Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

It's hardly a seller's market for oil and gas assets. Yet Denmark's A.P. Moller–Maersk A/S seems to have achieved a decent deal in the $7.5 billion sale of its oil operations to France's Total SA.

The Copenhagen-listed shipping group said in September it was limiting investment in the oil business as it unveiled a new strategy to focus on shipping. That was an invitation for bidders to pitch for the assets. Meanwhile, the strategy was received warmly by investors. Maersk shares have since gained about 30 percent, outpacing their domestic benchmark index's gain of 7 percent.

Rising Tide
Since Maersk's announcement, the shares have outpaced their domestic benchmark
Source: Bloomberg

Getting out of oil was never going to be easy. It had looked like Maersk might have to sell the assets in dribs and drabs. While Total is taking the whole operation, the deal isn't a clean break.

The French buyer will pay Maersk $4.95 billion in its own shares and assume about $2.5 billion of debt. So Maersk remains exposed to oil through a 3.8 percent stake in Total, worth about 11 percent of the Danish company's 269 billion-krone ($42.5 billion) market capitalization.

Yet it is Maersk investors who are cheering. The stock rose as much as 5.7 percent, adding nearly $2 billion to its market value. Part of that is satisfaction with the speed at which Maersk has been able to get a deal done, and part is applause for a better-than-expected price. Deutsche Bank had valued oil at $4.7 billion in its Maersk sum-of-the-parts analysis.

What's more, investors can now see a focused way of playing an anticipated recovery in the container shipping industry through a mega-cap stock.

For Total, which has a market value of $125 billion, a deal of this size won't transform the business. The group envisages mouth-watering synergies of $400 million annually. On a conservative estimate, these have a present value of about $2.5 billion, effectively cutting the purchase price by a third. Despite the new share issuance, Total sees the deal boosting earnings and cashflow per share from the get-go.

Oil Pains
Total shares have lagged the CAC40 index over the past five years
Source: Bloomberg

Nevertheless, the share payment creates an overhang on Total's stock, which may explain why the shares aren't signalling so much enthusiasm. The question remains how Maersk will achieve a full exit. It clearly doesn't plan to be a long-term Total investor, and is talking about possibly distributing the stock to its own investors.

The 98 million shares being provided to Maersk are equivalent to about 18 days of average trading in Total's shares. It wouldn't be too hard for the market to digest that in a series of placements.

Maersk investors may have preferred a clean exit for cash. As things stand, this looks like the next best thing.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net