EIP said that that the taxes paid by Magellan investors will surpass the premium offered by ONEOK and any other potential benefits from the merger, and wants Magellan to remain a stand-alone entity
EIP to oppose ONEOK-Magellan merger. (Credit: jotoya from Pixabay)
Energy Income Partners (EIP), the fourth largest shareholder in Magellan Midstream Partners, is opposing the proposed $18.8bn merger between Magellan and ONEOK.
The US-based asset manager informed the Board of Magellan Midstream Partners about its plan to vote against the proposed combination, through a letter.
EIP said that that the taxes paid by Magellan investors will surpass the premium offered by ONEOK and any other potential benefits from the merger.
The asset manager also wants Magellan to remain a stand-alone entity, as the returns on its invested capital are higher than that of ONEOK.
EIP in its letter said: “As a high yielding partnership, the tax cost basis of a unitholder’s units can decline rapidly over time as dividends are treated for tax purposes as a return of capital.
“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 $2bn.
“Compared to the purported tax benefit to the combined ONEOK/Magellan entity of $1.5bn, 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.”
Last month, the US-based midstream service provider ONEOK has signed an agreement to acquire Magellan, in a deal worth around $18.8bn, including assumed debt of $5bn.
Magellan is a publicly traded partnership, engaged in the transportation, storage, and distribution of refined petroleum products and crude oil.
It owns one of the longest refined petroleum products pipeline systems in the US, with access to almost half of the country’s refining capacity.
Magellan in its statement said: “We remain focused on completing the transaction with ONEOK and delivering on the many compelling benefits of this combination.
“The transaction gives Magellan investors an opportunity to benefit from the upside potential and attractive cash dividend of the combined company.”