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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
August 8, 2023
ONEOK, Inc.
(Exact name of registrant
as specified in its charter)
| Oklahoma |
|
001-13643 |
|
73-1520922 |
(State
or other jurisdiction
of incorporation) |
|
(Commission File Number) |
|
(I.R.S. Employer
Identification
No.) |
100 West Fifth Street; Tulsa, OK
(Address of principal executive offices)
74103
(Zip Code)
(918) 588-7000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if
the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☒ | Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (18 CFR 240.14a-12) |
| ☐ | Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section
12(b) of the Act:
| Title
of each class |
|
Trading
symbol(s) |
|
Name
of each exchange on which registered |
| Common stock, par value of $0.01 |
|
OKE |
|
New York Stock Exchange |
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the
Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item
8.01 Other Events.
ONEOK, Inc. (the “Company”
or “ONEOK”) is filing this Current Report on Form 8-K to provide pro forma financial
statements relating to the Merger (as defined below). As previously disclosed in its Current Report on Form 8-K filed
with the U.S. Securities and Exchange Commission (the “SEC”) by the Company on May 15, 2023, the Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) on May 14, 2023 with
Otter Merger Sub, LLC, a Delaware limited liability company and a newly formed, wholly owned subsidiary of ONEOK (“Merger Sub”),
and Magellan Midstream Partners, L.P. (NYSE: MMP), a Delaware limited partnership (“Magellan”). Upon the terms and
subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Magellan (the “Merger”),
with Magellan continuing as the surviving entity and a wholly owned subsidiary of ONEOK.
Included in this Current Report on Form 8-K as Exhibit 99.1 are the
unaudited pro forma combined financial statements of the Company for the periods described in Item 9.01(a) below and the notes related
thereto.
Item
9.01 Financial Statements and Exhibits.
(a) Financial Statements
Unaudited pro forma combined balance sheet of the Company and
subsidiaries as of June 30, 2023 and unaudited pro forma combined statements of income of the Company and subsidiaries for the year
ended December 31, 2022 and the six months ended June 30, 2023, and the notes related thereto, included in Exhibit 99.1.
Cautionary Statement Regarding Forward-Looking Statements
This report includes “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical fact, included in this report that address activities, events or developments that
ONEOK or Magellan expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as “estimate,”
“project,” “predict,” “believe,” “expect,” “anticipate,” “potential,”
“create,” “intend,” “could,” “would,” “may,” “plan,” “will,”
“guidance,” “look,” “goal,” “future,” “build,” “focus,” “continue,”
“strive,” “allow” or the negative of such terms or other variations thereof and words and terms of similar substance
used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence
of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited
to, statements regarding the proposed transaction between ONEOK and Magellan (the “Proposed Transaction”), the expected
closing of the Proposed Transaction and the timing thereof and as adjusted descriptions of the post-Transaction company and its operations,
strategies and plans, integration, debt levels and leverage ratio, capital expenditures, cash flows and anticipated uses thereof, synergies,
opportunities and anticipated future performance, including maintaining current ONEOK management, enhancements to investment-grade credit
profile, an expected accretion to earnings and free cash flow, dividend payments and potential share repurchases, increase in value of
tax attributes and expected impact on EBITDA. Information adjusted for the Proposed Transaction should not be considered a forecast of
future results. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking
statements included in this report. These include the risk that ONEOK’s and Magellan’s businesses will not be integrated
successfully; the risk that cost savings, synergies and growth from the Proposed Transaction may not be fully realized or may take
longer to realize than expected; the risk that the credit ratings of the combined company or its subsidiaries may be different from
what the companies expect; the possibility that shareholders of ONEOK may not approve the issuance of new shares of ONEOK common
stock in the Proposed Transaction or that shareholders of ONEOK or unitholders of Magellan may not approve the Proposed Transaction;
the risk that a condition to closing of the Proposed Transaction may not be satisfied, that either party may terminate the Merger Agreement
or that the closing of the Proposed Transaction might be delayed or not occur at all; potential adverse reactions or changes to
business or employee relationships, including those resulting from the announcement or completion of the Proposed Transaction; the
risk the parties do not receive regulatory approval of the Proposed Transaction; the occurrence of any other event, change or other
circumstances that could give rise to the termination of the Merger Agreement relating to the Proposed Transaction; the risk that
ONEOK may not be able to secure the debt financing necessary to fund the cash consideration required for the Proposed Transaction;
the risk that changes in ONEOK’s capital structure and governance could have adverse effects on the market value of its securities;
the ability of ONEOK and Magellan to retain customers and retain and hire key personnel and maintain relationships with their suppliers
and customers and on ONEOK’s and Magellan’s operating results and business generally; the risk the Proposed Transaction
could distract management from ongoing business operations or cause ONEOK and/or Magellan to incur substantial costs; the risk of
any litigation relating to the proposed transaction; the risk that ONEOK may be unable to reduce expenses or access financing or liquidity;
the impact of the COVID-19 pandemic, any related economic downturn and any related substantial decline in commodity prices; the
risk of changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters;
and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult
to predict and are beyond ONEOK’s or Magellan’s control, including those detailed in ONEOK’s Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that are available on ONEOK’s website at www.oneok.com and
on the website of the SEC at www.sec.gov, and those detailed in Magellan’s Annual Reports on Form 10-K, Quarterly Reports on Form
10- Q and Current Reports on Form 8-K that are available on Magellan’s website at www.magellanlp.com and on the website of the
SEC. All forward-looking statements are based on assumptions that ONEOK and Magellan believe to be reasonable but that may not prove
to be accurate. Any forward-looking statement speaks only as of the date on which such statement is made, and neither ONEOK nor Magellan
undertakes any obligation to correct or update any forward-looking statement, whether as a result of new information, future events or
otherwise, except as required by applicable law. Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.
No Offer or Solicitation
This report is not intended to and shall not
constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities or a solicitation
of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be
made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Important Additional Information Regarding the Merger Will Be
Filed with the SEC and Where to Find It
In connection with the Proposed Transaction between ONEOK and Magellan,
ONEOK filed with the SEC a registration statement on Form S-4 (as amended, the “Registration Statement”) to register
the shares of ONEOK’s common stock to be issued in connection with the Proposed Transaction. The Registration Statement includes
a document that serves as a prospectus of ONEOK and joint proxy statement of ONEOK and Magellan (the “joint proxy statement/prospectus”),
and each party will file other documents regarding the Proposed Transaction with the SEC.
INVESTORS AND SECURITY HOLDERS OF ONEOK AND MAGELLAN ARE URGED TO
CAREFULLY AND THOROUGHLY READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS, AS EACH MAY BE AMENDED OR SUPPLEMENTED
FROM TIME TO TIME, AND OTHER RELEVANT DOCUMENTS FILED BY ONEOK AND MAGELLAN WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT ONEOK AND MAGELLAN, THE PROPOSED TRANSACTION, THE RISKS RELATED THERETO AND RELATED MATTERS.
