EUR 464.55 For Business Accounts Only

Forced Spinoff Creates Post-Spin Opportunity

A.P. Moller-Maersk A/S (MAERSKB DC) has become part of the recent global trend of conglomerates divesting and Spinning off assets to focus on their core business (DWDP, NPN, NOVN to name a few). In this case, the 115-year-old Danish conglomerate will be Spinning off its drilling operations unit called The Drilling Co. of 1972 A/S (DRLCO DC) this week (April 4, 2019).

What's Interesting? The Edge Intelligence...
In-line with the holding family’s vision of removing oil and oil-related businesses to focus on its core Transportation & Logistics businesses, A.P. Moller-Maersk A/S (MAERSKB DC) announced the Spinoff of its drilling operations back on August 17, 2018. With more than two years of planning its original business transformation in September 2016 and failing to sell its drilling unit, the new company will be called The Drilling Company of 1972 A/S (DRLCO DC), and this split follows multiple failed efforts to sell the business in the challenging oil drilling environment, which is currently struggling due to overcapacity build-up leading to declines in average revenue (peers’ revenue is down ~6% in FY19E).

The separation will allow MAERSKB (ex-Spin) to focus on its niche core, more stable Transportation & Logistics business, where MAERSKB is the leader with a global market share of 19.4%. The Moller family, who owns over a 40% stake in MAERSK (via a holding company called AP Moller Holding A/S), revamped its management team with the sudden removal of then-CEO Nils Andersen in 2016 and announcing the strategic review of the business. This shows the family’s increased involvement in MAERSB with Ane Uggla (Moller’s daughter) being on the board and her son, Robert Uggla, becoming the CEO of their holding group in 2016.

The Edge View…
After the separation, MAERSKB (Parent ex-Spin) will be a shipping and logistics focused business that is strengthened by the Hamburg Sud acquisition ($4.3bn in November 2017), which has realized a synergy benefit of $420m in FY18 compared to the initial target of $120m and is now on track to achieve over $500m in synergies in FY19E (compared to the earlier target of $350m to $400m for this period). As the International Maritime Organization (IMO) planned to roll out a 0.5% global sulphur cap for marine fuel (compared to the current target of 2.5%) by 2020, we expect this will lead to ~$2bn in cost escalation at MAERSKB. However, this will put pressure on smaller loss-making Asian carriers and lowering competition. We still expect the net impact will be negative for MAERSKB in the near-term.