by Luke Jones
Posted 10/16/2012 08:39 am
Updated 7 months ago
Murphy Oil Corp. of El Dorado said Tuesday that its board of directors has approved a plan to spin off its U.S. downstream subsidiary, Murphy Oil USA Inc., into an independent and separately traded company.
As Arkansas Business has reported, Murphy Oil has been considering spinning off the unit since at least late last year.
In a news release, the company also said its board had authorized a special dividend of $2.50 per share for a total dividend of about $500 million and a share buyback program of up to $1 billion of the company's shares of common stock.
Murphy Oil also reaffirmed plans to divest downstream operations it owns in the United Kingdom and stated that it is "continuing to review possible options with respect to selected assets."
During a morning conference call on the deal, Murphy Oil CEO Steven Cossé said the new company will continune to be based in El Dorado. He said the spinoff's board of directors and management team are being assembling and will be announced near the time of the spinoff, which is set to happen "by 2013."
In making the announcement, Murphy Oil gave three reasons for creating the new company:
- Each business would focus on its strategic priorities with financial targets best fitting its own market and opportunities;
- Each business would be able to allocate resources and deploy capital in a manner consistent with its priorities; and
- Investors would be able to value the two businesses based on their respective financial characteristics and make investment decisions based on those characteristics.
After the spinoff, Murphy USA will consist of retail marketing and convenience merchandise, seven product distribution terminals and two ethanol production facilities in North Dakota and Texas.
Meanwhile, Murphy Oil Corp. will become an independent exploration and production company with activities focused in the U.S., Canada and Malaysia. The company will continue its exploration program, offshore development projects and onshore businesses. It also said its unsold downstream operations in the United Kingdom will remain with Murphy Oil Corp. until they can be sold.
"We look forward to these two separate well-positioned companies growing and prospering in their respective industries," Cossé said in a news release.
"Our strong balance provides the opportunity to enhance value to our shareholders through this special dividend and share repurchase program."
Shares of Murphy (NYSE: MUR) were up more than 6 percent to $62.78 in trading on Tuesday.
"Today's announcements are consistent with our commitment to creating value for shareholders,"? Claiborne Deming, Murphy's chairman of the board, said in a news release.
"Separating these two businesses will allow each to unlock its own potential for growth. We have built two strong but distinct businesses," he said. "Murphy will be a pure-play exploration and production company with strong returns and attractive investment opportunities, while Murphy USA will be a leading retailer with over 1,100 retail gasoline outlets. Given its existing positioning in the market, I am confident that Murphy USA will continue to grow the business and drive shareholder value."?
Former CEO David Wood discussed the possible spinoff throughout early 2011, but resigned in June before any action was taken. Current CEO Cossé mentioned the possibility of a spinoff during an August conference call.
During a conference call on Tuesday, Cossé said the company had hired a consulting firm earlier this year to analyze the retail arm's "underperformance issues."
"We've gotten the full report," he said. "It's very much a matter within our control. We have internally reorganized Murphy USA to address those issues. We've got new pricing protocols in place and new procedures."
Two weeks ago, Deming responded to hedge fund Third Point LLC of New York, which had been pressuring the company to spin off the unit.
Deming said Murphy Oil had met with Third Point and other investors and is "focused on maximizing long-term value for all shareholders."
This would not be the first time Murphy Oil has formed a separate publicly traded company. In 1996, the company's farm, timber and real estate subsidiary was spun-off to shareholders and is now known as Deltic Timber Corp. of El Dorado (NYSE: DEL).
Change in Direction
As one of the largest operators in the Gulf of Mexico, Murphy Oil Corp. markets crude oil and natural gas liquids from on- and offshore drilling operations throughout the world. The corporation also is involved in petroleum and natural gas exploration and production operations worldwide.
The $28 billion company's roots go back to a lumber and banking business in south Arkansas and to 1907, when the first oil production was established in the Caddo Field in north Louisiana.
In 2010, Murphy Oil announced plans to exit the refining businesses and sell its refineries at Superior, Wis., Meraux, La., and Milford Haven, Wales, along with its retail system in the United Kingdom. The company has yet to sell its refinery in Wales.
At the time, Wood said exiting the business would allow it to concentrate on growing its upstream and U.S. retail businesses.