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MAGELLAN ACQUISITION | 9 Months Ended
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Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Magellan Acquisition | MAGELLAN ACQUISITION On September 25, 2023, we completed the previously announced agreement to acquire all the outstanding common units of Magellan in a cash-and-stock transaction. The acquisition strategically diversifies our complementary asset base and allows for significant expected synergies as a combined entity. Pursuant to the Merger Agreement, each common unit of Magellan was exchanged for a fixed ratio of 0.667 shares of ONEOK common stock and $25.00 of cash, for a total consideration of $14.1 billion. A total of approximately 135 million shares of common stock were issued, with a fair value of approximately $9.0 billion as of the closing date of the Magellan Acquisition. We funded the cash portion of the acquisition with an underwritten public offering of $5.25 billion senior unsecured notes. In connection with the underwritten public offering, we terminated the undrawn commitment letter for the $5.25 billion unsecured 364-day bridge loan facility. For additional information on our long-term debt, see Note F. Magellan’s operations are principally composed of transportation, storage and distribution of Refined Products, certain NGLs and crude oil. The assets acquired consist of an approximately 9,800-mile Refined Products pipeline system with 54 terminals, including one marine storage terminal, and crude oil infrastructure with approximately 1,000 miles of pipelines, one condensate splitter and three storage terminals. We also acquired ownership interests in Magellan’s eight unconsolidated affiliates. In conjunction with the Magellan Acquisition, Magellan’s results of operations will be reported within our new Refined Products and Crude segment, consistent with how information is presented to our chief operating decision maker. The Magellan Acquisition was accounted for using the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification 805, “Business Combinations,” which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair values on the acquisition date. Determining the fair value of acquired assets and liabilities assumed requires management’s judgment and the use of independent valuation specialists. The purchase price allocation presented below is preliminary, as certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, the final valuation of assets acquired and liabilities assumed. Management is also evaluating certain assumptions of assets acquired and liabilities assumed and may adjust the allocation in subsequent periods. The final valuation will be completed no later than one year from the acquisition date. The following tables set forth the acquisition consideration and preliminary purchase price allocation of assets acquired and liabilities assumed:
| At September 25, 2023
| (Millions of dollars and shares/units, except per share/unit data)
Magellan public common units outstanding | 202.1 |
Cash consideration per Magellan unit | $25.00
Cash consideration | $ | 5,052 |
Magellan public common units outstanding | 202.1 |
ONEOK exchange ratio per Magellan unit | 0.667 |
Shares of ONEOK common stock issued | 134.8 |
ONEOK common stock closing price on September 25, 2023 | $66.54
Fair value of common stock issued | $ | 8,969 |
Fair value of Magellan replacement equity awards | 93 |
Equity consideration | $ | 9,062 |
Total consideration | $ | 14,114 |
| At September 25, 2023
Assets acquired: | (Millions of dollars)
Cash and cash equivalents | $ | 44 |
Accounts receivables, net | 245 |
Inventories | 348 |
Other current assets | 65 |
Property, plant and equipment | 11,562 |
Investments in unconsolidated affiliates | 909 |
Intangible assets | 645 |
Other assets | 112 |
Total assets acquired | 13,930 |
Liabilities assumed: |
Accounts payable | 221 |
Other current liabilities | 533 |
Long-term debt, excluding current maturities | 4,013 |
Other deferred credits and liabilities | 203
Total liabilities assumed | 4,970
Total identifiable net assets | 8,960
Goodwill | 5,154 |
Total purchase price | $ | 14,114 |
