Hedge Fund Wants Murphy Oil to Spin Off Retail

"Forgoing this accretive spinoff would be a major missed opportunity," Third Point says

Dan Loeb

EL DORADO, Ark. -- Murphy Oil Corp. is under pressure to join other major oil companies and independent refiner-marketers in shedding retail assets, according to a Wall Street Journal report. Hedge Fund Third Point LLC, which recently pushed for a CEO change at Yahoo Inc., is turning its attention to Murphy Oil.

In a letter to investors, the $9.3 billion, New York City-based hedge fund run by Dan Loeb said Murphy would be worth $91 to $94 a share, if the energy company takes steps to restructure, including spinning off its retail business.

Reuters calls a Loeb "veteran corporate agitator."

The letter, a review of the hedge-fund's third-quarter performance, said Third Point had accumulated a "significant stake in Murphy" and recently filed for regulatory approval to increase that position.

The portion dealing with Murphy reads:

"Murphy's retail business consists of a network of over 1,100 fuel stations, the majority of which are located on or near Wal-Mart store sites. The business generated EBITDA of $363 million in 2011 and has relatively low ongoing capital requirements, making it highly cash generative. On the company's 2011 third-quarter earnings call, management indicated they were evaluating a separation of the retail business. After nine months of consideration, management recently said that they were not interested in pursuing a retail spin at this time on account of the unit's 'underperformance.'

"We believe forgoing this accretive spinoff would be a major missed opportunity. Both public company comparables like Alimentation Couche-Tard, Casey's General Stores and Susser Holdings and a forecasted dividend yield analysis suggest the retail business would be worth $2.3 billion to $2.8 billion if separated into a standalone public company. A spinoff in this valuation range would be worth $12 to $14 per share.

"At this point, it appears sentimental attachment by management and the Murphy family is driving a stubborn desire to hold onto these and other nonstrategic assets, creating a significant drag on enterprise value. While we hope that reason and a desire to create shareholder value will prevail over sentimentality and inaction, we have filed HSR to keep our options open should our discussions with the board and management not bear fruit for Murphy's owners."

(Click here to view the full text of the letter.)

News of the letter, first reported by CNBC, sent Murphy Oil shares soaring into positive territory. They ended the day up 4.1% at $58.21. Before Wednesday, they had been down 2.1% over the past six months.

The hedge fund declined to disclose the size of its Murphy stake and wouldn't comment on whether it has obtained approval to buy more shares.

In a separate letter focused on Third Point's September performance, the hedge fund said its Murphy stake is about the same size as its Apple Inc. (APPL) holding. Third Point reported in a previous regulatory filing it had $248 million worth of Apple shares at the end of June. Then, it said it had 1.5 million shares or $75 million worth of Murphy.

Noting Murphy's share price has been lagging industry benchmarks over the past three years, Third Point spelled out a four-step process for the energy company to "unlock the latent value."

In response, Murphy Oil issued a statement saying that "it has an ongoing dialogue with its shareholders and that the company is focused on maximizing long-term value for all shareholders. As part of this dialogue, it recently met with a number of investors including Third Point LLC. These and other investors have made a variety of suggestions with regard to the Company's portfolio and the company values their input."

Chairman Claiborne Deming said, "The board and management have been working to evaluate opportunities to illuminate the value in our stock price for the benefit of all of our shareholders."

The statement added, "The company will continue to keep all shareholders informed with respect to this evaluation."

El Dorado, Ark.-based Murphy Oil is an international oil and gas company. Murphy Oil USA Inc. operates a retail gasoline network of more than 1,100 stations in 23 states. In addition, the company operates a network of six owned petroleum product terminals and uses numerous third-party terminals to provide fuel supply to the retail network.