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)

End of the Road

Murphy began talking about selling or spinning off its retail business several years ago.

In 2011, Murphy Oil’s CEO at the time, David Wood, discussed the possibility of spinning off Murphy USA, but nothing happened, which frustrated some shareholders who thought that spinning off the gas stations could unlock some value for the company. Wood left Murphy in June.

“We were especially disappointed to learn that the recent resignation of David Wood as CEO was not intended to be the start of a companywide shakeup at improving results,” Morningstar’s Simko said in an Aug. 2 note.

Shareholders received some hope for a spinoff when during an August conference call, the new CEO, Steven Cossé, mentioned that a spinoff of Murphy USA was being discussed, although it wasn’t likely to happen anytime soon.

“The proposed spin-off had been indefinitely postponed, due to the need to better understand and address the segment’s operating underperformance, as management had communicated that business was losing market share to competitors and that margins were not improving in-line with industry standards,” according to a research note written Oct. 17 by Guy Baber an analyst with Simmons & Co. International of Houston.

But by the middle of 2012, Murphy had watched some of its peers successfully spin off their gas station divisions.

In January 2011, Marathon Oil Corp. of Houston announced that it was going to spin off its refinery and marketing business, which included 1,350 convenience stores in seven states.

And in July 2011, ConocoPhillips of Houston announced it would spin off its gas station division into a new company called Phillips 66, also of Houston. That transaction was completed in April.

When a similar announcement wasn’t made at Murphy, the activist hedge fund Third Point LLC of New York fired off a letter on Oct. 3 to investors.

Third Point quoted part of the Boyz II Men song “End of the Road” in the letter and said following Third Point’s suggestions would increase Murphy’s stock price by about 60 percent, to about $90.



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