DENVER, Nov. 19, 2015 /PRNewswire/ -- John M. Fox,
the co-founder of MarkWest Hydrocarbon, and former CEO, Chairman
and Director of MarkWest Energy GP, L.L.C., the general partner of
MarkWest Energy Partners, L.P. ("MarkWest"), today responded to the
recommendation made by Institutional Shareholder Services (ISS) on
the proposed merger between MarkWest and MPLX LP ('MPLX'). He still
believes this is fundamentally a bad deal and believes the report
raises important concerns that support his arguments.
Where We Sit Today
"The deal keeps getting worse every day," Fox said. "I
continue to reach out to unitholders and welcomed the more than 350
institutional and retail investors on my conference call
yesterday. I continue to receive messages of support from top
10 institutional unitholders and individual retail investors. In
fact, today, after the ISS announcement, I met face to face with a
top 10 holder that confirmed his "no" vote and explained to me that
he is still outraged by the deal. As I have said from the
beginning, Marathon Petroleum is buying MarkWest Energy for pennies
on the dollar. I urge my fellow unitholders to withhold their
proxies or vote no because we are better together when fighting
against such a terrible transaction.
"Marathon Petroleum is trying to get this deal on the cheap and
needs MarkWest more than we need Marathon." John Fox said. "I want to bring all investors'
attention to a few key points of information that was delivered
from ISS that MarkWest Energy Partners, L.P. selectively quoted
from in a press release yesterday morning."
Fox said: "Although ISS issued a "For" vote for the proposed
combination between of MPLX and MarkWest, ISS delivered many
affirmations of the concerns that I previously delivered to the
market, specifically, ISS noted:
- "MWE unitholders will also see a sharp drop, on a per-MWE-unit
basis, in their cash distributions once the merger is
completed. Unitholders may also be disappointed by the fact
that, on a per-MWE-unit basis, cash distributions will decline
significantly when the transaction is completed."
- "Additionally, as holders of MPLX units after the transaction,
current MWE unitholders will begin to pay Incentive Distribution
Rights (IDRs) to MPLX's general partner, Marathon Petroleum. They
do not currently pay IDRs under the MWE structure."
- "Following the merger, MWE unitholders will once again pay IDRs
to a general partner, a degradation from the standalone MWE
alternative."
Fox continued: "I respectfully believe one of the core
assumptions behind the ISS report, the decline in general market
conditions, is wrong. Additionally, and this is another
important issue, ISS is recommending voting "Against" the Golden
Parachutes for management. They even noted in their report
that 'The company (MWE) did not perform a full auction sales
process, which may raise some concerns as to whether the "most
likely" buyers who could be expected to pay the best price were
able to bid, and consequently whether MPLX's was the best offer
available.'"
ISS's General Market Conditions Assumption is Wrong
Fox said: "I believe ISS's assumption is incorrect. Below
is a chart that indexes the share price performance of three
Marcellus-focused midstream companies – Antero Midstream Partners
LP, EQT Midstream Partners, LP and Rice Midstream Partners –
against the unit price performance of MPLX LP (NYSE: MPLX), and the
Alerian MLP Index, over the July 10,
2015 to November 18, 2015 time
period.
Photo - http://photos.prnewswire.com/prnh/20151118/289185
"The three Marcellus focused midstream companies fell an average
of 13.4% over the time period compared to a 40.4% decline for the
units of MPLX which is a result of the announced deal dragging down
the units of MarkWest.
"The Marcellus and Utica regions, key operating areas for
MarkWest, yield superior returns for operations compared to other
basins in United
States."
ISS Outlines Significant Changes in Corporate
Governance
ISS's report, issued on November 17,
2015, said: "MWE unitholders will see significant changes in
corporate governance provisions and practices if the merger is
completed." Most significant among these are:
- Controlled Company: The combined company will be totally
controlled by MPC, in its role as general partner even though
current MWE unitholders with will hold approximately 73 percent of
the combined company.
- Election of Directors: The combined company will not hold
annual meetings, and unitholders will not have the right to elect
directors to the MPLX General Partner, nor afforded the opportunity
to opine on director nominees. However, following the merger, MWE
may nominate one director to the MPC board;
- Approval of Mergers: any sale of the company requires prior
consent from the General Partner, which has no duty to consent to
any transaction and may do so without obligation to MPLX
unitholders. Additionally, the General Partner may consummate any
merger with another limited liability entity without the prior
approval of MPLX s unitholders if MPLX is the surviving entity in
the transaction.
Fox said, "By approving this deal, unitholders will own 73% of a
company that they will not have any say in. Just like MPC is
doing with this MWE deal, it will force upon the MPLX LP
unitholders dropdowns and additional transactions that may not be
in the best interests of the LP holders. Remember, evidenced
by recent events during this proposed merger process, MPC seems
willing to push MPLX unitholder values down 40% to get what it
wants. This is not a management team I trust."
ISS Confirms Degradation with IDR Payments to a General
Partner
ISS's report, issued on November 17,
2015, said: "Following the merger, MWE unitholders will once
again pay IDRs to a general partner, a degradation from the
standalone MWE alternative. The larger question, however, is
whether they will simply be transferring value to the General
Partner, as MWE's former Chairman/CEO has asserted …"
Fox responded: "Just by doing this deal, MPC's IDR value jumps
overnight to $210 million from
$25 million a year. MarkWest
eliminated its IDR program years ago because we realized it was too
much of a financial burden for a growth company. As a standalone
company, MarkWest is able to reinvest cash generated from the
partnership back into growth projects. If the proposed merger goes
through, Marathon Petroleum will suck $2
billion away from unitholders that could have otherwise been
used to fund MWE growth projects."
