Marathon Oil (NYSE:MRO) revealed plans on Thursday to spin off its refining and pipeline operations to create two independent companies.
Wall Street cheered the break-up plans, which were first pondered in 2008, by sending Houston-based Marathon’s stock surging in early trading.
Marathon said it plans to create a new company on June 30 called Marathon Petroleum that will house its downstream business and become the fifth-largest U.S. refiner.
As part of the spin-off plans, Marathon said it intends to distribute one share of the new company for every two shares of Marathon held by shareholders at a date to be determined.
Marathon said the move will give it enhanced flexibility to pursue tailored strategies, superior transparency and the ability to better attract and retain talent.
“The substantial improvement in the global business and financial environments over the last two years has created the conditions under which we believe it is now appropriate to move forward with the formation of two strong independent energy companies,” CEO Clarence Cazalot said in a statement.
Morgan Stanley (NYSE:MS) and JPMorgan Chase (NYSE:JPM) have already committed to $2.5 billion in bridge financing for Marathon Petroleum, which is expected to incur $2.5 billion to $3 billion in new debt prior to the spinoff.
Other than a tax ruling from the Internal Revenue Service and a review from the Securities and Exchange Commission review, the spinoff doesn’t need any regulatory approvals.
Marathon Petroleum is expected to trade on the New York Stock Exchange under the ticker symbol “MPC” and be led by Gary Heminger, Marathon’s downstream executive vice president.
“Marathon has a long history of adapting to changing market and business conditions and at this point in our almost 125 year history, there is a compelling strategic rationale for this transformation,” Cazalot said.
Shareholders responded positively to the move, bidding Marathon’s stock up 8.2% to $43.85. The company’s shares have rallied more than 16% over the past four weeks.
Analysts at Morgan Stanley and BMO also approved of the move, upgrading Marathon from “underweight” to “equalweight” shortly after the split was announced.
The Marathon split comes days after ITT (NYSE:ITT) announced plans to split itself into three companies.