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Gary Heminger, 57, will be president and chief executive of the Findlay firm; he heads the operations in Houston now.
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Marathon Oil to spin off operations in Findlay

HO

Marathon Oil to spin off operations in Findlay

HOUSTON -- The Marathon Oil refining operation, managed for eight decades from downtown Findlay but recently from Houston, is about to become northwest Ohio's largest company with public stock.

Reviving a discarded plan of two years ago, the corporation announced Thursday that it is spinning off into a separate company its Findlay operation that dealt with its refineries, retail gas sales, and pipelines and transportation of its products. The new firm, to be called Marathon Petroleum Corp., will become the fifth-largest independent oil refiner in the United States, with capacity to process 1.1 million barrels of crude daily.

The Hancock County company, with annual revenues amounting to $45 billion in 2009, is to have its own stock traded on the New York Stock Exchange and be separate from the remaining Marathon Oil Corp., still based in Houston and in the business of oil exploration, oil sands mining, and natural gas operations.

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Clarence Cazalot, Jr., Marathon Oil president and chief executive, said, "This will result in two strong, highly-focused companies."

Phil Weiss, an industry analyst with Argus Research, said the spin-off is probably a good move. "Part of the motivation is the value of their [exploration] business was somewhat hidden. People just looked at refineries."

The exploration side has a lot of growth potential and has been undervalued for some time, he said. The Findlay firm may not have as much growth potential, he said.

"I'm not so sure how much they want to expand their footprint," he said. "Could they do that? Yeah, but I think the goal for right now is to just run this business as is."

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Wall Street liked the deal. Marathon Oil's stock Thursday went up 6 percent, or $2.45 a share, closing at $42.98, with 44 million shares traded, or eight times normal volume. The spin-off announcement was made before NYSE opened Thursday morning.

The split-off of the northwest Ohio business is being done to try to enhance the stock of both firms, a benefit to shareholders. It is a psychological plum for Findlay, and is expected to add some workers to the 1,500 at its three South Main Street office buildings.

It will keep control of six refineries, Marathon and Speedway gas stations, pipeline system, and truck and river barge operations.

The refineries are in Detroit and Canton, Ohio, as well as in Kentucky, Illinois, Louisiana, and Texas. It has 5,100 Marathon gas stations in 18 states, mostly in the Midwest; 1,350 Speedway stations in seven states; 21 gas and distillate wholesale operations and 12 supply operations; 63 oil terminals and 33 asphalt plants; 9,700 miles of pipeline capable of transporting 100 million gallons of crude, and a transportation system that comprises 1,760 rail cars, 14 waterway tow boats, 176 barges, and 122 tanker trucks.

Marathon was founded in 1887 in northwest Ohio and moved to Findlay in 1905. It was based there until 1982 when it was acquired by U.S. Steel Corp. of Pittsburgh, which then split off the oil business in 2001 and Houston became the headquarters. The new spin-off will gain the bulk of the former $65 billion company and all of its most visible assets.

Marathon Petroleum is to be traded on NYSE under the ticker symbol MPC. The Houston firm will remain on the NYSE and continue to use the MRO symbol. Mr. Cazalot will continue to run Marathon Oil.

The president and chief executive of the Findlay company will be Gary Heminger, 57, a Marathon Oil executive who heads the same operations for the Houston firm. Mr. Heminger has 35 years with the company and has lived in Findlay for the last several years. The two companies split Marathon Oil's board, and the Findlay firm will have its own seven-member board, chaired by Thomas Usher, who is not a Marathon executive but was a top official at USX Corp., which used to own Marathon. Mr. Heminger will be a board member, as will Toledo native John Snow, former U.S. Treasury secretary and chairman of Cerberus Capital Management LP.

In a conference call Thursday with industry analysts, Mr. Heminger said, the new company will be looking to maximize profits from its refining operations and retail outlets. "Our strategy is we want to be able to capture [profit] margins across the entire value chain," he said.