The Registration Statement was declared effective by the SEC on July
24, 2023, and ONEOK and Magellan mailed the joint proxy statement/prospectus to their respective shareholders and unitholders on or about
July 25, 2023. Investors will be able to obtain free copies of the Registration Statement and the joint proxy statement/prospectus, as
each may be amended from time to time, and other relevant documents filed by ONEOK and Magellan with the SEC (when they become available)
through the website maintained by the SEC at www.sec.gov. Copies of documents filed with the SEC by ONEOK, including the joint proxy statement/prospectus,
will be available free of charge from ONEOK’s website at www.oneok.com under the “Investors” tab. Copies of
documents filed with the SEC by Magellan, including the joint proxy statement/prospectus, will be available free of charge from Magellan’s
website at www.magellanlp.com under the “Investors” tab.
Participants in the Solicitation
ONEOK and certain of its directors, executive officers
and other members of management and employees, Magellan, and certain of the directors, executive officers and other members of management
and employees of Magellan GP, LLC, which manages the business and affairs of Magellan, may be deemed to be participants in the solicitation
of proxies from ONEOK’s shareholders and the solicitation of proxies from Magellan’s unitholders, in each case with respect
to the Proposed Transaction. Information about ONEOK’s directors and executive officers is available in ONEOK’s Annual Report
on Form 10-K for the 2022 fiscal year filed with the SEC on February 28, 2023, and its definitive proxy statement for the 2023 annual
meeting of stockholders filed with the SEC on April 5, 2023, and in the joint proxy statement/prospectus. Information about Magellan’s
directors and executive officers is available in its Annual Report on Form 10-K for the 2022 fiscal year and its definitive proxy statement
for the 2023 annual meeting of unitholders, each filed with the SEC on February 21, 2023, and the joint proxy statement/prospectus. Other
information regarding the participants in the solicitations and a description of their direct and indirect interests, by security holdings
or otherwise, are contained in the Registration Statement, the joint proxy statement/prospectus and other relevant materials to be filed
with the SEC regarding the Proposed Transaction when they become available. Shareholders of ONEOK, unitholders of Magellan, potential
investors and other readers should read the joint proxy statement/prospectus carefully before making any voting or investment decisions.
Item
9.01. Financial Statements and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
ONEOK, INC. |
| |
|
|
| Date: August 8, 2023 |
By: |
/s/ Walter S. Hulse III |
| |
Name: |
Walter S. Hulse III |
| |
Title: |
Chief Financial Officer, Treasurer and
Executive Vice President, Investor Relations and Corporate Development |
3
Exhibit 99.1
Unaudited Pro Forma Combined Financial Statements
On May 14, 2023, ONEOK, Inc. (“ONEOK”), Otter Merger Sub,
LLC (“Merger Sub”) and Magellan Midstream Partners L.P. (“Magellan”) entered into the Agreement and Plan of Merger
(the “Merger Agreement”), which provides that Merger Sub, a wholly owned subsidiary of ONEOK, will merge with and into Magellan,
with Magellan surviving the merger as a direct wholly owned subsidiary of ONEOK (the “merger”). If the merger is completed,
Magellan unitholders will receive, for each common unit of Magellan (each, a “Magellan Unit”) that they own as of immediately
prior to the effective time of the merger (the “Effective Time”), a combination of (i) $25.00 in cash (the “Cash Consideration”)
and (ii) 0.667 (the “Exchange Ratio”) of a share of common stock of ONEOK, par value $0.01 per share (the “ONEOK Common
Stock”) (the “Equity Consideration” and together with the Cash Consideration, the “Merger Consideration”).
The merger is anticipated to close during the third quarter of 2023.
The following unaudited pro forma combined financial statements (the “Pro Forma Financial Statements”) have been prepared
from the respective historical consolidated financial statements of ONEOK and Magellan and have been adjusted to reflect the completion
of the merger. The Pro Forma Financial Statements and the notes thereto have been prepared to illustrate the estimated effects of the
merger in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial
Disclosures about Acquired and Disposed Businesses.” Release No 33-10786 replaced the existing pro forma adjustment criteria with
simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present in
the notes the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s
Adjustments”). Other transactions that are expected to occur as a result of the merger and considered material are included in the
Pro Forma Financial Statements as “Other Transaction Accounting Adjustments.” ONEOK has elected not to present Management’s
Adjustments and only presents Transaction Accounting Adjustments and Other Transaction Accounting Adjustments in the Pro Forma Financial
Statements and notes thereto. The unaudited pro forma combined statements of income (the “Pro Forma Statement(s) of Income”)
for the year ended December 31, 2022, and for the six months ended June 30, 2023, are presented as if the merger had been completed on
January 1, 2022. The unaudited pro forma combined balance sheet (the “Pro Forma Balance Sheet”) is presented as if the merger
had been completed on June 30, 2023.
The Pro Forma Financial Statements have been developed from and should
be read in conjunction with:
| ● | The unaudited consolidated financial statements of ONEOK included in its Quarterly Report on Form 10-Q for the quarter ended June
30, 2023; |
| ● | The unaudited consolidated financial statements of Magellan included in its Quarterly Report on Form 10-Q for the quarter ended June
30, 2023; |
| ● | The audited consolidated financial statements of ONEOK included in its Annual Report on Form 10-K for the year ended December 31,
2022; and |
| | | |
| ● | The audited consolidated financial statements of Magellan included in its Annual Report on Form 10-K for the year ended December 31,
2022 |
The Pro Forma Financial Statements have been prepared to reflect adjustments
to ONEOK’s historical consolidated financial information that are directly attributable to the merger and factually supportable.
Accordingly, the Pro Forma Financial Statements reflect the following:
Transaction Accounting Adjustments
| ● | The merger, using the acquisition method of accounting, with ONEOK as the accounting acquirer and each Magellan Unit converted into
Equity Consideration and Cash Consideration; |
| ● | The first special distribution expected to be made by Magellan, as defined in the Merger Agreement; |
| ● | The estimate of liabilities and expenses directly attributable to the merger; |
| ● | Adjustment of depreciation and amortization related to the step up of depreciable assets to estimated fair value; |
| ● | Elimination of historical transactions between ONEOK and Magellan that would be treated as intercompany transactions after the merger; |
| ● | Application of ONEOK’s statutory tax rate to Magellan’s historical pre-tax income; and |
| ● | Certain reclassifications to conform Magellan’s and ONEOK’s historical consolidated financial information. |
Other Transaction Accounting Adjustments
| ● | ONEOK’s estimated debt financing related to funding the cash portion of the Merger Consideration, including related fees; and |
| ● | Estimated compensation costs expected to result from the post-merger alignment of ONEOK and Magellan. |
The acquisition method of accounting requires fair values to be estimated
and determined for the Merger Consideration, as well as the assets acquired and liabilities assumed by ONEOK upon completing the merger,
based on the application of the FASB’s Accounting Standards Codification ("ASC") 805, “Business Combinations.” As of the date of the Current Report on Form
8-K to which this exhibit forms a part, ONEOK has used currently available information to determine preliminary fair value estimates for
the Merger Consideration and its allocation to the Magellan assets acquired and liabilities assumed. Until the merger is completed, ONEOK
and Magellan are limited in their ability to share certain information. Therefore, ONEOK estimated the fair value of Magellan’s
assets and liabilities based on reviews of Magellan’s filings with the U.S. Securities and Exchange Commission (“SEC”),
preliminary valuation studies, allowed discussions with Magellan’s management and Magellan GP, LLC (“Magellan GP”) and
other due diligence procedures. The assumptions and estimates used to make the preliminary pro forma adjustments are described in the
notes accompanying the Pro Forma Financial Statements.
