Maersk to Spin Off Unit It Couldn't Sell -- WSJ

By Costas Paris and Dominic Chopping 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 18, 2018).

A.P. Moeller-Maersk A/S said it will seek a spinoff next year of its offshore drilling unit, which it has been trying to sell as it battles a painful slump in its core shipping business.

The announcement Friday accompanied another set of weak quarterly results for the Danish cargo shipowner, which moves 18% of all containers world-wide. The industry as a whole is contending with rising fuel costs and depressed freight rates.

Maersk cut its full-year earnings forecast last week, with core profit expected to come in at $3.5 billion to $4.2 billion, compared with previous guidance of $4 billion to $5 billion.

Maersk Drilling -- which operates a fleet of 23 jackup rigs, drillships and semi-submersibles -- was put on the block two years ago when Maersk set out to transform itself from a sprawling conglomerate into a container logistics firm.

The company had set a deadline to sell or list Maersk Drilling by the end of this year but on Friday said a listing in Copenhagen next year would offer the best prospects for its shareholders.

Maersk tried to sell the drilling unit, but with its drillships valued in excess of $4 billion finding a buyer was a tall order.

"The reality is offshore drilling has been hit hard hit by the downturn in the oil market," Maersk Chief Executive Soren Skou said Friday in an interview. "I don't think there is anyone in the sector with cash to buy Maersk Drilling, and if it was equity involved it would have given us more exposure to offshore, which we don't want."

Even though crude oil prices have rebounded from their lows, offshore producers are still struggling to compete with cheaper onshore exploration, including the U.S. shale boom.

Maersk Drilling could have listed in markets like New York or London that are more liquid, but Copenhagen, where its parent group is already listed, was seen as a safer choice, given recent poor stock performance of most offshore drilling companies.

"We are keeping it at home," Mr. Skou said. "We are listing the company, but not raising any capital. We will give the shares to our existing holders."

Major investors include the shipping company's controlling shareholder, A.P. Moeller-Maersk Holding A/S -- which has already acquired Maersk Tankers, -- and Danish pension funds. France's Total SA bought energy producer Maersk Oil.

Ahead of the 2019 listing, Maersk Drilling has secured debt financing of $1.5 billion from a consortium of international banks.

Shares of A.P. Moeller-Maersk closed up 1.8% in Copenhagen trading.

Maersk is disposing of its energy units and says it plans to become a global logistics player in the likes of FedEx Corp. Container ships move the world's manufactured goods, from designer dresses to heavy machinery, but there are too many ships in the water, freight rates are a third below break-even levels and trade tensions are fueling uncertainty in the business.

Maersk said its annual profit will be hit by a 28% increase in its fuel bill and a 1.2% decline in average freight rates. Industry executives say oceangoing container shipping companies face a minimum $7 billion fuel increase this year.

Maersk's shipping unit had a second-quarter profit of $18 million, compared with a $269 million loss in the same period last year. Despite the depressed freight rates, revenue rose to $9.51 billion from $7.69 billion as Maersk's buyout of a rival helped boost volume.

Several of the carrier's big competitors, including Germany's Hapag Lloyd AG and Taiwan's Yang Ming Marine Transport Ltd., have reported steep losses in recent weeks.

Mr. Skou said cutting costs was a priority in a weak market. The company has suspended a number of unprofitable trans-Pacific routes and in the second quarter reduced the cost of carrying containers by 6% compared with the first quarter.

Write to Costas Paris at [e-mail] and Dominic Chopping at [e-mail]

(END) Dow Jones Newswires

August 18, 2018 02:47 ET (06:47 GMT)

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