The spin-off is expected to be completed on June 30. It has been approved by the Marathon Oil board and does not require a shareholder vote.

The U.S. Securities and Exchange Commission must review spin-off documents, but no regulatory approvals are required for the transaction to occur. However, Marathon Oil has asked the Internal Revenue Service for a ruling on whether the spin-off should be tax free. A ruling is expected by spring.

Stockholders of Marathon Oil will receive one share of Marathon Petroleum for every two shares of Marathon Oil they own, the company said. Also, Marathon Petroleum is expected to pay an initial dividend of 20 cents a share per quarter, or 80 cents a year, the company said. The Ohio firm is expected to have 355 million shares outstanding. Marathon Oil plans to pay an annual dividend of about 60 cents a share.

The Findlay spin-off will start with $2.5 billion to $3 billion in new debt, and a minimum free cash balance of $750 million. Morgan Stanley and JP Morgan also have committed to providing $2 billion in revolving credit over a four-year period.

As for visuals, the Findlay firm will get Marathon's trademarked shield and "M" logo, which the company has been using since 1930 when, known then as the Ohio Oil Co., it acquired the Transcontinental Oil Co., who had come up with the "Marathon" product name, a Pheidippides Greek runner trademark, and the "Best in the long run" slogan. The Houston company will be allowed to use the Marathon name but it will be forced to create a new logo, a Marathon spokesman said.

In 2008, a similar spin-off plan was planned but ultimately scrapped because of a financial market upheaval and lower commodity prices.

But now conditions are improved. Said Mr. Cazalot of Marathon Oil: "We've seen significant improvement in the global markets, the commodity markets. … Now, we believe, is the right time to proceed with this transaction."

The chief executive said the deal has been in the works for five months. He said the company directors thought a separation was probably best for both entities and might enable both to grow in ways they could not as one company.

"Certainly, we have had financial integration with [the exploration business] and our [refining business], but in terms of physical integration, there's been very little of it," Mr. Cazalot said. The chief executive said Marathon Oil supplied less than 5 percent of the crude oil processed by its refinery operations.

Mr. Weiss, the analyst with Argus Research, said the less than 5 percent figure was a surprising revelation. "I didn't realize it was that low. It told me that these businesses have been sort of operating on their own for a while," he said.

However, there will be some expansion in Findlay.

Marathon spokesman Angelia Graves said staff will be added in Findlay. "We will be looking at some additional corporate support for things that are currently handled out of Houston. We know there are some functions that we will need to be doing here as a new separate corporate entity," she said.

Currently, the Marathon operations building is home to a variety of marketers, engineers, accountant, and other clerical staff. Findlay also is the operations center for the company's pump-line and marine operations, its credit card operations, its logistics, terminal, and transport operations. Corporate refining operations also are run from Findlay, but the company's Speedway headquarters are south of Dayton.

"Really, outside of Findlay, the largest group of people are those at the six refineries," Ms. Graves said.

Tony Iriti, head of economic development for the Findlay-Hancock County Alliance, said he and other local officials are hoping that as the new Marathon Petroleum grows, it will mean more jobs for Findlay.

"My impression is it will be just kind of the status quo for a while, but this will give the community more stability having the company headquartered here and it could help with recruiting and attracting other businesses," he said.

Still, Mr. Iriti said, Marathon has been a good corporate citizen even with Houston headquarters. Marathon put together a coalition to help solve the area's flooding problems and it leads the community in contributions to the United Way, he said.

"It would be really tough for them to do much more than they've done in the past," Mr. Iriti said.

First Published January 14, 2011, 5:28 a.m.

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Gary Heminger, 57, will be president and chief executive of the Findlay firm; he heads the operations in Houston now.  (HO)
Findlay's operations, with annual revenues of $45 billion in 2009, will become Marathon Petroleum Corp.  (Morrison / Blade photo)
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