Copenhagen-listed AP Møller - Mærsk A/S is pushing ahead with plans to create an integrated transport & logistics company. It has agreed to sell Maersk Oil for US$7.45bn. The buyer French independent oil company Total which is using acquisition as a strategic tool.

Total will settle using a combination of its own shares (representing 3.76% of its shares) valued at $4.95bn and cash ($2.5bn). Total will assume $2.5bn of short-term debt pushed down into Maersk Oil and decommissioning obligations which currently total $2.9bn.

The purchase is expected to complete in the first quarter of 2018. Total will pay interest on the $7.45bn at an annual rate of 3% for the period between 30 June and the day of completion. The effective date of the transaction has been set as 1 July 2017.

Expected close first quarter 2018

The agreement is subject to regulatory approval from relevant authorities, including the Danish Minister of Energy, Utilities and Climate and relevant competition authorities. Closing is expected to take place during the first quarter of 2018.

A.P. Møller - Mærsk will extract $2.5bn cash from the transaction, said CEO Søren Skou in an analyst call this morning. He described this as an attractive, full price for a business which will no longer be included in forward guidance pronouncements from the company.

Maersk Oil is the first of the four energy companies of A.P. Moller - Maersk for which a future structural solution has now been identified. The solutions for Maersk Drilling, Maersk Supply Service and Maersk Tankers remain to be defined before the end of 2018.

All options considered

Management considered all options including an initial public offering but believes this sale represents the best option for reasons of speed and risk. It will contribute to a strong parent company capital structure. But it will not be overcapitalised.

“We will use the proceeds to reduce debt and plan to return a material proportion to our shareholders in 2018-2019 in a way yet to be decided.” He said this could take the form of an extraordinary dividend, a share buyback or distribution of the Total shares themselves.

The holding makes AP Møller - Mærsk the third-largest shareholder in Total. It has been offered a seat on the Total board but a decision has not yet been made on whether to accept that offer. There is no lock-up clause relating to the sale of the Total shares.

Material step forward

Søren Skou says he believes his company has taken a material step forward in its transformation by agreeing the second transaction in the strategy. The first was the agreement struck with Germany's Oetker Group for Maersk Line to acquire Hamburg Süd.

That deal was announced on 22 December last year. Hamburg Süd is described as the world’s seventh-largest container shipping line and a leader in North–South trades.

Denmark will become the regional hub for all Total’s operations in Denmark, Norway and the Netherlands, based on Maersk Oil’s capabilities and strong position in the North Sea region.

The view from Total

For his part, Patrick Pouyanne, Total chairman and CEO, said the transaction delivers an exceptional opportunity for Total. He says Total is acquiring a company with high quality assets which fit well with many of its core regions. He too describes the price as attractive.

It is in line with the company's strategy to take advantage of current market conditions and its stronger balance sheet to add new resources on attractive terms. A key element of the thinking is to enlarge its production base to spread costs and reduce breakeven figures.

“Maersk Oil has a portfolio of growth with high margins 85% located in OECD countries, of which 80% is in the UK, Norway and Denmark North Sea,” he says. “It is cashflow and earnings accretive immediately.”

Excellent operator

“Maersk Oil also has a very good reputation in the industry for being an excellent operator with strong technological skills,” he adds.

“We took over from them on a project in Qatar recently and witnessed those qualities at first hand. The 3,000 staff who will join Total will reinforce our capacity.”

Total says the transaction also will strengthen other core regional businesses due to clear complementary positions between Total and Maersk Oil.

These include

• Consolidating Total’s US Gulf of Mexico presence with the Maersk Oil interest in the Jack development in the Wilcox formation
• Becoming the second largest independent oil company in Algeria by production
• Complementing its East Africa position via Maersk Oil’s Kenya assets
• Strengthening of Total’s Kazakh business via addition of operated production
• Benefiting from potential upsides in Angola and Brazil
• Pooling of geological and operational expertise in the Middle East - North Africa Region

Total says the transaction

• Will make it the second-largest operator in the NW Europe offshore region
• Will strengthen its existing North Sea offshore producing business in the UK and Norway
• Will add a new production hub

Independent reaction

Susan Tarry, courtesy of Aberdeen Standard Investments

Said Susan Tarry, Investment Director European Equities, Aberdeen Standard Investments: “This seems to be a sensible deal at reasonable price. It will create the potential for some producing assets, some future growth and synergies, including fiscal synergies.”

“Deals like this illustrate why the business cycle exists,” comments Michael Baxter, economics spokesman at independent UK brokerage The Share Centre. “For Total this makes sense; asset prices in the oil sector seem to be affected by the turn in the cycle.

“This means there seem to be bargain assets out there, which will grow in value when the cycle turns. Maersk on the other hand is selling oil assets at the worst possible moment.

“They say a bear market turns when all but the most bullish of bulls become bears; this deal may illustrate why this is so.”