Competing Bid Unlikely In Andeavor-Marathon Merger, Credit Suisse Says In Downgrade

Andeavor ANDV announced an agreement April 30 to merge with Marathon Petroleum Corp MPC for $36.6 billion.

The Analyst

Credit Suisse analyst Manav Gupta downgraded shares of Andeavor from Outperform to Neutral and raised his price target from $142 to $145. 

The Thesis

Marathon Petroleum's offer fairly values Andeavor, and a competing bid is unlikely, limiting upside to the stock price, Gupta said in a Friday note.

"Any delays on the regulatory front will disproportionally affect ANDV more than MPC."

The narrowing of West Coast base cracks would represent a near-tern headwind for the company, Gupta said. Andeavor barely broke even on the West Coast in the first quarter and lost money in two of four quarters in 2017, the analyst said.

Gupta views the $1 billion in  synergies Andeavor expects within three years of the completion of the deal as achievable.

Upside to retail synergies cannot be ruled out, the analyst said, citing Marathon CEO Gary Heminger's track record.

That said, Gupta conceded that Andeavor's standalone IMO 2020 EBITDA guidance of $2.5 billion is "aggressive."

Credit Suisse projects a bigger role for Andeavor CEO Gregory Goff even after the deal closes.

The Price Action

Following the deal announcement, Andeavor stock surged 13 percent April 30 and has added about 29 percent year-to-date.

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