Upon completing the merger, ONEOK will determine the value of the Merger
Consideration using the ONEOK Common Stock closing price and Magellan Units outstanding on the merger’s closing date. Additionally,
after completing the merger, ONEOK will identify the Magellan assets acquired and liabilities assumed and make final determinations of
their fair values using relevant information available at that time. As a result of the foregoing, the pro forma adjustments with respect
to the merger are preliminary and are subject to change as additional information becomes available and as additional analysis is performed.
Any increases or decreases in the Merger Consideration and the fair value of assets acquired and liabilities assumed upon completion of
the final valuations may be materially different from the information presented in the Pro Forma Financial Statements. Additionally, compensation
costs triggered by change in control provisions related to Magellan employees, which are included as Other Transaction Accounting Adjustments,
could differ materially from ONEOK’s preliminary estimates, as ONEOK’s post-integration activities develop.
The Pro Forma Financial Statements are presented for illustrative purposes
only and are not necessarily indicative of the operating results and financial position that would have occurred had the merger occurred
on the dates indicated. Further, the Pro Forma Financial Statements do not purport to project the future operating results or financial
position of the combined company following the merger. ONEOK’s actual financial position and results of operations following completion
of the merger may differ materially from these Pro Forma Financial Statements.
As ONEOK has elected not to present Management’s
Adjustments, the notes to the Pro Forma Financial Statements exclude projected synergies expected to be achieved as a result of the
merger, as well as any associated costs that may be required to achieve the identified synergies, excluding estimated severance and
accelerated vesting of equity awards as described in Note C, (k) and (m)
adjustments. Further, the Pro Forma Financial Statements do not reflect the effect of any regulatory actions that may impact
the results of the combined company following the merger.
ONEOK, Inc. and Subsidiaries
Unaudited Pro Forma Balance Sheet
As of June 30, 2023
| | |
| | |
| | |
| | |
| | |
Other | | |
| |
| | |
| | |
| | |
Reclass | | |
Transaction | | |
Transaction | | |
| |
| | |
Historical | | |
Adjustments | | |
Accounting | | |
Accounting | | |
Pro Forma | |
| | |
ONEOK | | |
Magellan | | |
(a) | | |
Adjustments | | |
Adjustments | | |
Combined | |
| |
(Millions of dollars) | |
| Assets | |
| |
| Current assets | |
| | |
| | |
| | |
| | |
| | |
| |
| Cash and cash equivalents | |
$ | 106 | | |
$ | 128 | | |
$ | — | | |
$ | (5,102 | )(c) | |
$ | 5,198 | (d) | |
$ | 330 | |
| Accounts receivables, net | |
| 1,023 | | |
| 170 | | |
| 35 | | |
| (14 | )(i) | |
| — | | |
| 1,214 | |
| Other accounts receivable | |
| — | | |
| 35 | | |
| (35 | ) | |
| — | | |
| — | | |
| — | |
| Materials and supplies | |
| 146 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 146 | |
| NGLs and natural gas in storage | |
| 314 | | |
| — | | |
| (314 | ) | |
| — | | |
| — | | |
| — | |
| Inventories | |
| — | | |
| 330 | | |
| 314 | | |
| — | | |
| — | | |
| 644 | |
| Commodity imbalances | |
| 30 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 30 | |
| Commodity derivative contracts, net | |
| — | | |
| 6 | | |
| (6 | ) | |
| — | | |
| — | | |
| — | |
| Commodity derivative deposits | |
| — | | |
| 16 | | |
| (16 | ) | |
| — | | |
| — | | |
| — | |
| Assets held for sale | |
| — | | |
| 10 | | |
| (10 | ) | |
| — | | |
| — | | |
| — | |
| Other current assets | |
| 244 | | |
| 42 | | |
| 32 | | |
| — | | |
| (12 | )(h) | |
| 306 | |
| Total current assets | |
| 1,863 | | |
| 737 | | |
| — | | |
| (5,116 | ) | |
| 5,186 | | |
| 2,670 | |
| Property, plant and equipment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Property, plant and equipment | |
| 25,601 | | |
| 8,267 | | |
| — | | |
| 3,033 | (b) | |
| — | | |
| 36,901 | |
| Accumulated depreciation and amortization | |
| 5,372 | | |
| 2,441 | | |
| — | | |
| (2,441 | )(b) | |
| — | | |
| 5,372 | |
| Net property, plant and equipment | |
| 20,229 | | |
| 5,826 | | |
| — | | |
| 5,474 | (b) | |
| — | | |
| 31,529 | |