Gary Heminger, president of
Marathon while presenting at the Barclays' CEO Power Conference on
September 9, 2015, made it abundantly
clear of his company's intended use of MPLX: "We're going to
continue to use the MLP to grow that value. We'll use the MLP to
grow the value inside MPC through the IDRs that come back into
MPC."
ISS Confirms that this Deal May Not Represent the Best
Price
ISS's report, issued on November 17,
2015, said: "The company did not perform a full auction
sales process, which may raise some concerns as to whether the
"most likely" buyers who could be expected to pay the best price
were able to bid, and consequently whether MPLX's was the best
offer available. However, the company did receive non-binding
offers from two other companies, and the deal with MPLX represented
the best economic value of the offers received."
Fox said, "MWE should not sell at a bottom of a market cycle. As
a standalone company with a balance sheet that is only one step
away from investment grade, Ba3, and assets that support
investment, MWE has access to public markets to continue its grow
path with this assets base.
As Frank Semple, Chairman,
President and Chief Executive Officer of MarkWest emphasized in his
third quarter earnings announcement: "Our solid third-quarter
results reflect the resiliency of our business model during this
period of extremely low commodity prices. We will continue to
optimize our capital and efficiently execute our plan in order to
support our producer customers and growing volumes in many of the
nation's most economic resource plays."
Fox continued: "MWE outlined in its third quarter presentation
that it expected 2016 EBITDA growth of 16% despite reducing its
capital investment program to match current market conditions. This
type of cash flow growth is enviable by most companies in the
S&P 500. MWE is not a company in distress and does not
need to sell."
Balance Sheet – MWE is Just as Strong as Marathon
Throughout the ISS report, there seems to be a core assumption
buttressed by claims form MPLX and MPC that MPC's balance sheet
will be used to support future growth of the combined company.
Fox responded: "I want to be crystal clear here, MarkWest's
Senior Secured rating is the same as MPLX, and its subordinated
debt is rated two notches below. MarkWest does not have to depend
on Marathon going forward. MarkWest has more than $700 million of capital liquidity and uses an At
The Market (ATM) structure to raise equity funding. During
MWE's third quarter results conference call, MWE management
forecasted processed and gathered volume growth in 100% of its core
operating regions, 2016 Distributable Cash Flow growth of 14.3% to
16%, and 2016 EBITDA growth of 13.5% to 17.9%.
"Regarding funding future capital projects, we recently saw an
example of how one of MWE's competitors, EQT Midstream Partners, on
November 10, 2015, successfully
raised more than $406 million in
gross proceeds via an equity offering. MWE is the number one
processor of natural gas operating in the same region as EQT,
therefore, I believe MWE would be fully capable to raise any
necessary capital as it has in the past to fund more than
$10 billion of projects in the
previous five years.
"I believe MWE's announcement to combine with MPLX because
Marathon has a stronger balance sheet is simply a ruse, or a Trojan
Horse, by MWE's management to trigger a Golden Parachute for
itself!"
Fox continued: "Though the continued rhetoric from Marathon is
that the strong balance sheet is an asset for the combined entity,
page 43 of the proxy statement clearly states 'MPLX's general
partner [Marathon Petroleum] intends to limit its liability
regarding MPLX's contractual and other obligations."
ISS Recommends "Advisory" Vote on Golden Parachutes
ISS's report, issued on November 17,
2015, said: "A vote AGAINST this proposal is warranted.
Although the employment agreements of all NEOs except the CEO have
been replaced by retention agreements with the acquirer, the CEO's
original employment agreement contains a modified single-trigger
cash severance provision. This allows for voluntary termination
following a change-in-control, triggering a cash payout estimated
by the company at $5.5 million in
addition to accelerated equity vesting."
Fox said: "As pointed out in the proxy filing, MWE GP's
non-employee directors have financial interests in the Merger that
are different from the interests of MWE's Common Unitholders.
Management stands to make an aggregate of $53.8 million in the transaction, with
Frank Semple making $14.5 million alone, by selling out in a down
cycle. The Golden Parachute is an indication that management is not
acting in the best interest of the unitholders. I believe
these Golden Parachutes have blinded MWE management into taking a
deal that is not a good deal from the very beginning. Quite
frankly, I believe the board of directors and management failed to
perform."
Fox concluded: "I strongly believe in a standalone MarkWest
entity and urge fellow unitholders to withhold their proxies or
vote no with me. Today I make a promise to my fellow unitholders,
just as I did when I co-founded MarkWest, to act in unitholders
best interest and accordingly will continue to speak to unitholders
about my views on the deal in hopes that unitholder interest are
put first. We all count."
Contact:
John M. Fox
E: Johnfox@iamvotingno.com
P: 303-926-4354
Website: www.iamvotingno.com
Disclaimer: John Fox is providing
this material for general informational purposes only. None
of the information provided herein is intended to be relied upon as
investment advice. The opinions expressed in this letter are those
of Mr. Fox as of November 4, 2015 and
are subject to change at any time due to changes in market,
economic conditions, or new public information pertinent to the
proposed merger. These opinions are Mr. Fox's alone, and do not
reflect the opinions of any other member of the Fox
family.
The information and opinions contained in this material are
derived from proprietary and non-proprietary sources deemed by Mr.
Fox to be reliable and are not necessarily all inclusive. Mr. Fox
does not guarantee the accuracy or completeness of this
information. There is no guarantee that any forecasts made by any
party will come to pass. Reliance upon information in this material
is at the sole discretion of the reader.
Mr. Fox is not soliciting proxies relating to the MarkWest
unitholder meeting and does not have the authority to vote your
proxy. Mr. Fox urges his fellow unitholders to withhold their
proxies or vote against the merger.
Permission was neither sought nor obtained from ISS for the
references made herein.
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SOURCE John M. Fox