Once again, Elliott Management is asking that a corporation divest itself of its whole.
Paul Singer sent a letter to the Marathon Petroleum board this week demanding that the business separate into three parts: a retail and convenience store operator; a midstream business that ships fuel; and a petroleum refining company (ref WSJ). Elliott Management is claiming that, in so doing, Marathon could be $22 billion more valuable. It’s always about the value with the activist investors; never about how the company is to actually run and maintain itself after the divesting. Elliott has been harassing Marathon since 2016, with similar requests. Thus far, however, they have rebuffed him – choosing instead, to buy Andeavor last year for $23 billion and making the combined company the largest U.S. oil refiner. Elliott argues, however, that Marathon bought the company with an undervalued stock and that it hasn’t done well in integrating Andeavor. Separating the businesses would bring certain disadvantages. Though all are loosely connected to the oil business, they are also uncorrelated. Thus, while they are all part of the same enterprise, the steady cash flow of one can help offset another during a slump. The WSJ has mentioned that Marathon’s shares could benefit simply if Elliott spurs the Marathon management to manage the company more effectively rather than splitting it up. And, it’s known that coming changes to maritime fuel guidelines could require more sophisticated refining techniques which could help Marathon because of their complex coastal refineries. With those changes, Marathon could be looking at shares worth about a quarter more than their closing level this week. And, as the Journal says, “Marathon could get there while hardly breaking a sweat.” Let’s hope that that is the route they follow; they’ve rebuffed Elliott previously, after all, so they certainly know how to do that effectively.