| Investments and other assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments in unconsolidated affiliates | |
| 885 | | |
| 859 | | |
| — | | |
| 647 | (b) | |
| — | | |
| 2,391 | |
| Goodwill and net intangible assets | |
| 748 | | |
| — | | |
| 90 | | |
| 5,475 | (b) | |
| — | | |
| 6,313 | |
| Goodwill | |
| — | | |
| 50 | | |
| (50 | ) | |
| — | | |
| — | | |
| — | |
| Other intangibles | |
| — | | |
| 40 | | |
| (40 | ) | |
| — | | |
| — | | |
| — | |
| Long-term receivables | |
| — | | |
| 8 | | |
| (8 | ) | |
| — | | |
| — | | |
| — | |
| Right of use assets, operating leases | |
| — | | |
| 95 | | |
| (95 | ) | |
| — | | |
| — | | |
| — | |
| Other assets | |
| 313 | | |
| 14 | | |
| 103 | | |
| (53 | )(i) | |
| — | | |
| 377 | |
| Total investments and other assets | |
| 1,946 | | |
| 1,066 | | |
| — | | |
| 6,069 | | |
| — | | |
$ | 9,081 | |
| Total assets | |
$ | 24,038 | | |
$ | 7,629 | | |
$ | — | | |
$ | 6,427 | | |
$ | 5,186 | | |
$ | 43,280 | |
ONEOK, Inc. and Subsidiaries
Unaudited Pro Forma Balance Sheet
As of June 30, 2023
(Continued)
| | |
| | |
| | |
| | |
| | |
Other |
| | |
| |
| | |
| | |
| | |
Reclass | | |
Transaction | | |
Transaction |
| | |
| |
| | |
Historical | | |
Adjustments | | |
Accounting | | |
Accounting |
| | |
Pro
Forma | |
| | |
ONEOK | | |
Magellan | | |
(a) | | |
Adjustments | | |
Adjustments |
| | |
Combined | |
| |
(Millions
of dollars) | |
| Liabilities
and equity | |
| |
| Current
liabilities | |
| | |
| | |
| | |
| | |
|
| | |
| |
| Accounts
payable | |
$ | 880 | | |
$ | 138 | | |
$ | — | | |
$ | (12 | )(i) | |
$ | — |
| | |
$ | 1,006 | |
| Accrued
payroll and benefits | |
| — | | |
| 54 | | |
| (54 | ) | |
| — | | |
| — |
| | |
| — | |
| Commodity
imbalance | |
| 163 | | |
| — | | |
| 210 | | |
| — | | |
| — |
| | |
| 373 | |
| Accrued
taxes | |
| 130 | | |
| 65 | | |
| — | | |
| — | | |
| — |
| | |
| 195 | |
| Accrued
interest | |
| 214 | | |
| 59 | | |
| — | | |
| — | | |
| — |
| | |
| 273 | |
| Deferred
revenue | |
| — | | |
| 94 | | |
| (94 | ) | |
| — | | |
| — |
| | |
| — | |
| Accrued
product liabilities | |
| — | | |
| 210 | | |
| (210 | ) | |
| — | | |
| — |
| | |
| — | |
| Operating
lease liability | |
| 12 | | |
| 21 | | |
| — | | |
| (7 | )(i) | |
| — |
| | |
| 26 | |
| Commodity
derivative contracts, net | |
| — | | |
| 13 | | |
| (13 | ) | |
| — | | |
| — |
| | |
| — | |
| Other
current liabilities | |
| 118 | | |
| 27 | | |
| 161 | | |
| 112 | (e) | |
| 117 |
(m)(k) | | |
| 535 | |
| Total
current liabilities | |
| 1,517 | | |
| 681 | | |
| — | | |
| 93 | | |
| 117 |
| | |
| 2,408 | |
| Long-term
debt, excluding current maturities | |
| 12,742 | | |
| 4,984 | | |
| — | | |
| (808 | )(b) | |
| 5,198 |
(d) | | |
| 22,116 | |
| Deferred
credits and other liabilities | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | |
| Long-term
pension and benefits | |
| — | | |
| 92 | | |
| (92 | ) | |
| — | | |
| — |
| | |
| — | |
| Deferred
income taxes | |
| 2,168 | | |
| — | | |
| — | | |
| (26 | )(e) | |
| (30 |
)(h)(m)(k) | | |
| 2,112 | |
| Operating
lease liability | |
| 63 | | |
| 77 | | |
| — | | |
| (46 | )(i) | |
| — |
| | |
| 94 | |
| Other
deferred credits | |
| 330 | | |
| 81 | | |
| 92 | | |
| — | | |
| — |
| | |
| 503 | |
| Total
deferred credits and other liabilities | |
| 2,561 | | |
| 250 | | |
| — | | |
| (72 | ) | |
| (30 |
) | | |
| 2,709 | |
| Equity | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | |
| Preferred stock,
$0.01 par value | |
| — | | |
| — | | |
| — | | |
| — | | |
| — |
| | |
| — | |
| Common stock, $0.01
par value | |
| 5 | | |
| — | | |
| — | | |
| 1 | (f) | |
| — |
| | |
| 6 | |
| Common
unitholders | |
| — | | |
| 1,808 | | |
| — | | |
| (1,808 | )(g) | |
| — |
| | |
| — | |
| Paid-in
capital | |
| 7,270 | | |
| — | | |
| — | | |
| 9,015 | (f) | |
| — |
| | |
| 16,285 | |
| Retained
earnings | |
| 711 | | |
| — | | |
| — | | |
| (88 | )(e)(i) | |
| (99 |
)(h)(m)(k) | | |
| 524 | |
| Accumulated
other comprehensive loss | |
| (75 | ) | |
| (94 | ) | |
| — | | |
| 94 | (g) | |
| — |
| | |
| (75 | ) |
| Treasury
stock | |
| (693 | ) | |
| — | | |
| — | | |
| — | | |
| — |
| | |
| (693 | ) |
| Total
equity | |
| 7,218 | | |
| 1,714 | | |
| — | | |
| 7,214 | | |
| (99 |
) | | |
| 16,047 | |
| Total
liabilities and equity | |
$ | 24,038 | | |
$ | 7,629 | | |
$ | — | | |
$ | 6,427 | | |
$ | 5,186 |
| | |
$ | 43,280 | |
The accompanying notes are an integral part of the Pro Forma Financial Statements.
