Shareholders in Murphy Oil (MUR) have to check their broker statements today. After the spin-off of its former retail marketing business is complete, shareholders now hold shares in both the former Murphy Oil as well as in the newly formed Murphy USA.
Therefore investors should ignore the optical losses in Murphy Oil but instead add a quarter of Murphy's USA share price to their investment. Doing that, they realize they have seen some decent returns on Tuesday in the lucrative spin-off business.
Finalization Of Spin-Off
Shareholders in Murphy Oil receive one share of the newly former company for every four shares they held at the close of business on the 21th of August of this year.
Murphy Oil Corporation
Murphy Oil generated roughly $8.9 billion in annual revenues for the calendar year of 2012 while it reported earnings around $900 million excluding the contribution from the refining business.
The company operates with around $1.1 billion in cash and equivalents and almost $3.1 billion in total debt for a modest net debt position.
Trading around $59 per share, the market values the firm at some $11.1 billion. This values the business at 1.2 times annual revenues and roughly 12 times annual earnings.
The $0.3125 quarterly dividend provides investors with a dividend yield of 2.1%.
The newly formed company generates annual revenues of $19.7 billion for 2012, up 2.0% on the year before. Annual net earnings fell by almost three quarters to just $83.6 million over the past calendar year. Yet earnings for the first six months of 2013 came in at around $100 million, boding well for the current year.
Trading around $38 per share, the market values Murphy USA at $1.75 billion. Factoring in the $60 million in cash and equivalents, and merely $1 million in debt, operating assets are value around $1.7 billion.
As full year earnings could approach $200 million, the operating assets are valued around 8-9 times annual earnings.
The newly formed company will be headed by Andrew Clyde which will manage retail outlets, production terminal and two ethanol production facilities.
Implications For Shareholders
Tuesday's market action marks the finalization of the spin-off which was initiated back in 2011. Typically these spin-offs have resulted in good returns to shareholders.
Shares of Murphy Oil closed at $67.42 on Friday but saw a big optical drop on Tuesday when they closed around $59.80. Shareholders receive 0.25 shares in Murphy USA which closed at $37.51 per share on Tuesday, adding another $9.38 in value. This means that shareholders now hold $69.18 in value, seeing a one day gain of 2.6%.
Perhaps the future bodes well, just like it has done for other companies which have been spun off. Shares of Phillips 66 (PSX), which represents the refining business of former ConocoPhillips (COP), have already doubled since their spin-off in spring of 2012.
Perhaps a similar scenario could occur for former shareholders in Murphy Oil as they become shareholders in Murphy USA which has been separated under generous terms, namely that the company operates without debt. Obviously this is a zero sum game as debt will be held by Murphy Oil, but the increased management focus might be helpful to create value in two separate entities.
Irrelevant of the future prospects for both firms, shareholders can already pocket a 2.6% post-split return making it worth all the hassle.