Barry Rosenstein's Jana Partners and Keith Meister's Corvex Management bought big stakes in refiner Marathon Petroleum (MPC - Get Report) , according to regulatory filings this week. Is it a value play given the drop in refining stocks -- or could the two activist investors be looking to agitate for change?
Jana Partners wouldn't comment and Corvex didn't respond to requests for comment. But one Marathon Petroleum follower thinks there's a lot of value to unlock in the Findlay, Ohio-based company, which could be the reason for the move.
bond analyst Brian Gibbons at CreditSights said Marathon Petroleum had to put a "massive" $1.3 billion capital infusion into its master limited partnership MPLX (MPLX - Get Report) related to its $15.6 billion acquisition of MarkWest Energy Partners LP and the weak cash flow position of the unit late last year.
Gibbons said investors have also been pushing for the company to spin off its general partner interest in MPLX through an initial public offering, or IPO. Another value-adding possibility would be putting Marathon Petroleum's Speedway and other gas station businesses into an MLP, which it could then IPO.
"There is potentially a significant amount of latent value here that these two activists could push to unlock," he said. "I suspect that is what is driving the investment."
According to 13F filings on Aug. 15 with the Securities and Exchange Commission, Jana had 2.7 million shares and 200,000 call options of Marathon Petroleum as of June 30 while Corvex had 578,000 shares and 650,000 call options.
Jana Partners has been involved with Marathon Petroleum before. In 2012 it made an estimated $44 million profit by selling its shares in the company after it announced it would buy back $2 billion in stock and consider spinning off its pipeline business. At the time Jana said it had been in "highly productive discussions" with the company's management.
Corvex's Meister - a former protégé of billionaire activist investor Carl Icahn - also has experience angling for change in the energy industry. He previously won a seat on the board of Williams (WMB - Get Report) , whose $33 billion purchase by Energy Transfer Equity (ETE) was later cancelled due to market conditions and tax issues. In June he was part of a group that resigned from the board over disagreements about the direction of the company under CEO Alan Armstrong - who was against the deal and they tried to have ousted -- saying they still believed the company was undervalued and that the board was too entrenched and inexperienced.
Marathon Petroleum spokesman Jamal Kheiry said the company doesn't comment on discussions with specific shareholders but does engage with its investors "on a routine basis."
Some of these value-boosting ideas have been bandied about before. When an analyst asked about spinning off its retail segment on its second quarter conference call last month, CEO Gary Heminger said that management continues to evaluate the possibility but noted that having it in the portfolio helped the company during the down market in the refining segment over the last couple of quarters. "It illustrates ... how important having a diversified portfolio and a diversified value chain is to a business like ours," he said.
Jeff Dietert, who follows the company at Piper Jaffray's Simmons & Co. International, wouldn't comment about what might be behind the investment. But in a report at the end of last month, he wrote about the company's relative advantages versus its peers, including MPLX (via the MarkWest acquisition) and exposure to improving natural gas liquids fundamentals, which are positively correlated with oil prices. He also noted the potential for growth in MPLX general partner cash distributions, the relatively stable cash flows coming from Speedway and Marathon's other retail stories and a relatively complex refining portfolio.
"That said, elevated product inventories create headwinds for refining margins in the near-term, leaving us cautious on the stock," he added. He has a neutral rating on the shares with a $35 price target.
Marathon Petroleum has been doing other things to boost value in the company, including teaming up with Enbridge Energy Partners (EEP) earlier this month to purchase 36.75% of the Bakken Pipeline System in the Rockies from Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL) for $2 billion. "This system is planned to provide cost-effective access to Bakken crude oil production for the Midwest and Gulf Coast, which will increase MPC's refinery supply flexibility," Heminger said.
It sounds like the company has some flexibility with other parts of its business that could boost its value as well.