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Maersk to Split Into Two Separate Divisions

Maersk to Split Into Two Separate Divisions

Postby smix » Thu Sep 22, 2016 5:05 pm

Maersk to Split Into Two Separate Divisions
The Wall Street Journal

URL: http://www.wsj.com/articles/maersk-to-s ... 1474529401
Category: Business
Published: September 22, 2016

Description: Separating the transport and energy businesses will enable both to focus on their respective markets

maersk-container-ship.jpg

Danish shipping and oil giant A.P. Moeller-Maersk A/S said Thursday it will split its operations into two separate divisions focused on transport and energy as it battles one of the worst ever shipping down-cycles and a historic oil-price rout. Maersk Line, the company’s biggest unit and the world’s largest container operator in terms of capacity, will spearhead a new Transport & Logistics division, while the group’s extensive oil interests will be pooled under an Energy division, in what is seen as the biggest shake-up in the group’s 100-year plus history. The Transport & Logistics division will consist of Maersk Line, APM Terminals, Damco, Svitzer and Maersk Container Industry businesses. Maersk Line has been tasked with growing market share, both organically and through acquisitions. The four businesses within the Energy unit—Maersk Oil, Maersk Drilling, Maersk Supply Service and Maersk Tankers—will either remain part of the Maersk group or be separated in the form of joint ventures, mergers or a listing. A decision will be made within two years but the company isn’t looking to spinoff all four businesses, the company said on a call after the announcement. On the strategic front, Maersk Oil will adjust to focus on fewer geographies, particularly in the North Sea, where it will strengthen its portfolio through acquisitions or mergers. Exploration activities and expenses will be kept at a low level, it added. “The industries in which we are operating are very different, and both face very different underlying fundamentals and competitive environments,” Chairman Michael Pram Rasmussen said in a news release. “Separating our transport and logistics businesses and our oil and oil related businesses into two independent divisions will enable both to focus on their respective markets.” Maersk stunned investors in June when it fired Chief Executive Nils Andersen and asked his replacement, Soren Skou, to look into breaking up the group and possibly selling or listing some of its units. Mr. Skou, who has headed Maersk’s shipping business, was instantly tasked with evaluating whether to disband the holding company. The container-shipping industry has seen freight rates tumble amid a capacity glut, prompting price wars between operators that have pushed freight rates to levels barely covering fuel costs. Meanwhile, nearly two years of low crude-oil prices have hit Maersk’s energy unit hard. Thursday’s shake-up comes amid a wave of consolidation sweeping the container-shipping industry, as a number of big companies in recent years have combined forces to cut costs and increase competitiveness, while others, such as South Korea’s Hanjin Shipping Co. , haven’t been so lucky. “There is a wave of consolidation in container shipping,” Mr. Skou said on a conference call after Thursday’s announcement. “This is an inflection point in the industry,” he said. Hanjin, one of the world’s largest shipping lines, last month stopped taking new cargo after it filed for bankruptcy protection. A South Korean bankruptcy court has ordered the company to return the ships it charters back to their owners and to sell as many of its own ships as possible in what is seen as the first step toward liquidation. At the same time, operators have been scrambling to form alliances, broad operational partnerships that have allowed them to cut costs without a full-blown merger or takeover. “It’s very clear that Maersk wants to grow,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. “Instead of the units fighting each other for capital, the split-up will allow the separate businesses to focus on acquisitions. I expect Maersk Line to be more predatory over the next couple of years.” Mr. Jensen said an estimated 30% overcapacity of tonnage in the water that has led to freight rates barely covering fuel costs has left a slew of smaller container operators like Hanjin exposed to takeovers by bigger peers like Maersk if they are to stay above water. Shipping executives the Japanese container trio of— Kawasaki Kisen Kaisha, Ltd., Mitsui O.S.K. Lines and Nippon Yusen Kaisha Ltd. along with Hong Kong-based Orient Overseas Container Line Ltd. Taiwan’s Yang Ming Marine Transport Corp. will likely be in the crosshairs of bigger players. Kawasaki Kisen Kaisha dismissed earlier Thursday Chinese media reports that it would file for bankruptcy over the next two weeks. “The pressure on smaller lines is tremendous,” Mr. Jensen said. “They have been losing money for years and at some point you will either go bankrupt or be swallowed up by a bigger fish.” Mr. Jensen expects the world’s 20 biggest container operators to lose between $8 billion and $10 billion this year. Most were deeply in the red in the second quarter with Maersk Line shifting to a $139 million net loss, down 72% from a $499 million profit a year earlier. Following Thursday’s announcement, Mr. Skou will remain CEO of the group and will also head the Transport & Logistics division, while Claus V. Hemmingsen has been named Vice CEO and will head the Energy division. Group Chief Financial Officer Trond Westlie will step down, to be replaced by Jakob Stausholm, who currently heads up Maersk Oil. Maersk is controlled through a foundation by its founding family, which built the business from a steamship company started in 1904.
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