Property, plant and equipment: Property, plant and equipment consists primarily of pipeline, pipeline-related equipment, storage tanks and processing equipment and will be depreciated on a straight-line basis over the estimated useful lives of the assets. Intangible assets: The preliminary value of net identifiable intangible assets relates to contract-based customer relationships that will be amortized over the period of expected benefit. Long-term debt, excluding current maturities: We assumed the outstanding debt of Magellan and utilized publicly traded prices to estimate the fair value. The debt comprises senior unsecured obligations with varying maturities and interest rates as outlined in Note F. Recognizing the debt at its acquisition date fair value resulted in a discount from the notional value. The discount will be amortized into interest expense over the remaining life of the debt. Other deferred credits and liabilities: Magellan’s pension and postretirement benefit net liabilities of $71 million were assumed in conjunction with the Magellan Acquisition. These defined benefit plans are composed of two pension plans, including one for non-union employees and one for union employees, as well as a postretirement welfare benefit plan for certain employees. Goodwill: The following table sets forth the amounts of goodwill by segment for the periods indicated:
| Natural Gas Gathering and Processing |  | Natural Gas Liquids |  | Natural Gas Pipelines |  | Refined Products and Crude |  | Total
| (Millions of dollars)
Gross goodwill | $ | 153 |  |  | $ | 371 |  |  | $ | 157 |  |  | $ | — |  |  | $ | 681 |
Accumulated impairment losses | (153) |  |  | — |  |  | — |  |  | — |  |  | (153) |
December 31, 2022 | — |  |  | 371 |  |  | 157 |  |  | — |  |  | 528 |
Acquisitions (a) | — |  |  | — |  |  | — |  |  | 5,154 |  |  | 5,154 |
September 30, 2023 | $ | — |  |  | $ | 371 |  |  | $ | 157 |  |  | $ | 5,154 |  |  | $ | 5,682 |
(a) - Goodwill from the Magellan Acquisition primarily represents expected commercial and cost synergies and is expected to be fully deductible for tax purposes. Allocation is preliminary and may be updated as we continue to evaluate the benefits of expected commercial and cost synergies to reporting units. Results of Operations The results of operations attributable to the Magellan Acquisition have been included in our Consolidated Financial Statements since the date of the acquisition through September 30, 2023. Revenue and net income attributable to the assets acquired for the period September 25, 2023, through September 30, 2023, were $72 million and $29 million, respectively. For the nine months ended September 30, 2023, we recognized approximately $154 million of transaction costs associated with the Magellan Acquisition, as outlined in the table below. These non-recurring costs are primarily related to advisory fees, severance and settlement of share-based awards for certain Magellan employees, as well as bridge facility commitment fees. The following table sets forth the impact of acquisition related transaction costs in our Consolidated Statements of Income as of the periods indicated:
|  | Three Months Ended | Nine Months Ended
|  | September 30, | September 30,
|  | 2023 |  | 2023
|  | (Millions of dollars)
Transaction costs |  | $ | 123 |  |  | $ | 133 |
Interest expense |  | 13 |  |  | 21 |
Total |  | $ | 136 |  |  | $ | 154 |
Pro Forma Financial Information The following table sets forth the unaudited supplemental pro forma financial information for the three and nine months ended September 30, 2023 and 2022, as if we had completed the Magellan Acquisition on January 1, 2022:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
|  | (Millions of dollars)
Revenue |  | $ | 4,850 |  |  | $ | 6,723 |  |  | $ | 14,764 |  |  | $ | 19,548 |
Net income |  | $ | 572 |  |  | $ | 596 |  |  | $ | 2,364 |  |  | $ | 1,336 |
The summarized unaudited pro forma information reflects the following adjustments: •Reflects depreciation and amortization based on the preliminary fair values of property, plant and equipment, and intangible assets; •Reflects $136 million and $154 million of non-recurring transaction costs incurred for the three and nine months ended September 30, 2023, respectively, that were reclassified and included in pro forma net income for the nine months ended September 30, 2022, as if they had been incurred on January 1, 2022; •Reflects interest expense related to the underwritten public offering of $5.25 billion senior unsecured notes used to fund the cash consideration and other costs related to the Magellan Acquisition; •Reflects the amortization of the debt discount to fair value of the Magellan long-term debt assumed; •Reflects the amortization of excess fair value of the replacement share-based awards; •Reflects the income tax effect of the pro forma adjustments; and •Excludes the impact of historical activity between ONEOK and Magellan. The unaudited pro forma financial information for the nine months ended September 30, 2023, includes a one-time operational gain of $779 million related to insurance proceeds on the Medford incident. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our operating results that would have occurred had the transaction been completed at the beginning of the period presented, nor is it necessarily indicative of future results.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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