ONEOK, Inc. and Subsidiaries
Unaudited Pro Forma Statement of Income
Six months ended June 30, 2023
| | |
| | |
| | |
|
| | |
Other | | |
| |
| | |
| | |
| | |
Reclass | | |
Transaction |
| | |
Transaction | | |
| |
| | |
Historical | | |
Adjustments | | |
Accounting |
| | |
Accounting | | |
Pro Forma | |
| | |
ONEOK | | |
Magellan | | |
(a) | | |
Adjustments |
| | |
Adjustments | | |
Combined | |
| | |
(Millions of dollars, except per share data) | |
| Revenues | |
| | |
| | |
| | |
|
| | |
| | |
| |
| Commodity sales | |
$ | 7,527 | | |
$ | — | | |
$ | 779 | | |
$ | (76 |
)(i) | | |
$ | — | | |
$ | 8,230 | |
| Services | |
| 726 | | |
| — | | |
| 968 | | |
| (10 |
)(i) | | |
| — | | |
| 1,684 | |
| Transportation and terminals revenues | |
| — | | |
| 957 | | |
| (957 | ) | |
| — |
| | |
| — | | |
| — | |
| Product sales revenue | |
| — | | |
| 779 | | |
| (779 | ) | |
| — |
| | |
| — | | |
| — | |
| Affiliate management fee revenue | |
| — | | |
| 11 | | |
| (11 | ) | |
| — |
| | |
| — | | |
| — | |
| Total revenues | |
| 8,253 | | |
| 1,747 | | |
| — | | |
| (86 |
) | | |
| — | | |
| 9,914 | |
| Cost of sales and fuel (exclusive of items shown separately below) | |
| 5,829 | | |
| — | | |
| 669 | | |
| (86 |
)(i) | | |
| — | | |
| 6,412 | |
| Cost of product sales | |
| — | | |
| 616 | | |
| (616 | ) | |
| — |
| | |
| — | | |
| — | |
| Operations and maintenance | |
| 535 | | |
| — | | |
| 331 | | |
| 3 |
(l) | | |
| — | | |
| 869 | |
| Operating | |
| — | | |
| 304 | | |
| (304 | ) | |
| — |
| | |
| — | | |
| — | |
| Depreciation and amortization | |
| 332 | | |
| 112 | | |
| — | | |
| 52 |
(j)(s) | | |
| — | | |
| 496 | |
| General and administrative | |
| — | | |
| 135 | | |
| (135 | ) | |
| — |
| | |
| — | | |
| — | |
| General taxes | |
| 104 | | |
| — | | |
| 55 | | |
| — |
| | |
| — | | |
| 159 | |
| Earnings of non-controlled entities | |
| — | | |
| 42 | | |
| (42 | ) | |
| — |
| | |
| — | | |
| — | |
| Other operating (income) expense, net | |
| (781 | ) | |
| (5 | ) | |
| — | | |
| — |
| | |
| — | | |
| (786 | ) |
| Operating income | |
| 2,234 | | |
| 627 | | |
| (42 | ) | |
| (55 |
) | | |
| — | | |
| 2,764 | |
| Equity in net earnings from investments | |
| 83 | | |
| — | | |
| 42 | | |
| (9 |
)(q) | | |
| — | | |
| 116 | |
| Allowance for equity funds used during construction | |
| 2 | | |
| — | | |
| — | | |
| — |
| | |
| — | | |
| 2 | |
| Gain on disposition of assets | |
| — | | |
| 1 | | |
| (1 | ) | |
| — |
| | |
| — | | |
| — | |
| Interest income | |
| — | | |
| 3 | | |
| (3 | ) | |
| — |
| | |
| — | | |
| — | |
| Other income (expense), net | |
| 19 | | |
| (2 | ) | |
| 4 | | |
| — |
| | |
| — | | |
| 21 | |
| Interest expense (net of capitalized interest of $25) | |
| (346 | ) | |
| (115 | ) | |
| 1 | | |
| (11 |
)(n) | | |
| (163 | )(p) | |
| (634 | ) |
| Interest capitalized | |
| — | | |
| 1 | | |
| (1 | ) | |
| — |
| | |
| — | | |
| — | |
| Income (loss) before income taxes | |
| 1,992 | | |
| 515 | | |
| — | | |
| (75 |
) | | |
| (163 | ) | |
| 2,269 | |
| Income taxes | |
| (475 | ) | |
| (2 | ) | |
| — | | |
| (101 |
)(o)(r) | | |
| 37 | (r) | |
| (541 | ) |
| Income from continuing operations attributable to ONEOK | |
$ | 1,517 | | |
$ | 513 | | |
$ | — | | |
$ | (176 |
) | | |
$ | (126 | ) | |
$ | 1,728 | |
| Basic EPS | |
$ | 3.38 | | |
| | | |
| | | |
| |
| | |
| | | |
$ | 2.96 | |
| Diluted EPS | |
$ | 3.38 | | |
| | | |
| | | |
| |
| | |
| | | |
$ | 2.96 | |
| Average shares (millions) | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
| Basic | |
| 448 | | |
| | | |
| | | |
| 135 |
(f) | | |
| | | |
| 583 | |
| Diluted | |
| 449 | | |
| | | |
| | | |
| 135 |
(f) | | |
| | | |
| 584 | |
The accompanying notes are an integral part of the Pro Forma Financial
Statements.
ONEOK, Inc. and Subsidiaries
Unaudited Pro Forma Statement of Income
Year ended December 31, 2022
| | |
| | |
| | |
| | |
| | |
Other | | |
| |
| | |
| | |
| | |
Reclass | | |
Transaction | | |
Transaction | | |
| |
| | |
Historical | | |
Adjustments | | |
Accounting | | |
Accounting | | |
Pro
Forma | |
| | |
ONEOK | | |
Magellan | | |
(a) | | |
Adjustments | | |
Adjustments | | |
Combined | |
| | |
(Millions
of dollars, except per share data) | |
| Revenues | |
| | |
| | |
| | |
| | |
| | |
| |
| Commodity
sales | |
$ | 20,976 | | |
$ | — | | |
$ | 1,302 | | |
$ | (218 | )(i) | |
$ | — | | |
$ | 22,060 | |
| Services | |
| 1,411 | | |
| — | | |
| 1,898 | | |
| (21 | )(i) | |
| — | | |
| 3,288 | |
| Transportation
and terminals revenue | |
| — | | |
| 1,876 | | |
| (1,876 | ) | |
| — | | |
| — | | |
| — | |
| Product
sales revenue | |
| — | | |
| 1,302 | | |
| (1,302 | ) | |
| — | | |
| — | | |
| — | |
| Affiliate
management fee revenue | |
| — | | |
| 22 | | |
| (22 | ) | |
| — | | |
| — | | |
| — | |
| Total
revenues | |
| 22,387 | | |
| 3,200 | | |
| — | | |
| (239 | ) | |
| — | | |
| 25,348 | |
| Cost
of sales and fuel (exclusive of items shown separately below) | |
| 17,910 | | |
| — | | |
| 1,224 | | |
| (239 | )(i) | |
| — | | |
| 18,895 | |
| Cost
of product sales | |
| — | | |
| 1,119 | | |
| (1,119 | ) | |
| — | | |
| — | | |
| — | |
| Operations
and maintenance | |
| 958 | | |
| — | | |
| 625 | | |
| 119 | (e)(l) | |
| 117 | (k)(m) | |
| 1,819 | |
| Operating | |
| — | | |
| 592 | | |
| (592 | ) | |
| — | | |
| — | | |
| — | |
| Depreciation
and amortization | |
| 626 | | |
| 293 | | |
| — | | |
| 98 | (j)(s) | |
| — | | |
| 1,017 | |
| General
and administrative | |
| — | | |
| 241 | | |
| (241 | ) | |
| — | | |
| — | | |
| — | |
| General
taxes | |
| 191 | | |
| — | | |
| 103 | | |
| — | | |
| — | | |
| 294 | |
| Earnings
of non-controlled entities | |
| — | | |
| 148 | | |
| (148 | ) | |
| — | | |
| — | | |
| — | |
| Other
operating (income) expense, net | |
| (105 | ) | |
| (5 | ) | |
| — | | |
| — | | |
| — | | |
| (110 | ) |
| Operating
income | |
| 2,807 | | |
| 1,108 | | |
| (148 | ) | |
| (217 | ) | |
| (117 | ) | |
| 3,433 | |
| Equity
in net earnings from investments | |
| 148 | | |
| — | | |
| 148 | | |
| (17 | )(q) | |
| — | | |
| 279 | |
| Allowance
for equity funds used during construction | |
| 3 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3 | |
| Gain
on disposition of assets | |
| — | | |
| 1 | | |
| (1 | ) | |
| — | | |
| — | | |
| — | |
| Interest
income | |
| — | | |
| 1 | | |
| (1 | ) | |
| — | | |
| — | | |
| — | |
| Other
income (expense), net | |
| (32 | ) | |
| (20 | ) | |
| 2 | | |
| — | | |
| — | | |
| (50 | ) |
| Interest
expense (net of capitalized interest of $59) | |
| (676 | ) | |
| (230 | ) | |
| 2 | | |
| (21 | )(n) | |
| (338 | )(p)(h) | |
| (1,263 | ) |
| Interest
capitalized | |
| — | | |
| 2 | | |
| (2 | ) | |
| — | | |
| — | | |
| — | |
| Income
(loss) before income taxes | |
| 2,250 | | |
| 862 | | |
| — | | |
| (255 | ) | |
| (455 | ) | |
| 2,402 | |
| Income
taxes | |
| (528 | ) | |
| (3 | ) | |
| — | | |
| (139 | )(o)(r) | |
| 105 | (r) | |
| (565 | ) |
| Income
from continuing operations attributable to ONEOK | |
$ | 1,722 | | |
$ | 859 | | |
$ | — | | |
$ | (394 | ) | |
$ | (350 | ) | |
$ | 1,837 | |
| Basic
EPS | |
$ | 3.85 | | |
| | | |
| | | |
| | | |
| | | |
$ | 3.15 | |
| Diluted
EPS | |
$ | 3.84 | | |
| | | |
| | | |
| | | |
| | | |
$ | 3.15 | |
| Average
shares (millions) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 447 | | |
| | | |
| | | |
| 135 | (f) | |
| | | |
| 582 | |
| Diluted | |
| 448 | | |
| | | |
| | | |
| 135 | (f) | |
| | | |
| 583 | |
The accompanying notes are an integral part of the Pro Forma Financial
Statements.
