* 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 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
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
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
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.