To split or not to split?
That is the question facing this summer. The Danish shipping-to-oil conglomerate has been hit by what it calls a “perfect storm” and so is now contemplating a historic break-up into two parts.
Its container shipping business, the world’s largest, has had to contend with , as freight rates hit record lows.
Maersk’s oil production and drilling rig businesses were meant to act as hedges to shipping, allowing it to benefit in part from high energy prices. But instead they have been hit by the plunge in oil prices, leaving a conglomerate that is suffering on all fronts.
The 112-year-old company is not known for its radicalism, so it demonstrated the scale of the problem when Maersk’s chairman publicly floated the idea of a split. But playing around with the corporate structure is not going to be sufficient for Maersk: it needs to rediscover growth as well.
Soren Skou, chief executive since the end of June, is the man charged with delivering a strategic review by the end of next month. He owes his position to what insiders call a “struggle of wills” that pitted chairman Michael Pram Rasmussen and the family that controls the company against its last chief executive, Nils Andersen.
Mr Andersen lost and was fired. That same day, Mr Rasmussen told the Financial Times and others that a break-up was being discussed.
Now that such a dramatic idea has been floated, insiders say there is little chance of backtracking.
The favoured solution currently is for Maersk to split in two: a transport business formed around Maersk Line in container shipping and APM Terminals, which runs ports worldwide; and an energy business centred on oil production and drilling rigs.
A different outcome is possible. There are technical issues to clear up about Maersk’s oilfields in the North Sea.
But it is clear that Maersk Line — which Mr Skou has headed since 2012 and will continue to lead — will return to its position as the dominant part of the Danish group.
The oil business is praised by Mr Skou for cutting costs by a quarter in the past year, making it profitable if crude prices sink back to $40 to $45 per barrel again. But Maersk Oil recently lost its biggest asset — a Qatari oilfield — and insiders worry about whether it can offer much in the way of revenue growth to the conglomerate.
That is because top-line growth — or the lack of it — is arguably Maersk’s biggest issue. It certainly seems a bigger problem than having to explain its ragbag of assets, especially after Mr Andersen sold off stakes in Denmark’s largest bank and supermarket, symbols of its role as the country’s pre-eminent company.
In his first interview as chief executive, Mr Skou told the FT that boosting revenues would be one of his main priorities. Revenues are lower than they were a decade ago and have fallen consistently in the past five years.
The second quarter was a demonstration of why top-line growth will be tricky, at least without an acquisition. Maersk Line managed to increase its volumes by 7 per cent compared with a year earlier. But a 24 per cent drop in freight rates meant revenues fell by a fifth.
A wave of consolidation is taking place in container shipping at the same time as overcapacity bedevils the industry. Maersk, like its peers, is likely to turn to acquisitions. After all, Maersk Line is keen to hold on to its position as the market leader. It looked at buying Neptune Orient Lines, the Singapore-based shipping group that was eventually sold to French rival CMA CGM late last year.
Still, Maersk’s record in acquisitions gives pause for thought. The Danish group concedes itself that it botched the integration of its last big deal, the takeover of P&O Nedlloyd in 2005.
In his four years as head of Maersk Line, Mr Skou has demonstrated he can prop up the bottom line by cutting costs by 39 per cent since the start of 2012. Now, with the distraction of a potential split as well, he has to show if he has the same expertise with the top line.
