Oil sale to Total drives AP Møller – Maersk strategy on

 

AP Møller – Mærsk A/S, a Copenhagen-listed company, is advancing its plans to establish a fully integrated transport and logistics entity. It has reached an agreement to divest Maersk Oil for $7.45 billion, with French independent oil firm Total serving as the acquirer in a strategic move. Total will settle the transaction using a combination of its own shares, valued at $4.95 billion, representing 3.76% of its shares, and cash totaling $2.5 billion. Additionally, Total will take on $2.5 billion in short-term debt transferred to Maersk Oil, along with decommissioning obligations currently amounting to $2.9 billion. The sale is anticipated to be completed in the first quarter of 2018, and Total will pay interest on the $7.45 billion at an annual rate of 3% from June 30th to the completion date, set as of July 1st, 2017. However, the agreement remains subject to regulatory approval from relevant authorities, including the Danish Minister of Energy, Utilities, and Climate, as well as pertinent competition authorities. The transaction’s closing is expected to occur during the first quarter of 2018. A.P. Møller – Mærsk intends to extract $2.5 billion in cash from this transaction, as stated by CEO Søren Skou during an analyst call. He regards this as a favorable price for a business that will no longer be incorporated into the company’s forward guidance. Maersk Oil marks the first of A.P. Møller – Maersk’s four energy companies to have a future structural solution identified. Solutions for Maersk Drilling, Maersk Supply Service, and Maersk Tankers are anticipated to be determined before the end of 2018. The management evaluated various options, including an initial public offering (IPO), but ultimately concluded that this sale represented the most advantageous solution in terms of speed and risk. This transaction will contribute to strengthening the parent company’s capital structure without overcapitalizing it.

Proceeds from the sale will be used to reduce debt, and the company plans to return a significant portion to shareholders between 2018 and 2019. The form of this return, whether through an extraordinary dividend, share buyback, or distribution of Total shares, has yet to be decided. As a result of this transaction, AP Møller – Mærsk will become the third-largest shareholder in Total, although the company has not yet made a decision regarding the offer to join the Total board. Importantly, there is no lock-up clause pertaining to the sale of the Total shares. Søren Skou believes that his company has taken a substantial step forward in its transformation by concluding this transaction, which marks the second step in its strategy. The first step was the agreement with Germany’s Oetker Group for Maersk Line to acquire Hamburg Süd, a deal announced on December 22nd of the previous year. Hamburg Süd is recognized as the world’s seventh-largest container shipping line, with a strong presence in North-South trades. Denmark will become the regional hub for Total’s operations in Denmark, Norway, and the Netherlands, capitalizing on Maersk Oil’s capabilities and strong foothold in the North Sea region. From Total’s perspective, Patrick Pouyanné, Total’s Chairman and CEO, views the transaction as an exceptional opportunity. He sees Total acquiring a company with high-quality assets that align well with many of its core regions, underscoring the attractive price. The purchase fits within Total’s strategy to capitalize on current market conditions and its robust balance sheet to acquire new resources on favorable terms. A central element of this approach is expanding the production base to distribute costs and lower breakeven thresholds. “Maersk Oil has a portfolio of growth with high margins, 85% of which are located in OECD countries, with 80% in the UK, Norway, and Denmark North Sea,” says Pouyanné. “It is cash flow and earnings accretive immediately.”

Additionally, he highlights Maersk Oil’s strong reputation in the industry as an outstanding operator with significant technological expertise. Total recently took over a project in Qatar from Maersk Oil and observed these qualities firsthand. The 3,000 employees who will join Total will reinforce the company’s capabilities. The transaction is expected to bolster other core regional operations due to clear synergies between Total and Maersk Oil. These synergies encompass several areas, such as consolidating Total’s presence in the US Gulf of Mexico through Maersk Oil’s stake in the Jack development in the Wilcox formation. Furthermore, it positions Total as the second-largest independent oil company in Algeria by production, enhances its East Africa presence through Maersk Oil’s Kenyan assets, strengthens Total’s Kazakh business with the addition of operated production, and leverages geological and operational expertise in the Middle East-North Africa region. Overall, the transaction will establish Total as the second-largest operator in the Northwest Europe offshore region, while also reinforcing its North Sea offshore production in the UK and Norway, and adding a new production hub. Independent reactions to the deal have been generally positive, with experts citing the attractive price and the potential for synergies and fiscal benefits. The timing of the transaction has been seen as advantageous for Total, capitalizing on market conditions. However, some have expressed concern about Maersk selling its oil assets during a downturn in the oil sector.

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