OKE - Oneok plunges as analysts question Magellan Midstream deal logic

2023-05-15 11:47:42 ET

Oneok ( NYSE: OKE ) -9.5% in Monday's trading following its $18.8B deal to buy Magellan Midstream Partners ( NYSE: MMP ) to form one of the biggest U.S. companies involved in transporting and storing energy.

The acquisition will give Oneok ( OKE ), which transports only natural gas and its byproducts, access to Magellan's ( MMP ) vast network of crude oil and refined products conduits and terminals.

But some analysts say the deal is a surprise given those different focus areas and thus may not make commercial sense.

"While it's easy to see the attractiveness of acquiring refined and crude assets to diversify operations, OKE holders may have preferred the company to keep its natural gas and NGL focus and expand its footprint in Texas by acquiring G&P assets," said Stifel analyst Selman Akyol, who rates the stock a Buy.

While viewing the deal's tax benefits favorably and noting the deal diversifies Oneok's ( OKE ) cashflow, RBC's Elvira Scotto was surprised given the two companies' significantly different asset bases, and said she wants additional clarity on strategic rationale, synergies and cross-selling potential; she rates the stock at Sector Perform.

But Truist's Neal Dingmann said Oneok ( OKE ) is "well positioned for the deal given its prior substantial de-levering, providing strong balance sheet capacity," and "the complementary nature of the assets could result in the company hitting at least $200M of operational synergies once the companies become fully integrated."

More on Oneok:

• Financial and valuation comparison to sector peers
• Analysis: Oneok Buys Magellan Midstream Partners - Why I'm Buying
• Stock price return: Down 10% YTD, down 8.5% in the past 12 months

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