Andeavor Logistics to Acquire Western Refining Logistics in $1.8 Billion Deal

Andeavor, August 14, 2017

Andeavor, Andeavor Logistics LP, and Western Refining Logistics, LP (WNRL) today announced the merger of Andeavor Logistics and Western Refining Logistics and the financial repositioning of Andeavor Logistics through a buy-in of Andeavor Logistics' incentive distribution rights ("IDRs"). These transactions will generate approximately 93 million newly issued ANDX common units to Andeavor, which will bring Andeavor's total ownership to approximately 127 million units.

Andeavor Logistics and WNRL jointly announced a definitive merger agreement whereby Andeavor Logistics will acquire WNRL in a unit-for-unit exchange ("Merger") at a blended exchange ratio of 0.4921, representing an equity value of $1.5 billion based on Andeavor Logistics closing unit price of $48.31 on August 11, 2017. This represents an enterprise value of $1.8 billion, including the assumption of approximately $310 million of WNRL's net debt. The estimated 2018 EBITDA multiple is approximately 8.6x, excluding estimated 2018 GP/IDR distributions for WNRL of $22 million.

Andeavor and Andeavor Logistics also announced an agreement for Andeavor Logistics to issue, conditional upon the closing of the Merger, 78.0 million ANDX common units to Andeavor in exchange for the cancellation of Andeavor Logistics' IDRs ("IDR Buy-In"). The IDR Buy-In is expected to take place immediately after the Merger. These transactions have been approved by the boards of directors of all three companies as well as the conflicts committees of both MLPs.

"Andeavor Logistics is well positioned for sustainable growth through the execution of our organic growth programs and strategic acquisitions, including drop downs from Andeavor," said Greg Goff, Chairman and CEO of Andeavor, and Chief Executive Officer of Andeavor Logistics' and WNRL's general partners. "The transactions announced today significantly improve the financial strength of Andeavor Logistics, reduce our cost of capital and clearly highlight the value of this growth business."

"These transactions create significant value for Andeavor shareholders and Andeavor Logistics unitholders, and offer Western Refining Logistics unitholders the opportunity to participate in the future growth of the combined logistics entity," added Goff.

The Merger Transaction
Under the terms of the Merger agreement, WNRL unitholders will receive an exchange ratio of 0.5233 ANDX common units for each WNRL common unit held. The exchange ratio of 0.5233 is valued at $25.28 per WNRL common unit, reflecting a premium of 6.4% based on WNRL's closing unit price on August 11, 2017. It also represents a 6.9% premium to the volume weighted average closing price over the last 30 trading days.

Andeavor's effective implied exchange ratio is 0.4639 ANDX common units for each WNRL common unit held by Andeavor. This represents no premium to the exchange ratio based on ANDX's and WNRL's closing unit prices on April 13, 2017, one trading day prior to Andeavor Logistics' April 17, 2017 initial 13D filing. The effective implied exchange ratio is achieved by Andeavor's agreement to cancel 3.6 million WNRL common units.

The effective blended exchange ratio is 0.4921 ANDX common units for each WNRL common unit. The effective blended exchange ratio is valued at $23.77 per WNRL common unit.

The IDR Buy-In Transaction
Under the terms of the IDR Buy-In agreement, and immediately following the close of the Merger, Andeavor Logistics will issue 78.0 million ANDX common units to Andeavor in exchange for the cancellation of Andeavor Logistics' IDRs and the conversion of its economic general partner interest into a non-economic general partner interest. Following the IDR Buy-In, Andeavor will continue to own the non-economic general partner interest in Andeavor Logistics and hold approximately 127 million ANDX common units, representing approximately 59% of the common units outstanding.

The 78.0 million ANDX common units represent $3.8 billion in value based on Andeavor Logistics closing unit price of $48.31 on August 11, 2017 and $4.0 billion in value based on the volume weighted average closing price over the last 30 trading days. This represents a multiple of 13.1x on 2018 estimated GP/IDR distributions for Andeavor Logistics and WNRL, combined, of $287 million, excluding distributions waivers, based on Andeavor Logistics closing unit price on August 11, 2017. This also represents a GP/IDR multiple of 14.0x on the volume weighted average closing price over the last 30 trading days.

