(Bloomberg) -- Marathon Petroleum Corp (NYSE:MPC). agreed to buy rival oil refiner Andeavor for $23.3 billion, in a deal that could create the largest independent fuel maker in the U.S.
The offer, payable in either cash or shares, values Andeavor at about $152.27 a share, the companies said in a statement on Monday. That’s about a 24 percent premium over Friday’s closing price. The Wall Street Journal first reported the acquisition on Sunday.
“This transaction combines two strong, complementary companies to create a leading U.S. refining, marketing, and midstream company, building a platform that is well positioned for long-term growth and shareholder value creation,” Marathon Chairman and Chief Executive Officer Gary Heminger said in a statement on Monday.
Marathon’s geographic footprint is focused in the U.S. Midwest and Gulf Coast, while Andeavor’s refineries and pipelines are in western states. They are among the biggest beneficiaries of the shale boom, as the rapid growth in oil production has given them access to abundant supplies at a discount to global prices. Independent operators also reaped fatter profits from the recent overhaul of the U.S. tax code, and the Standard & Poor’s 500 Index of oil refiners reached an all-time high last week.
The CEO expects annual cost and operating synergies of about $1 billion within the first three years. Given projected cash-flow generation, Marathon’s board also approved share buybacks of $5 billion.
The boards of both companies unanimously approved the deal, which is expected to close in the second half of this year, subject to regulatory and shareholder approvals.
Greatest Capacity
Findlay, Ohio-based Marathon Petroleum is the third-largest U.S. refiner by market capitalization, valued at about $38.6 billion, according to data compiled by Bloomberg. San Antonio, Texas-based Andeavor, formerly known as Tesoro Corp (NYSE:ANDV)., is the fourth-largest, worth $18.7 billion. Phillips 66 (NYSE:PSX) is the largest U.S. independent refiner, valued at $51.9 billion.
Heminger’s counterpart at Andeavor, Gregory Goff, will become executive vice chairman.
The combined company would also overtake Valero Energy Corp (NYSE:VLO). to become the biggest in terms of U.S.-based oil refining capacity. At almost 2.93 million barrels a day, that’s about 16 percent of the nation’s total, according to Bloomberg calculations using Energy Information Administration data as of Jan. 1, 2017.
(Updates with CEO comment in third paragraph and cost synergies in fifth.)