UPDATE 2-Aker Solutions to split into two as some markets sour

Wed Apr 30, 2014 6:19am EDT

* Slimmed-down firm to focus on subsea, deepwater

* New entity will be an investment vehicle

* Drilling tech, maintenance markets weak

* Subsea outlook strong

* Share falls 4 pct after initially gaining 3 pct (Adds CEO, analysts, stock)

By Balazs Koranyi and Henrik Stolen

OSLO, April 30 (Reuters) - Oil services firm Aker Solutions said on Wednesday it would split into two, keeping its best assets in a streamlined firm under new management as the market sours for several of its top business segments.

Aker Solutions, part of Norwegian billionaire Kjell Inge Røkke's business empire and one of the biggest players in the North Sea, will focus on its subsea and deepwater operations, hoping to erase the stock's historical discount to its peers and leaving some of its unloved assets in an investment vehicle.

"The new Aker Solutions is an integrated oil services provider and we position (the spun-off entity) Akastor as a new oil services investment company," Chief Executive Øyvind Eriksen said. "M&A will be part of the mandate of Akastor from day one. It doesn't mean Akastor will start a divestment programme."

Oil firms have cut back investment plans this year, delaying and cancelling projects and asking service companies to reduce costs, particularly on engineering and maintenance.

Service companies, which handle everything from design to drilling, are meanwhile focusing their efforts on more integration and improved projects execution after big delays and cost blow-outs on some of the biggest projects around the globe.

Aker Solutions has a track record for selling off under-performing businesses. It sold its well-intervention business and mooring and loading unit late last year. It also sold Kvaerner in 2011 in a similar move and has been planning to sell its oilfield services business for years.

WEAK OUTLOOK

Aker Solutions will keep the subsea, engineering and maintenance business and Akastor will get drilling technology, oilfield services and process systems.

"The 'new' Aker Solutions is the 'core' of the Aker Solutions business in our view, with synergies across divisions, attractive market positions and a capital light and cash generative business model," Goldman Sachs said in a note.

The slimmed-down Aker Solutions will keep 20,000 workers, two-thirds of the revenue and about 60 percent of the core earnings. More importantly, it will keep the subsea business, the company's crown jewel, which recently signed a cooperation deal with oil services giant Baker Hughes.

The leaner Aker Solutions will be headed by Luis Araujo, the company's regional president in Brazil, while Eriksen will stay on as the firm's chairman.

"We expect that this will lead to a reduced conglomerate discount overall with upside potential on asset sales, which is the end-game for the new company," Pareto Securities said.

The stock initially rose nearly 3 percent as investors cheered the split, but gave up gains after the firm said its outlook remained murky in several key areas because of investment cuts by oil majors across the globe.

At 0910 GMT, the stock was down 4 percent with investors also focusing on lower-than-expected earnings. Analysts estimate that Aker Solutions is trading at a 15-20 percent discount to its peers, broadly in line with its historical discount.

Aker said on Wednesday its drilling technology business, to be put into the new firm, faced a difficult future because margins are shrinking, drilling activity is cooling and new rig orders are drying up.

Its maintenance and modification business, one of the top units in the new company, is also struggling with a poor market as energy firms sharply reduce their spending in the North Sea, one of the world's most mature markets, Eriksen said.

But in subsea, which has grown to become the firm's top business unit, the outlook remains bright as offshore oil firms increasingly opt for subsea equipment instead of traditional platform-based technology. (Reporting by Balazs Koranyi; Editing by Prateek Chatterjee and Gareth Jones)

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