Rocked by low freight and oil prices, Denmark’s AP Moller-Maersk will split itself up and focus on transport and logistics while seeking a way out of energy in a keenly anticipated revamp aimed at reviving its fortunes.
The 112-year-old conglomerate will focus on its core businesses, comprising Maersk Line, APM Terminals, Damco, Svitzer and Maersk Container Industry, while seeking “solutions” for its smaller energy operations.
Investors gave the news a cautious welcome, with Maersk shares trading slightly higher yesterday.
But some said the $30bn company had not gone far enough.
“It might be one of the most pain-free solutions relative to other scenarios, but they could have gone even further,” Nykredit analyst Ricky Rasmussen said yesterday. The weak market has hit the big lines which have invested heavily in “mega-ships”, largely to operate the main Asia to Europe trade route.
Industry sources have questioned whether there is enough work for the biggest container vessels on the high seas at the moment, putting more pressure on profits.
“Separating our transport and logistics businesses and our oil and oil related businesses...will enable both to focus on their respective markets.
Both face very different underlying fundamentals and competitive environments,” chairman Michael Pram Rasmussen said in a statement.
Maersk said it would look for solutions for its oil and oil-related businesses, which are to be split from the main company either individually or in combination “in the form of joint-ventures, mergers or listing”.
The company gave no details on how far this process had already progressed or whether it was already talking to any possible partners, but said it would be done within 24 months.
Maersk Drilling boss Claus V Hemmingsen will lead Maersk’s energy division through the change and serve as vice CEO of the group, beginning on October 1.
“Maersk Oil...is a small player, so there are many players big enough to take (it) in.
Drilling is relatively large, but its competitors are under extreme financial pressure, so it’s less likely to find an sale opportunity there,” Morten Imsgard, an analyst Denmark’s Sydbank, said.
Maersk will hope that by splitting up it can shed any conglomerate discount by allowing markets to value its businesses individually.
The group, controlled by the Maersk family, was founded in 1904 by AP Moller and was turned into a conglomerate operating in 130 countries by his son, Maersk Mc-Kinney Moller, who had an active role in the company until he died in 2012 aged 98.
Sydbank estimates the new transport and logistic division could be worth 174bn-229bn Danish crowns ($26bn-$35bn), while the energy division could be valued at 74bn-153bn Danish crowns ($11bn-$23bn).
Driven by the container shipping downturn and a slump in oil prices, AP Moller-Maersk group’s chief executive Nils Smedegaard Andersen left in June and Soren Skou, head of Maersk Line, was named group chief executive.The company has also appointed a new group chief financial officer, Jakob Stausholm, effective December 1.
The world’s biggest container shipping business and its competitors are suffering from record low freight rates as growth in global trade has failed to keep pace with a big expansion in shipping fleets.
South Korea’s Hanjin Shipping Co Ltd, the world’s seventh largest container carrier, filed for court receivership in late August and has grappled for funds to allow it to unload an estimated $14bn in cargo stranded on its ships.
Meanwhile, Maersk’s oil business is struggling with a 60% drop in crude prices since mid-2014 and in August, the group posted a second-quarter net profit of $101mn, well below the $196mn expected by analysts.
Otto Friedrichsen, equity strategist at Danish asset manager FormFormuepleje, with around 45bn Danish crowns allocated in bonds and equities, has shunned the shipping industry including Maersk, and was sceptical about the split.
“I still want to see changes in the underlying markets and don’t see this as creating any value here and now.”
Maersk shares have risen more than 20% since June in anticipation of the strategic review and at 1026 GMT, they were trading 0.9% higher at 9,990 crowns.
Some said Maersk had done as much as it could given market conditions.
“It was as far as Maersk could go right now, because they could not have a ready-made solution for the energy division in these markets, if they also want to realize a decent price for the assets,” Sydbank’s Imsgard said.
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