Murphy Oil Caves in to Daniel Loeb

The writing has been on the wall for a couple of weeks, ever since Third Point, the hedge fund managed by Daniel Loeb, announced that it had put together a "significant" stake in Murphy Oil Corp. (NYSE: MUR). Among other things, Loeb wanted Murphy to spin off its retail business, and this morning the company announced that it will do just that.

Murphy will spin off its downstream business, Murphy Oil USA, into a separate publicly traded company, and as a bonus, will pay a special dividend of $2.50 a share and repurchase up to $1 billion in a new share buyback program.

Murphy's chairman said:

Today's announcements are consistent with our commitment to creating value for shareholders. Separating these two businesses will allow each to unlock its own potential for growth. We have built two strong but distinct businesses. Murphy will be a pure-play exploration and production company with strong returns and attractive investment opportunities, while Murphy USA will be a leading retailer with over 1,100 retail gasoline outlets.

Right, no arm-twisting here.

The spin-off of Murphy Oil USA will be a tax-free transaction effected through the distribution of shares in the new company on a pro-rata basis to all Murphy shareholders. The record date has not been set, but the spin-off is expected to be finalized "in 2013" according to the press release.

The special dividend will be paid on December 3 to shareholders of record as of November 16 and is being made in addition to the company's current dividend of $0.3125 a share.

In addition to spinning off the company's downstream businesses, Loeb also said he wanted Murphy to sell its U.K. refinery, its stake in an oil sands project and its stake in Canadian Natural Gas. He got the first item on his wish list, and Murphy likely hopes that he is satisfied with the special dividend and share buyback plan. But the company shouldn't count on it.

Murphy's shares are up 8.5% in premarket trading, at $64.02 in a 52-week range of $43.29 to $65.60.

Paul Ausick