Dan Loeb Has Plans for This Oil Company

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So my last post mentioned the David Einhorn presentation, with his ideas for Chipotle and Cigna, now it seems “good buddy” (sarcasm), Dan Loeb (founder of hedge fund, Third Point), has a few ideas of his own with respect to Murphy Oil (NYSE: MUR). After snagging a couple of boardroom chairs at Yahoo! HQ, and exposing the CEO’s résumé gaffes, Loeb’s fund has reportedly accumulated just under 5% of Murphy Oil and recently tossed a few ideas at the oil and gas outfit.

Loeb proposed a spin-off of the retail operations, fresh after a partnership with fellow Arkansas-based Wal-Mart, selling off over 1,100 gas stations; selling natural gas assets owned in Canada, as well as the company’s position with the Syncrude Oil Sands project; and an exit from refining operations in the United Kingdom. Mr. Loeb argues that a successful implementation of his ideas would see the share price potentially hit over $90 a share (60% upside). Shares are currently trading around $58 per share, basically flat year-to-date, but up around 4% since Loeb’s stock “illumination” plans were revealed.

Murphy Oil offers loyal shareholders a decent 2.1% dividend yield, doling out $1.20 per share annually (30-cents every quarter). The share price is slightly off 52-week highs, trading between $43 and $65 in that time span. It’s quite possible Loeb has taken the recent spin-off success exhibited from Marathon and ConocoPhillips, although those moves weren’t specifically mentioned (nor did he bother to mention my posts on those events; shocking, I know).

But what might be more telling is the announcement from Valero Energy Corp. (NYSE: VLO), after their recent call (and earnings beats), in July that they were hiring Credit Suisse to study possible plans for their own retail spin-off. Since that time, Valero is up over 30% (over 50% year-to-date), with “Buy” recommendations coming their way faster than fund managers’ suggestions for companies. Valero is currently a couple of bucks off their 52-week highs, trading in a $19 to $34 range during that time. The company pays out 70-cents per share each year to investors, putting the dividend yield at a tidy 2.2%.

These “activist” antics from fund managers don’t always result in the best returns for shareholders of the companies they target. As of this writing, I am enjoying a -33% return on the efforts of Nelson Peltz with his Triarc Companies’ $2.34B acquisition of Wendy’s (NASDAQ: WEN), in 2008 (3rd time’s the charm). I was employed by a franchisee prior to the placement of the “For Sale” sign at company headquarters in Dublin, Ohio, and put a small amount on the hopes that an acquisition might bear some fruit. Peltz had proclaimed that the stock was worth three-times what it was trading then (he paid just under $27 a share for the company). Unfortunately the marriage with the group that also owned Arby’s (they have since sold that brand), has afforded similar results as the countless, tasteless breakfast offerings they have attempted over the years.

I realize that energy and fast food are about as comparable as oil and water, but these are some of the examples of things that could happen, should management have a few suggestions of their own, with any fund manager’s ideas. With the potential for a decent return with Valero, should they proceed with a possible spin-off, Murphy Oil could take a page out of that book and give Loeb’s “mad genius” a second look to make way for some serious returns. Similar spin-offs from Marathon and ConocoPhillips have been rather successful. If Valero’s follows that trend, Murphy Oil might be wise to follow suit.


kmet312 owns shares of The Wendy’s Company. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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