On Sunday night, Marathon Petroleum (NYSE:MPC) announced an end to its Speedway saga, selling the unit for $21 billion. It followed up that decision with a solid quarterly report on Monday morning. Together, these events strengthen my conviction in MPC as one of the most compelling value stock opportunities in the market. Based on the better than expected result from the Speedway sale, I believe shares should trade close to $70 over the next twelve months.
(Source: Seeking Alpha)
Speedway Sale Exceeded Expectations
On Sunday, MPC announced that it would sell its Speedway retail gasoline stations and convenience stores in a $21 billion all cash transaction to 7-Eleven. By opting for an all-cash offer, MPC immediately unlocks value for shareholders rather than having to monetize a minority equity stake over time. Another positive aspect of this deal is that 7-Eleven commits to purchase 7.7 billion gallons of gasoline per year for 15 years, ensuring a buyer for the majority of MPC's refined product. With this contract, MPC gets some of the benefit of its old integrated model, a buyer of its gasoline, while also monetizing the holding.
Critically, this sales price far exceeded expectations. Pre-COVID-19, it was believed that bids would be in the $15 to $18 billion range. When I last wrote on MPC, I assumed Speedway would only bring in $13 billion of cash proceeds. Instead with this sales price, the company will bring in $16.5 billion of after-tax cash proceeds. Given the company has a smaller size post transaction, a significant portion of this total will go to repurchase debt and defend the company's investment grade balance sheet. But, the company will have $3.5 billion more than I expected to give shareholders either via a buyback or special dividend when the deal closes, which is expected to be in Q1 of 2021.