Additionally, Andeavor has agreed to increase existing distribution waivers in 2017-2019 by $60 million to $160 million, consisting of:

  • $50 million in 2017 (no change)
  • $60 million in 2018 ($10 million increase)
  • $50 million in 2019 ($50 million increase)

These waivers strongly position Andeavor Logistics for accelerated near-term distributable cash flow accretion while maintaining strong financial metrics following the IDR Buy-In.

Strategic Rationale

  • Greater Organic Growth Opportunities Across the Combined Geographic Footprint: Andeavor Logistics plans to spend at least $500 to $600 million per year on organic growth and acquisitions with a current two-year backlog of $800 to $900 million of identified organic growth projects. The entry into the prolific Permian Basin positions Andeavor Logistics to capture additional organic growth opportunities. The Conan Crude Oil Pipeline System in the Delaware Basin, announced on August 11, 2017, with a capital investment of approximately $225 million, is indicative of the organic growth opportunities for the business. This project is being constructed by Andeavor and is expected to be offered to Andeavor Logistics upon completion.
  • Robust Drop Down Portfolio of Qualified Assets: Andeavor Logistics targets investing $400 to $500 million per year on drop downs, as Andeavor has a drop down portfolio of at least $750 million of estimated annual earnings. This portfolio includes earnings from refinery infrastructure of at least $150 million, logistics assets of at least $200 million, assets under development of at least $150 million and Andeavor's wholesale fuels business of at least $250 million.
  • Enhanced Distribution Growth, Distribution Coverage and Credit Metrics: Andeavor Logistics targets long-term, sustainable annual distribution growth of 6% or greater, a distribution coverage ratio of approximately 1.1x and debt-to-EBITDA at or below 4.0x by the end of 2017.
  • Enhanced Capital Structure and Improved Cost of Capital: The transactions strengthen the credit profile and position Andeavor Logistics for an investment grade credit rating. The IDR Buy-In also lowers the marginal cost of capital and reduces the need to access public equity markets while expanding the universe of economic growth opportunities.
  • Better Alignment and More Transparent Value: Together, these transactions, simplify the corporate structure, resulting in Andeavor owning approximately 59% of Andeavor Logistics, valued at $6.1 billion, based on the closing unit price on August 11, 2017. Additionally, these transactions achieve expected distributable cash flow accretion by the second half of 2019 for Andeavor Logistics unitholders and deliver a significant value proposition for all stakeholders.

Upon closing, Greg Goff will continue to serve as Chairman and Chief Executive Officer and Steven Sterin as President and Chief Financial Officer of the general partner of Andeavor Logistics.

Approvals and Timing
The Merger transaction and IDR Buy-In is expected to close in the fourth quarter 2017 and the Merger is subject to customary closing conditions, including regulatory and approval from holders of a majority of the WNRL units.


About Andeavor

Andeavor is a premier, highly integrated marketing, logistics and refining company. Andeavor's retail-marketing system includes more than 3,100 retail stations marketed under multiple well-known fuel brands, including ARCO®, SUPERAMERICA®, Shell®, Exxon®, Mobil®, Tesoro®, USA Gasoline(TM) and Giant®. It also has ownership in two logistics businesses, which include Andeavor Logistics LP (NYSE: ANDX) and Western Refining Logistics, LP (NYSE: WNRL) and ownership of their general partners. Andeavor operates 10 refineries with a combined capacity of approximately 1.2 million barrels per day in the mid-continent and western United States.

About Andeavor Logistics LP

Andeavor Logistics LP is a leading full-service logistics company operating primarily in the mid-continent and western United States. Andeavor Logistics owns and operates a network of crude oil, refined products and natural gas pipelines. Andeavor Logistics also owns and operates crude oil and refined products truck terminals, marine terminals and dedicated storage facilities. In addition, Andeavor Logistics owns and operates natural gas processing and fractionation complexes. Andeavor Logistics is a fee-based, growth oriented Delaware limited partnership formed by Andeavor and is headquartered in San Antonio, Texas.

About Western Refining Logistics, LP

Western Refining Logistics, LP is a growth-oriented master limited partnership formed to own, operate, develop and acquire terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation and storage of crude oil and refined products. Headquartered in El Paso, Texas, Western Refining Logistics, LP's assets include approximately 705 miles of pipelines, approximately 12.4 million barrels of active storage capacity, distribution of wholesale petroleum products and crude oil and asphalt trucking.

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