NOTES TO THE
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The ONEOK and Magellan historical financial information have been derived
from each respective company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2023, and Annual Report on Form 10-K
for the year ended December 31, 2022. Certain historical consolidated financial information has been reclassified to conform Magellan’s
and ONEOK’s financial statement presentation. The Pro Forma Financial Statements should be read in conjunction with the historical
consolidated financial statements and related notes thereto of ONEOK and Magellan.
The Pro Forma Balance Sheet is presented as if the merger had been
completed on June 30, 2023. The Pro Forma Statements of Income are presented as if the merger had been completed on January 1, 2022.
The merger and related adjustments are described in the accompanying
notes and are based on currently available information. All material adjustments have been made that are necessary to present fairly the
Pro Forma Financial Statements, in accordance with Article 11 of Regulation S-X of the SEC. The Pro Forma Financial Statements do not
purport to represent what the combined company’s financial position or results of operations would have been if the transactions
had actually occurred on the dates indicated, nor are they indicative of ONEOK’s future financial position or results of operations.
Actual results may differ materially from the assumptions and estimates reflected in the Pro Forma Financial Statements.
Upon completion of the merger, ONEOK will perform a comprehensive review
of Magellan’s accounting policies. As a result of that review, ONEOK may identify differences between the accounting policies of
the two companies, which when conformed, could have a material impact on the Pro Forma Financial Statements. With the information currently
available, ONEOK has determined that no significant adjustments are necessary to conform Magellan’s historical consolidated financial
information to the accounting policies used by ONEOK. As a result, the Pro Forma Financial Statements presented assume there are no differences
in accounting policies. However, as discussed in Note C, certain reclassifications have been made to conform Magellan’s and ONEOK’s
historical consolidated financial statement presentation.
ONEOK’s historical consolidated financial information included
in the Pro Forma Statement of Income for the six months ended June 30, 2023, includes a non-recurring operational gain of $779 million
($600 million, net of taxes) related to the receipt of insurance proceeds following a fire that occurred in 2022 at ONEOK’s 210
MBbl/d Medford, Oklahoma, natural gas liquids fractionation facility. The gain is recorded within other operating (income) expense,
net and is further discussed in ONEOK’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
| B. | PRELIMINARY ACQUISITION ACCOUNTING |
As the accounting acquirer, ONEOK will account for the merger using
the acquisition method of accounting for business combinations pursuant to ASC 805, “Business
Combinations.” The allocation of the preliminary purchase price to the fair value of assets acquired and liabilities assumed is
based upon ONEOK management’s estimates and assumptions using currently available information. The purchase price allocation and
the resulting effect on ONEOK’s financial position and results of operations may be subject to change as ONEOK monitors and interprets
the impact that new information may have on the fair value of assets acquired and liabilities assumed. The final valuation could differ
materially from the preliminary valuation used in the Transaction Accounting Adjustments. The preliminary purchase price allocation is
subject to change due to several factors, including, but not limited to changes in the estimated fair value of the Equity Consideration
issued to Magellan unitholders and changes in the estimated fair value of Magellan’s assets acquired and liabilities assumed as
of the merger’s closing date, as management obtains additional information regarding the assets acquired and liabilities assumed.
The preliminary purchase accounting has not assumed any differences between assigned book values and tax bases of Magellan’s assets
acquired and liabilities assumed. Further refinements of ONEOK’s fair values estimates of the assets acquired and liabilities assumed
for financial reporting and ONEOK’s tax basis reporting could result in material changes to the preliminary purchase accounting.
The fair value of assets acquired and liabilities assumed that are not separately discussed within the Pro Forma Financial Statements
and related notes have been assumed to be their June 30, 2023 carrying amounts. After completing the merger, ONEOK expects to finalize
the purchase price allocation as soon as practicable, within the measurement period of ASC 805, “Business Combinations.”
