Billionaire Roekke Splits Aker Solutions to Improve Returns

Aker Solutions ASA, the oil-services company controlled by Norwegian billionaire Kjell Inge Roekke, is splitting in two to reduce costs and build its subsea business to improve shareholder returns.

The subsea, umbilicals, engineering and maintenance, modifications and operations units will be spun off into a company that will keep the Aker Solutions name, while the other will include drilling, oilfield services and process systems, the Oslo-based company said in a statement today. Both will be listed on the Oslo stock exchange by the end of September.

“The new Aker Solutions will be a leaner and more focused company,” Executive Chairman Oeyvind Eriksen said. The company “will benefit from greater synergies and a more coordinated customer approach, leading to a stronger market position and higher and more predictable returns on capital.”

Aker Solutions, valued at $4.5 billion, is streamlining as oil companies such as Norway’s Statoil ASA, its biggest customer, cut planned investments to cope with stagnant oil prices and rising industry costs. The company last year turned away from five-year earnings targets to focus on costs and sold assets for more than 5.4 billion kroner ($899 million).

“Our profit margin and return on capital are still lagging behind both peers and our own targets,” Eriksen said at a presentation in Oslo. “The new Aker Solutions is where we have placed the businesses that focus on the global energy industry’s fastest growing markets: subsea production and deepwater.”

Shares Fall

Shares in Aker Solutions fell as much as 6.2 percent, the most in almost three weeks, and traded 4.9 percent lower at 96.75 kroner as of 11:20 a.m. in Oslo. That extends the stock’s loss to 11 percent so far this year.

The decline is partly due to the “unquestionably soft” first-quarter results published today, RS Platou Markets AS analyst Turner Holm said by e-mail. Investors may also have preferred Aker Solutions to sell more assets rather than split the company, he said.

Shareholders will get one new Aker Solutions share for each held in the existing company at the time of the separation. They will also keep their shares in the remaining business, which will be named Akastor, maintaining the existing shareholder structure of each company.

‘Positive Step’

The move, which follows the 2011 spinoff of Kvaerner ASA, has met with approval from the largest shareholders, Aker Kvaerner Holding and Aker ASA, both controlled by Roekke. An extraordinary general meeting will be held in August to vote on the separation.

“Some perceive the spin-off as an admission they couldn’t sell the non-core assets now in Akastor at an attractive price,” Holm said. “We think the spin-off is a positive step. The core Aker Solutions should trade at much higher multiples than the total business does now, and Akastor should get decent pricing since the assets are so visibly up for sale.”

The company’s subsea division has been the biggest and best-performing unit. It accounted for 31 percent of the group’s 11.2 billion kroner of sales and 38 percent of earnings before interest, tax, depreciation and amortization of 1 billion kroner in the first quarter, according to the figures published today.

The units that making up the new Aker Solutions accounted for 46 percent of sales and 63 percent of Ebitda in the first quarter. They hold 75 percent of the group’s order backlog of 55.6 billion kroner. The subsea area also won a 14 billion-krone deal at Total SA’s Kaombo project in Angola this month.

Akastor Assets

Further transactions will be a part of Akastor’s mandate, Eriksen said during his presentation. Still, the split fulfils a pledge to separate oilfield services and marine assets from its core business, meaning a sale of those units isn’t expected in the next few years, he said in an interview.

“I expect the new ownership structure to primarily focus on how to develop the business during the next months and years rather than to quickly complete a sale,” he said.

Akastor will also include surface products and business solutions and hold financial and real estate assets representing about 20 percent of the company’s balance sheet. Drilling technologies will be the largest business within Akastor, accounting for about 60 percent of earnings and the workforce.

The new Aker Solutions will be led by the company’s current chief in Brazil, Luis Araujo, while Frank Ove Reite, a managing partner at Converto, will head Akastor. Eriksen will remain as chairman of Aker Solutions, relinquishing executive responsibilities he’s held since June 2010 in parallel with his role as chief executive officer of Aker.

“He’s done a good job over the last two years in terms of cleaning up this business,” Holm said. “But there was a perception of conflict of interests between Aker ASA, Aker Kvaerner Holding and him running Aker Solutions. It’s good to clean it up.”