(Bloomberg) -- Magellan Midstream Partners LP’s fourth-largest investor plans to vote against a proposed takeover by Oneok Inc. because of the tax hit it would take in the transaction, marking a potential setback for the roughly $19 billion pipeline deal. 

Magellan unitholders would have to pay more in taxes than they’d receive from the premium Oneok is offering if the acquisition is completed under its current terms, outweighing any benefits from the merger, Energy Income Partners LLC Chief Executive Officer James Murchie wrote in a letter to Magellan’s board.

Oneok, which currently transports only natural gas and its byproducts, agreed to buy Magellan last month to gain access to a network of crude oil and refined-products conduits and terminals sprawling from Texas to Minnesota. The combined company would have a total enterprise value of $60 billion, the companies said at the time.

Read More: Oneok’s $19 Billion Oil-Pipeline Offer Sends Stock Tumbling

Energy Income Partners urged Magellan’s board to provide a “full and detailed quantitative analysis of the tax consequences” of the transaction. The firm owns a 3.1% stake in Magellan, making it the company’s fourth-largest investor, according to data compiled by Bloomberg.

“This deal represents an enormous transfer of value from Magellan unitholders to the Internal Revenue Service and Oneok shareholders” Murchie said. “Moreover, we want to see Magellan remain as a stand-alone entity whose returns on invested capital are far superior to Oneok.”

The proposed transaction will create a “stronger and more diversified midstream company and deliver significant value to Magellan unit holders,” Magellan spokesman Bruce Heine said by email. “We remain focused on completing the transaction.

Magellan units fell 1.3% to $61.72 at 3:58 p.m. in New York. Oneok gained 0.4% to $60.69. Both companies are based in Tulsa, Oklahoma.




(Updates with Magellan comment in sixth paragraph. A previous version of this story corrected the transaction value in the headline.)

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