The following tables present the preliminary Merger Consideration and
preliminary purchase price allocation of assets acquired and liabilities assumed in the merger (millions of dollars and shares/units,
except per share/unit data):
| | |
Preliminary Purchase Price Allocation | |
| Merger Consideration | |
| |
| Magellan public common units outstanding (1) | |
| 202 | |
| Cash consideration per Magellan Unit (2) | |
$ | 25.00 | |
| Cash portion of Merger Consideration | |
$ | 5,052 | |
| Magellan public common units outstanding (1) | |
| 202 | |
| ONEOK Exchange Ratio per Magellan Unit (2) | |
| 0.667 | |
| Shares of ONEOK Common Stock assumed to be issued | |
| 135 | |
| ONEOK Common Stock closing price as of July 21, 2023 | |
$ | 66.49 | |
| Fair value of equity portion of Merger Consideration | |
$ | 8,963 | |
| Fair value of Magellan replacement equity awards (3) | |
$ | 53 | |
| Total Merger Consideration (excluding debt assumed) | |
$ | 14,068 | |
| (1) | Reflects Magellan public common units outstanding as of
July 21, 2023. |
| (2) | Reflects the cash payment amount per Magellan Unit and the
exchange ratio per Magellan Unit to be received by the holders of Magellan public common units. |
| (3) | Reflects the fair value of Magellan’s equity awards attributable
to employee pre-combination service, which is included in the consideration transferred. The fair value of Magellan’s equity awards after
their conversion into ONEOK equity awards attributable to post-combination service will be recognized as expense over the post-combination
service period. ONEOK approximated the fair value of Magellan’s equity awards attributable to pre-combination service utilizing information
obtained during the due diligence process. |
| | |
Preliminary Purchase Price Allocation | |
| Assets acquired: | |
| |
| Cash and cash equivalents | |
$ | 78 | |
| Accounts receivables, net | |
| 205 | |
| Inventories | |
| 330 | |
| Other current assets | |
| 74 | |
| Net property, plant and equipment | |
| 11,300 | |
| Investments in unconsolidated affiliates | |
| 1,506 | |
| Net intangible assets | |
| 1,075 | |
| Other assets | |
| 117 | |
| Total assets acquired | |
| 14,685 | |
| Liabilities assumed: | |
| | |
| Accounts payable | |
| 138 | |
| Other current liabilities | |
| 543 | |
| Long-term debt, excluding current maturities | |
| 4,176 | |
| Other deferred credits and liabilities | |
| 250 | |
| Total liabilities assumed | |
| 5,107 | |
| Total identifiable net assets | |
| 9,578 | |
| Goodwill | |
| 4,490 | |
| Total estimated Merger Consideration | |
$ | 14,068 | |
From May 12, 2023, the last trading date prior to the initial public
announcement of the merger to July 21, 2023, the preliminary value of the Merger Consideration to be issued increased by approximately
$373 million, as a result of the increase in the share price for ONEOK Common Stock from $63.72 to $66.49. The final value of Merger Consideration
will be determined based on the actual number of shares of ONEOK Common Stock issued and the market price of ONEOK Common Stock at the
closing date of the merger. A 10 percent increase or decrease in the closing price of ONEOK Common Stock, as compared to the July 21,
2023 closing price of $66.49, would increase or decrease the Merger Consideration by approximately $896 million, assuming all other factors
are held constant.
The Pro Forma Financial Statements have been adjusted to reflect reclassifications
to conform ONEOK’s and Magellan’s financial statement presentations. Adjustments included in the “Transaction Accounting
Adjustments” column reflect the impact of the merger. Adjustments included in the “Other Transaction Accounting Adjustments”
column reflect financing associated with the merger and estimated compensation costs projected to occur subsequent to the merger. Both
of these columns include an estimated tax impact of the pro forma adjustments.
(a) The following reclassifications have been made to conform
Magellan’s and ONEOK’s financial statement presentations:
Pro Forma Balance Sheet as of June 30, 2023:
| ● | To reclassify $35 million of other accounts receivable to accounts receivables, net; |
| ● | To reclassify $314 million of NGLs and natural gas in storage to inventories; |
| ● | To reclassify $6 million of commodity derivative contracts, net, $16 million of commodity derivative deposits and $10 million of assets
held for sale to other current assets; |
| ● | To reclassify $50 million of goodwill and $40 million of other intangibles to goodwill and net intangible assets; |
| ● | To reclassify $8 million of long-term receivables and $95 million of right of use assets to other assets; |
| ● | To reclassify $54 million of accrued payroll and benefits, $94 million of deferred revenue and $13 million of commodity derivative
contracts, net to other current liabilities; |
| ● | To reclassify $210 million of accrued product liabilities to commodity imbalance; and |
| ● | To reclassify $92 million of long-term pension and benefits to other deferred credits. |
Pro Forma Statement of Income for the six months ended June 30, 2023:
| ● | To reclassify $957 million of transportation and terminals revenues and $11 million of affiliate management fee revenue to services; |
| ● | To reclassify $779 million of product sales revenue to commodity sales; |
| ● | To reclassify $616 million of cost of product sales and $53 million of operating costs, representing fuel and power costs, to cost
of sales and fuel; |
| ● | To reclassify $201 million of operating costs and $130 million of general and administrative to operations and maintenance; |
| ● | To reclassify $42 million of earnings of non-controlled entities included in operating income to equity in net earnings from
investments, below operating income; |
| ● | To reclassify $50 million of operating costs and $5 million of general and administrative costs to general taxes; |
| ● | To reclassify $1 million of gain on disposition of assets and $3 million of interest income to other income (expense), net;
and |
| ● | To reclassify $1 million of interest capitalized to interest expense, net of capitalized interest. |
Pro Forma Statement of Income for the year ended December 31, 2022:
| ● | To reclassify $1,302 million of product sales revenue to commodity sales; |
| ● | To reclassify $1,876 million of transportation and terminals revenues and $22 million of affiliate management fee revenue to services; |
| ● | To reclassify $1,119 million of cost of product sales and $105 million of operating costs, representing fuel and power costs,
to cost of sales and fuel; |
| ● | To reclassify $391 million of operating costs and $234 million of general and administrative costs to operations and maintenance; |
| ● | To reclassify $96 million of operating costs and $7 million of general and administrative costs to general taxes; |
| ● | To reclassify $148 million of earnings of non-controlled entities included in operating income to equity in net earnings from
investments, below operating income; |
| ● | To reclassify $1 million of gain on disposition of assets and $1 million of interest income to other income (expense), net; and |
| ● | To reclassify $2 million of interest capitalized to interest expense, net of capitalized interest. |
(b) These adjustments reflect
the adjustment to book value for the preliminary estimated fair value of $14.1 billion in total Merger Consideration allocated to the
estimated fair values of the assets acquired and liabilities assumed as follows:
| ● | Net property, plant and equipment: a $5.474 billion increase to Magellan’s net book value. |
| ● | Investments in unconsolidated affiliates: a $647 million increase to Magellan’s book value. |
| ● | Goodwill and net intangible assets: a $5.475 billion net increase, attributable
to the removal of Magellan’s historical goodwill and other intangible balances of $90 million and the increase resulting from acquired
intangible assets and goodwill resulting from the merger. This results in goodwill attributable to the merger of $4.490 billion and
intangible assets of $1.075 billion. As part of the preliminary purchase price allocation, ONEOK identified intangible assets related
to contract-based customer relationships. These preliminary estimates of fair value may differ materially
from final amounts calculated after completing a detailed valuation analysis. |
| ● | Long-term debt: a net $808 million decrease to Magellan’s book value associated with their assumed debt. This includes the
removal of Magellan’s historical balances for debt issuance costs and net unamortized debt premium, as well as the reduction associated
with remeasuring Magellan’s debt to fair value. ONEOK utilized publicly traded prices for Magellan’s debt as of July 21, 2023, to estimate
the fair value of the assumed debt. |
(c) Reflects a decrease in
cash related to the $5.052 billion cash portion of Merger Consideration and a $50 million decrease related to the first special distribution,
as defined in the Merger Agreement, expected to be paid by Magellan to Magellan unitholders prior to the close of the merger.
