What Does Total’s Purchase Of Maersk Oil Mean For The Spinoff?

Earlier this week, French oil giant Total (TOT) agreed to purchase AP Moller Maersk’s (AMKBY) oil business for $4.95b in equity. The Danish shipping giant will receive Total shares as compensation, but in addition to the shares, the French company will also assume $2.5b in debt and certain decommissioning costs in the North Sea. In an interesting wrinkle, the deal will be treated as haven taken place as of June 30th and Total will pay Maersk interest at a 3% rate on the deal’s enterprise value ($7.45b) until the expected closing in Q1 2018. UBS and others seemed to think the price was fair and represented a full valuation for the business.

The deal announcement came as somewhat of a surprise to Maersk’s followers who had expected Maersk Oil to be listed or spun off following the company’s 2016 restructuring announcement. At the time, the company stated that in order to better focus on its core shipping business it would shed its four other oil-related operating businesses including Maersk Oil, Maersk Drilling, Maersk Supply Service and Maersk Tankers. Instead of a curve ball, Maersk’s CEO Soren Skou believes the sale represents a ‘material step forward’ in achieving their plan and although they considered an IPO, the sale was the best ‘option’ considering the ‘deal certainty, the speed and the risk profile of the this transaction’.

So what is the plan for the Total shares acquired as part of the deal? From the conference call announcing the deal:

In addition, we’re saying today that we — subject to meeting our investment grade objective, we plan to return a material portion of the value of the shares received in Total to our shareholders during 2018-2019 time frame in the form yet to be decided, but of course, we are considering both extraordinary dividend, share buyback and/or distribution of the shares themselves in some kind of combination.

The sale certainly does help Maersk accomplish its goal of improving its debt profile and moving their ‘metrics’ in line with an investment grade rating. So what’s next? With this deal done, Vice CEO Claus Hemmingsen and his team are ‘working on solutions for the other three businesses.’ UBS’ Dominic Edridge now believes the divestiture of the remaining ‘Energy businesses (especially Drilling) will be tougher, given the more difficult market conditions’. When pressed, Mr. Skou wouldn’t provide any further details and insisted that they will ‘communicate about the other transactions as they happen’ and when they ‘have something to tell.’ Also he noted that ‘we are working hard to finding strong solutions also to the 3 other companies. But we will only provide commentary on that once we have something to comment on.’

Clearly, a spinoff or listing of Maersk Oil is off the table, but it remains to be seen what will happen to the other three oil related businesses and the Total shares received (about 3.76% of the company) as compensation as part of this deal. A straight spinoff seems an unlikely resolution for that last component though.

Disclosure: Author holds no position in any stock mentioned.