To the Tune of Tupac, Third Point Fund Pressures Murphy Oil to Spin Off Retail

by Luke Jones  on Thursday, Oct. 4, 2012 11:26 am  

A Murphy USA gas station, owned by Murphy Oil Corp., at 4448 E McCain Blvd in North Little Rock. (Photo by Mike Pirnique)

(A correction has been made to this story. See the end of this story for more.)

Murphy Oil Corp. Chairman Claiborne Deming on Thursday responded to hedge fund Third Point LLC of New York, which is pressuring the publicly traded El Dorado oil and gas company to spin off its retail operation.

In a letter to investors on Wednesday, the $9.3 billion hedge fund said it had a "significant stake" in Murphy Oil and had recently filed for Hart-Scott-Rodino approval to increase its position "should we so desire."

According to recent filing with the Security Exchange Commission, Third Point owns about $90 million in Murphy stock -- 1.5 million shares, or less than 1 percent of shares outstanding. Third Point took ownership in those shares in the second quarter, when Murphy was trading at about $50 per share.

In a letter (PDF) that cited lyrics to songs by Boyz II Men and rapper Tupac Shakur, Third Point said that if Murphy followed "four easy steps," its shares could be worth more than $90. Its stock is now worth about $60 per share.

Deming responded Thursday stating Murphy Oil had met with Third Point and other investors and is "focused on maximizing long-term value for all shareholders."

"The board and management have been working to evaluate opportunities to illuminate the value in our stock price for the benefit of all our shareholders," Deming said.

Deming said the company would keep shareholders informed as its continued its evaluation.

Third Point's letter described investor frustration with Murphy Oil delaying the spin-off of its Murphy USA retail arm, which has been discussed since the beginning of the year. Third Point asserted that the retail business alone would be worth between $2.3 billion and $2.8 billion.

"A spin-off in this valuation range would be worth $12-$14 per share," Third Point said. "At this point, it appears sentimental attachment by management and the Murphy family is driving a stubborn desire to hold onto these and other non-strategic assets, creating a significant drag on enterprise value."

Former CEO David Wood discussed the possible spinoff throughout early 2011, but resigned in June before any action was taken. Current CEO Steven Cosse mentioned the possibility of a spin-off during an August conference call.

Third Point recommended three other steps to unlock more shareholder value:

  • Selling natural gas assets in Canada. Murphy owns about 145,000 acres in the Montney play in British Columbia. Third Point estimated a $3 billion sale of the acreage, and noted that Murphy had stated it would only resume drilling in the play if gas reached $4.50 per thousand cubic feet, which would not occur until late 2018.
  • Selling its 5 percent stake in the Syncrude Oil Sands project. Third Point cited Conoco Phillips of Houston's 2010 sale of its 9 percent stake in Syncrude for $4.65 billion, estimating Murphy could make about $2.6 billion, or $13 per share.   
  • Completing its exit from refinery business. Murphy has sold both its U.S. refineries since summer 2011, but one remains in Wales. Third Point said the operation is tying up about $500 million in Murphy working capital.

(Correction: Oct. 5, 2012: In the third paragraph, we incorrectly reported that Third Point owns 15 million Murphy Oil shares. The correct number has been added, as well as what those shares are worth.)

 

 

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