(d) Reflects an increase in
cash and long-term debt related to the assumption that the existing $5.25 billion senior unsecured bridge facility will be unused and
replaced by issuance of an equal amount of new senior unsecured notes used to finance the Cash Consideration, less $52 million of
associated debt issuance costs from the new senior unsecured notes.
(e) Reflects the estimated
accrual of non-recurring transaction costs of $112 million ($86 million, net of tax) related to the merger, including fees paid for financial
advisory, legal and other professional services, which have not yet been incurred. The accrual is reflected in the Pro Forma Balance Sheet
as an increase to other current liabilities and a decrease to retained earnings as well as deferred income taxes. For the six months ended
June 30, 2023, ONEOK’s historical statement of income includes $9 million of non-recurring transaction costs.
(f) Reflects the increase
in shares of ONEOK common stock and additional paid-in capital resulting from the issuance of ONEOK common stock to Magellan unitholders
to effect the merger as well as the increase resulting from the estimated fair value of Magellan’s equity awards attributable to employee
pre-combination service. See Note B for discussion of assumptions.
(g) Reflects the elimination
of Magellan’s historical equity balances in accordance with the acquisition method of accounting.
(h) Reflects the remaining
amortization of non-recurring fees of $12 million ($9 million, net of tax) associated with a 364-day fully committed bridge facility.
The $12 million is reflected ONEOK’s historical balance sheet as of June 30, 2023, with $9 million amortized into interest
expense within historical results. Remaining amortization is reflected in the Pro Forma Balance Sheet, as a decrease to other current
assets, a decrease to retained earnings and deferred income taxes, and an increase in interest expense in the Pro Forma Statement of
Income for the year ended December 31, 2022, as fully amortized debt issuance costs.
(i) Reflects the elimination
of historical transactions between ONEOK and Magellan that would be treated as intercompany transactions after the merger.
(j) Reflects the increase
to depreciation expense of $39 million and $73 million in the Pro Forma Statements of Income for the six months ended June 30, 2023 and
the year ended December 31, 2022, respectively, resulting from the increase in the basis of Magellan’s property, plant and equipment.
ONEOK utilized a preliminary estimated useful life of 38 years and the straight line method to amortize the increase in basis. The estimated
useful life is based on ONEOK’s preliminary expectation of the assets’ useful lives, which was informed by Magellan’s publicly available
information.
(k) Reflects a non-recurring
post-combination expense of $33 million ($25 million, net of tax) consisting of cash severance benefits estimated to result from
the post-merger alignment of ONEOK and Magellan. Such benefits are required upon both a change in control and a change in employment status,
as defined by Magellan’s severance plans. The amount is accrued in the Pro Forma Balance Sheet as an increase to other current liabilities,
a decrease to retained earnings and deferred income taxes, and is reflected in operations and maintenance in the Pro Forma Statement of
Income for the year ended December 31, 2022.
(l) Reflects
the adjustment for additional compensation expense resulting from the conversion of Magellan’s equity awards to ONEOK equity awards
at the closing date. These awards will vest in shares of ONEOK Common Stock subsequent to the merger. The Pro Forma Statements of Income
for six months ended June 30, 2023, and the year ended December 31, 2022, include adjustments for $3 million and $7 million of additional
expense, respectively. The adjustment is attributable to ONEOK’s preliminary estimate of the difference between Magellan’s historical
share-based compensation expense included in Magellan’s historical results and the estimated share-based compensation expense related
to the fair value of the replacement awards issued as part of the merger. The estimated excess in fair value of the replacement share-based
awards is recognized ratably over post-combination service periods presented, utilizing the term of Magellan’s vesting period. ONEOK
estimated the preliminary fair value of the awards primarily utilizing a combination of publicly available information and due diligence
information available to ONEOK. The
preparation of a valuation study to determine the appropriate fair value of share-based awards has not yet been completed and any resulting
change in the fair value would have a direct impact to this expense.
(m) Reflects
a non-recurring expense of $84 million ($65 million, net of tax) attributable to ONEOK’s preliminary estimate of accelerated vesting
in the replacement awards, triggered by both the change in control and terminations resulting from the post-merger alignment of ONEOK
and Magellan. These accelerated awards are payable in cash. This amount is included within operations and maintenance in the Pro Forma
Statement of Income for the year ended December 31, 2022, and as an increase to other current liabilities and a decrease to retained earnings
and deferred income taxes in the Pro Forma Balance Sheet. ONEOK estimated the preliminary fair value of the awards primarily utilizing
a combination of publicly available information and due diligence information available to ONEOK.
The preparation of a valuation study to determine the appropriate fair value of share-based awards
has not yet been completed and any resulting change in the fair value would have a direct impact to this expense.
(n) Reflects a net increase
to interest expense of $11 million and $21 million in the Pro Forma Statements of Income for the six months ended June 30, 2023
and the year ended December 31, 2022, respectively, primarily related to the amortization of the discount resulting from the fair value
remeasurement of Magellan’s debt.
(o) Reflects the tax effect
of Magellan’s historical pre-tax income at ONEOK’s blended federal and state statutory rate of 23%.
(p) Reflects an increase to
interest expense, including amortization of debt issuance costs, of $163 million and $326 million in the Pro Forma Statements of
Income for the six months ended June 30, 2023 and the year ended December 31, 2022, respectively, associated with the anticipated issuance
of new senior fixed-rate notes used to fund the cash portion of consideration. The increased interest expense relates to the anticipated
issuance of new senior unsecured notes and assumes issuance occurred on January 1, 2022. Interest expense is estimated using an assumed
weighted average interest rate of 6.14%, which is based on current indicative new issue credit spreads to applicable U.S. Treasury yields.
(q) Reflects adjustment related
to the amortization of equity method basis differences for Magellan’s investments in unconsolidated affiliates. ONEOK has preliminarily
assessed that basis differences are attributable to property, plant and equipment and contract-based customer relationship intangible
assets and utilized a preliminary useful life of 38 years to amortize the basis differences.
(r) Reflects the tax effect
of the Transaction Accounting Adjustments and Other Transaction Accounting Adjustments at the blended federal and state statutory rate
of 23%.
(s) Reflects the increase
in amortization expense of $13 million and $25 million in the Pro Forma Statements of Income for the six months ended June 30, 2023 and
the year ended December 31, 2022, respectively, resulting from the recognized intangible assets acquired. ONEOK utilized the straight
line method of amortization for purposes of the Pro Forma Financial Statements and an estimated useful life of 38 years. Assuming the
fair value of the recognized intangible assets is held constant, utilizing an estimate useful life of 30 years would increase amortization
expense by $4 million and $8 million for the six months ended June 30, 2023 and the year ended December 31, 2022, respectively. An estimated
useful life of 20 years would increase amortization expense by $13 million and $26 million for the six months ended June 30, 2023 and
the year ended December 31, 2022, respectively.
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