Murphy Oil Futures: How Spinning Off Retail Could Bring Joy to Shareholders

by Mark Friedman  on Monday, Nov. 26, 2012 12:00 am  

Murphy Oil is spinning off its new retail company, Murphy USA Inc., which includes 1,154 gasoline stations, mainly in the parking lots of Wal-Mart Supercenters. (Photo by Mike Pirnique)

The last time Murphy Oil Corp. of El Dorado spun off a division into its own company, Murphy shareholders benefited by receiving stock in the new company, Deltic Timber Corp.

That was at the end of 1996 — the same year that Murphy opened its first gas station.

These days, Murphy Oil is working on spinning off its subsidiary, Murphy Oil USA Inc. — which includes 1,154 gasoline stations (mainly in the parking lots of Wal-Mart Supercenters), two ethanol plants and seven product distribution terminals — into its own separate publicly traded company.

It’s “too early to discuss plans for issuing stock for spin off of US retail,” Barry Jeffery, a spokesman for Murphy Oil, said in an email to Arkansas Business last week. “We have announced the decision to spin and are now doing all the leg work.”

He said the deal should be completed in 2013, but left a number of unanswered questions. If history is any indicator, though, both with Murphy and recent transactions involving similar energy companies, Murphy shareholders should receive shares in the new company.

Analysts said the spinoff, which was announced on Oct. 16, should be good for both Murphy Oil and the new company, called Murphy USA.

“I think the separation makes eminent sense,” Raymond James analyst Pavel Molchanov told Arkansas Business. “It’s an odd combination to have an [exploration and production] company that also owns gas stations.

“For investors … having this fuel marketing business is just confusing,” he said.

Morningstar’s Stephen Simko, a senior stock analyst, also said in his Oct. 19 research note that the spinoff makes sense.

“Oil and gas investors don’t care much about the unexciting returns of gas stations,” he wrote. “As a result, a spinoff could potentially unlock value as the market begins to value these businesses more efficiently.”

Murphy USA posted $363 million in earnings before interest, taxes, depreciation and amortization in 2011. “A multiple in the 5 times-6 times range would imply this business is worth about $1.8 billion-$2.1 billion, or roughly $9-$11 per Murphy share,” Simko wrote.

Other analysts also put the value of the stock in that range. After the split, Murphy Oil’s value should be $53.17 a share, while the share price for Murphy USA will be $10.27, according to an Oct. 17 research report from Deutsche Bank Securities Inc. of New York. Murphy Oil’s stock price was trading at just under $58 last week.



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