Total is taking over Moller-Maersk’s oil business for $7.5bn. The deal suits both companies, reports Alice Gråhns.
Denmark’s A.P. Moller-Maersk “has taken not just its first step but also its biggest stride towards breaking itself up”, says Richard Milne in the Financial Times. Last September the Copenhagen-listed conglomerate said it was getting out of the oil business and concentrating on shipping. “The rationale for being a broad-based conglomerate had been shown to be wrong-headed after the financial crisis.” The hope was that drilling for oil and gas would offset the impact of expensive fuel on shipping-container profits, explains The Economist. Instead, both businesses have suffered during the global downturn and unusually slow recovery, while a glut of oil and shipping capacity has also depressed profits.
This is “hardly a seller’s market for oil and gas”, says Chris Hughes on Bloomberg Gadfly; but Maersk “seems to have achieved a decent deal” with this $7.5bn sale. The shareholders certainly appear happy with the price and the speed with which the deal was done; the shares bounced by 6% on the news. Quite right too, says the Lex columnist, also in the Financial Times. The last three oilfield sales in the North Sea went for around $24,000 per daily oil barrel produced. Total forked out $46,000.
Total will pay Maersk $4.95bn in its own shares and assume about $2.5bn of debt as well as $3bn in expected costs for decommissioning oil rigs in the North Sea. The French are factoring in “rich cost savings” of $400m a year, making the premium more palatable, says Olaf Storbeck on Breakingviews. And “as long as Maersk holds on to its stake in Total, its shareholders keep a small exposure to that synergy potential”, says Storbeck. However, they will also continue to be exposed to “stubbornly low oil prices”. Maersk has said that it wants to hand a chunk of the sale proceeds on to shareholders, but “extricating itself completely from the fickle oil business should be its first priority. It hasn’t quite done that.”
Total, meanwhile, will bolster its position among the world’s largest oil companies, potentially boosting its earnings and capacity to pay dividends, say Sarah Kent and Costas Paris in The Wall Street Journal. It is acquiring new production in Europe, Central Asia, America and the Middle East. By 2019, Total’s production is likely to reach three million barrels a day of oil and gas (an increase from 2.5 million now) – matching ExxonMobil and Royal Dutch Shell.
City talk
► “Talk to any construction expert and they all say the same thing: no one ever built anything without a hod-full of jargon,” says Alistair Osborne in The Times. Take Leo Quinn, the boss of Balfour Beatty. “No sooner did he arrive in January 2015 than he’d erected his ‘Build to Last’ mantra.” And that was just the start. Still, “whatever he’s done, it’s working”. When Balfour hired Quinn in October 2014, the shares stood at 148p. They now trade at 279.25p, up 6% on the first-half results. Having inherited a profits-warning machine (eight since 2013), the firm has just turned a £69m loss into a £2m profit.
► “Lucky old Asda” was visited by its big boss, Walmart president and chief executive Doug McMillon, last June. Now, “it has received a pat on the head”, says Nils Pratley in The Guardian. “There’s still much more to be done, but we’re clearly headed in the right direction,” according to McMillon. The first quarterly rise in sales for three years is an improvement, “but let’s not overstate matters”, says Pratley. The figure was only 1.8% and profits still fell. Indeed, “Walmart’s relaxed keep-up-the-good-work attitude is remarkable”. Once upon a time, Asda was supposed to cause chaos among competitors. “It never happened, and won’t now.”
► “When will Andy Hornby be rumbled?” asks Alex Brummer in the Daily Mail. The discredited former boss of failed bank HBOS is effectively running Ladbrokes Coral. As chief operating officer, he oversees the gambling group’s retail and digital arms, yet his role “is hidden from the view of investors”. There is no biography in the annual report, and he is not a main board director – “so stakeholders have no way of knowing his remuneration package or tracking any share transactions”. Yet nine years after Lloyds rescued HBOS, Hornby “has still not been fully cleared of any misbehaviour at the bank”.
Britain’s ten most-hated shares
These are the ten most unpopular firms in the UK, based on the percentage of stock being shorted (the “short interest”). Short sellers aim to profit from falling prices, so it can be useful to see what they’re betting against. The list can also highlight stocks that might bounce strongly on unexpectedly good news when short sellers are forced out of their positions (a “short squeeze”). Supermarket chain Sainsbury’s is a new entry. Last week it broke off exclusive talks on a £130m takeover of grocery wholesale group Nisa due to fears that competition authorities could raise objections.
| Company | Sector | Short interest on 22 August | Short interest on 24 July |
| Carillion | Construction | 25 | 23.18 |
| Ocado | Supermarkets | 18.407 | 19.069 |
| Wood Group | Oil & gas | 17.807 | 13.91 |
| Wm Morrison | Supermarkets | 15.46 | 16.12 |
| Debenhams | General retailers | 13.1 | 13.05 |
| Telit Communications | Telecoms | 12.86 | 9.14 |
| Marks & Spencer | General retailers | 11.93 | 11.12 |
| Tullow Oil | Oil & gas | 10.98 | 13.74 |
| Petrofac | Oil & gas | 10.06 | 9.08 |
| J Sainsbury | Supermarkets | 9.588 | NEW ENTRY |