Houston-based integrated oil major Marathon Oil Corporation (MRO) has entered into an agreement with three private equity firms — ACON Investments LLC, TPG Capital LP and NTR Partners LLC — to sell most of its downstream assets in Minnesota for over $800 million. Marathon has also granted a period of exclusivity to the buying consortium to work toward a negotiation of the transaction, which is expected to close by the late third or fourth quarter.
 
As per the non-binding letter of intent signed between the parties, Marathon plans to offload 166 company-owned and -operated SuperAmerica convenience stores together with the SuperMom’s Bakery (a baked goods supply operation), SuperAmerica Franchising LLC, interests in pipeline assets in Minnesota, as well as related inventories. The proposed deal also includes the sale of Marathon’s 74,000 barrel-per-day St. PaulPark refinery and the associated terminal. Upon closure of the transaction, Marathon may be entitled to receive additional contingent payments over a number of years.    
 
For Marathon, the deal is part of the company’s strategy to restructure its struggling refining operation that has seen mounting losses due to weak demand for fuel. The company recently reported its financial results for the first quarter ended March 31, 2010. Marathon’s refining and marketing unit lost $237 million during the quarter compared with an income of $159 million in the year-earlier quarter, reflecting weak margins and crack spreads.
 
The fifth largest refiner and marketer of petroleum products in the U.S. plans to boost returns and remain competitive in this difficult environment by embarking on aggressive cost reduction initiatives, exiting unprofitable markets and streamlining the organization.
 
Marathon is currently rated as Zacks Rank #3 (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our Neutral recommendation, which implies that Marathon shares are expected to perform in line with the overall U.S. equity market over the next six to twelve months. Therefore, we advise investors to retain the stock over this time period.
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