Marathon review of Enon-based Speedway could include spin-off


Speedway’s parent company might spin off the Enon-based convenience store chain, part of a series of moves company leaders said Tuesday are intended to create more value for shareholders.

Marathon Petroleum Corp. will create a special committee to review the Speedway chain with the help of an independent financial adviser. That board will review whether it makes sense to spin off the Speedway brand, along with other alternatives, Findlay-based Marathon officials said Tuesday.

RELATED: Speedway signs deal with travel plaza giant

Speedway’s corporate headquarters is based in Enon, and the company is one of Clark County’s largest employers with about 1,350 workers locally and about 33,820 nationally.

Company leaders didn’t return calls seeking comment.

“We remain committed to taking sound, aggressive action for (Marathon) shareholders — and we believe today’s announcements will unlock substantial value,” said Gary R. Heminger, Marathon’s president and CEO in a statement.

In 2014, Speedway completed a $2.8 billion acquisition of Hess Retail Holdings, an East Coast convenience store chain. Speedway already operated about 1,500 stores across the U.S., mostly in Midwestern states like Ohio, Indiana and Michigan.

The acquisition allowed the business to take control of 1,260 Hess locations, making Speedway one of the largest convenience store chains in the country.

Larger refiners like BP and ExxonMobil have largely divested much of the retail side of the business over the past several years for a variety of reasons, including mergers and acquisitions, competition and other factors, said Jeff Lenard, vice president of strategic industry initiatives for the National Association of Convenience Stores.

But Speedway is large enough to operate independently of Marathon, Lenard said, especially after the Hess deal.

“Certainly the largest U.S.-based convenience store chain could stand on its own,” he said.

Marathon announced other moves Tuesday, including plans to accelerate a drop down of assets with about $1.4 billion of assets to MPLX LP, a spinoff formed by the company. A drop down is a transfer of assets from the parent company to the spinoff. In general, it’s a way for companies to raise additional capital they can reinvest in the business or return to shareholders through dividends, stock buybacks or other means.

READ MORE: Speedway buys Springfield tech park site for $5.4M

Marathon has been under pressure from hedge fund Elliot Management Corp., one of the company’s largest shareholders who argued late last year that Marathon’s stock was undervalued. In a letter to Marathon’s board of directors in November, Elliott argued Marathon should separate its retail, refining and distribution businesses.

“To be clear, we are not asking the company to contemplate selling any portion of its business,” wrote Quentin Koffey, a portfolio manager in a letter to Marathon’s board. “Rather, we are asking the board to evaluate whether Marathon shareholders would be better served by holding the three businesses separately via tax-free spin-offs to shareholders.”

In Marathon’s statement Tuesday, Koffey said he was pleased with the board’s’s actions, including possibly spinning off the Speedway business.

“We appreciate the open and candid dialogue we have had with the management team,” he said.

Breaking up into separate components has worked for similar companies like Valero, which spun off its retail segment to create CST Brands Inc. in 2013, said Lysle Brinker, director of equity research for IHS Markit. Marathon Petroleum itself spun off from Marathon Oil Corp. in 2011.

DETAILS: Marathon sees steep drop in profits, Enon-based Speedway more stable

“Some investors believe that by further breaking the company into its parts, they can create more value,” Brinker said. “The track record so far is pretty good on that. But that’s not a guarantee of higher returns for stakeholders.”

Retails brands like Speedway typically provide more stable earnings than other segments like refining, which are much more volatile, he said. Speedway reported income of $209 million in the third quarter this year, down about 14 percent from the same time last year as a result of lower light product margins and increased depreciation expenses. In the same earnings report, however, Marathon leaders singled out Speedway as one of the company’s most reliable segments.

The stability provided by Speedway is one argument for keeping the company together, Brinker said. It’s also possible Marathon could separate the brand if they believe it would create more value for shareholders, although he said that would depend on a variety of factors, including federal tax policies under a new administration.

They could also spin off Speedway as a new company owned by shareholders, in which Marathon would have no longer have a direct role, Brinker said.

“Whether Marathon Petroleum would be better positioned longer-term without Speedway, obviously activist investors think it would be,” Brinker said. “Marathon is considering it but they don’t necessarily buy into it completely because they haven’t signed the deal to spin it off.”



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