Marathon Petroleum Corp’s master limited partnership MPLX LP agreed to buy MarkWest Energy Partners LP for about $15.63 billion, resulting in the creation of  the fourth-largest MLP by market value.

The deal is anticipated to close in the fourth quarter.

MPLX LP Inks Deal To Acquire Markwest Energy Partners LP

MPLX deal with MarkWest at 32% premium

MPLX LP unveiled today that it has signed a definitive merger agreement with MarkWest Energy Partners, L.P., the second-biggest U.S. processor for natural gas, whereby MarkWest would become a wholly owned subsidiary of MPLX.

The acquisition would combine two companies (both structured as so-called master limited partnerships) that own oil pipelines and petroleum or natural gas storage assets. The combined company would have a market capitalization of about $21 billion.

In a statement, MPLX said the deal will be for a “unit-for-unit” tax-free transaction including a one-time cash payment to MarkWest unit-holders. The proposed deal would combine the largest processor of gas in the Marcellus and Utica share regions of Pennsylvania and Ohio with a growing oil and refined products partnership.

The proposed acquisition would also provide significant vertical integration opportunities, as MPC is a large consumer of natural gas liquids.

The terms of the deal envisages MarkWest shareholders to receive the equivalent of $78.64 a share in cash and shares, representing a 32% premium to the company’s closing price on Friday. As part of the deal, MarkWest shareholders will receive 1.09 shares in MPLX and a cash payment of $3.37 a share for each share of MarkWest they hold.

The proposed deal also envisages Marathon Petroleum giving $675 million in cash to MPLX to help fund the cash portion of the deal.

Investors favour tax-advantaged MLPs

As detailed by ValueWalk last month, Energy Transfer Equity, L.P. announced its proposal to merge with The Williams Companies, Inc. in an all-equity transaction valued at $53.1 billion, including the assumption of debt and other liabilities. Williams stockholders would benefit from the cash flow diversification associated with being part of the world’s largest energy infrastructure group and the third largest energy franchise in North America, underpinned by three of the largest and most highly respected investment grade MLPs in the industry (ETP, SXL and WPZ).

Investors favor tax-advantaged MLPs as they pay out most of their cash flow as dividends. MLPs use acquisitions to expand their asset base and to grow their dividends. MPLX anticipates the combined company’s dividend to grow by 25% through 2017, Chief Executive Gary Heminger said. The company maintained its target of 29% dividend growth for 2015.

Findlay, Ohio-based MPLX was created in 2012 by Marathon Petroleum to own and operate pipelines and other so-called midstream assets. Its assets include 2,900 miles of pipeline in nine states. MPLX posted revenue of $548.3 million in 2014. The firm also indicated Monday it would “indefinitely” defer its planned acquisition of Marathon Petroleum’s marine transportation assets.