We will thoroughly evaluate Elliott’s proposal and look forward to continuing our constructive engagement around these issues.”