Refiner Marathon Petroleum Corp (MPC.N) said it would buy oil and natural gas producer Hess Corp's (HES.N) retail business for $2.87 billion to expand its network of gas stations and convenience stores along the U.S. East Coast.
Marathon Petroleum sells gasoline, food and drinks mainly through its Speedway convenience stores in the Midwest. It also sells Marathon brand gasoline through nearly 5,200 independently owned retail outlets in 18 states.
Speedway, the Marathon unit making the acquisition, owns and operates about 1,480 convenience stores in nine states.
Hess, which operates 1,256 stores in 16 states, will use the sale proceeds for additional share buybacks and has increased its existing repurchase program to $6.5 billion from $4 billion.
"This acquisition ... will significantly expand our retail presence from nine to 23 states through these premier Hess locations throughout the East Coast and Southeast," Marathon Chief Executive Gary Heminger said.
Marathon said the combined business was expected to report adjusted 2013 revenue of more than $27 billion.
The deal also includes Hess's transport operations that will allow Marathon transport an additional 200,000 barrels per day of refined products to its customers.
Marathon said it would pay $2.37 billion in cash, plus an estimated $230 million in working capital and $274 million for capital leases.
The company will fund the deal through debt and available cash and expects it to close late in the third quarter.
Barclays Capital acted as financial adviser to Marathon.
(Reporting by Sayantani Ghosh in Bangalore; Editing by Don Sebastian and Maju Samuel)