UPDATE 4-Marathon to buy BP Texas City refinery for up to $2.5 bln

Mon Oct 8, 2012 5:40pm EDT

* Marathon to purchase refinery for $598 million

* Inventory worth around $1.2 billion

* Marathon shares soar, analysts see deal priced cheaply

By Kristen Hays

HOUSTON, Oct 8 (Reuters) - Marathon Petroleum Corp is buying BP Plc's Texas City refinery, the site of a deadly industrial accident, in a $2.5 billion deal that will make it the No. 4 U.S. refiner with a bigger potential slice of lucrative exports.

Marathon's share price shot to a record high early on Monday after it announced the purchase of the 451,000 barrel-per-day (bpd) refinery, the fifth largest in the country, in a deal analysts said could give the independent refiner more leverage in the fuel export market.

"This is a unique opportunity to acquire world-scale refining assets at an attractive price," Marathon Chief Executive Gary Heminger told analysts on Monday.

The company will not incur any liability stemming from the 2005 explosion at the BP plant which killed 15 workers and injured 180 more. BP paid more than $3 billion to settle lawsuits, cover fines and upgrade the refinery in the years after the blast.

"Texas City has a rather complicated history and that alone has made the valuation of this deal lower than it would have been otherwise," said Pavel Molchanov, an analyst with Raymond James. "The multiple is cheap, that's why the shares of Marathon are up."

With the $700 million earn-out arrangement, the deal's valuation is $1,880 per barrel of refining capacity and $328 per barrel without it, Molchanov said. A more typical valuation in recent deals has been $2,000 per barrel, Molchanov said.

Shares in Marathon rose to $60.04 early Monday, a record high and a near 50 percent gain on levels when the stock first began trading in June 2011. Shares closed at 57.80, up by 5.3 percent.

In addition to the refinery, Marathon will acquire the plant's inventory, three intrastate natural gas liquids pipelines, four terminals and other assets. The deal is expected to close early next year, Heminger said.

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