Should Marathon Petroleum Split Up?

On September 25, 2019, an activist investment management company, which was sometimes referred to as the biggest activist hedge fund in the world, publicly released a detailed report advocating for Marathon Petroleum Corporation to be split into three separate companies, divided along three major business lines: oil refinery, midstream services (i.e., pipelines), and retail. The refinery company would consist primarily of 16 oil refineries in the United States and would retain the Marathon name. The midstream company, which would consist of pipelines, logistics, and oil terminals, would be formed from MPLX LP, the publicly traded subsidiary that was 63 per cent owned and fully operated by Marathon Petroleum Corporation. The retail company would be formed from Speedway LLC, the wholly owned subsidiary of Marathon Petroleum Corporation that operated 3,923 retail locations across the continental United States. The investment company argued that Marathon Petroleum Corporation's shareholders stood to benefit considerably from the proposed split. Was the proposition a good idea?

The case is suitable for both undergraduate- and graduate-level courses on mergers and acquisitions, intermediate corporate finance, or finance capstone. Ideally, before discussing this case, students should have covered valuation with multiples, and have some knowledge of the motivations behind mergers and acquisitions, as well as its underlying theory. This case focuses on a corporate breakup strategy, rather than a merger. However, many of the arguments and lessons are similar for both approaches. This case is an exercise in valuing the independent parts of a conglomerate using multiples. It presents an opportunity for students to compare the valuation gains from synergies among the operational units with valuation losses that come with being a part of a larger company that is more difficult to manage and diversified. These factors will add to the discussion on valuation. After working through the case and assignment questions, students will be able to<ul><li>calculate enterprise value using multiples, in particular the ratio EV/EBITDA, which is commonly used in practice;</li><li>determine which characteristics of conglomerates create value and which destroy value; and</li><li>value gains from synergies in a vertical conglomerate.</li></ull>

• merger and acquisition
• enterprise value
• valuation with multiples
• conglomerate