Royal Dutch Shell PLC (RDS.A) has entered into an agreement with Vitol and Helios Investment Partners for the sale of the majority of its shareholding in its downstream businesses in Africa. The total consideration of the deal is $1 billion. Per the terms of the deal, Shell will form two new joint venture companies and retain a partial interest in them to ensure continued availability of its products in 14 African countries.
Through the first joint venture, Shell will divest its 80% stake in businesses in 14 African countries, including Morocco, Tunisia and Egypt, to Netherlands-based oil trading giant Vitol and Africa-focused private investment firm Helios. With a hold over the remaining 20% interest, Shell will own and operate the existing oil products, distribution and retailing businesses. Plans are in process to include the downstream business of five other countries.
The second venture is a 50:50 partnership between the two aforesaid companies comprising Shell’s existing lubricants’ blending plants in 7 countries. This venture will be in charge of macro-distributor relationships in each of the countries where the main venture operates.
The contract is pending necessary regulatory approvals and is expected to be closed during 2011 and the first half of 2012.
Managements of Vitol and Helios remain highly optimistic regarding their alliance with the Anglo-Dutch oil giant, Shell. According to them, the fast-expanding African domain exhibits ample opportunities and prospects to capitalize on.
This deal also holds a lot of potential for Shell, both in terms of downsizing its refining and marketing operations as well as consolidating its foothold on the African ground in the years to come. We believe that Shell aims at concentrating on the more lucrative and well performing exploration and production activities.
With an expectation that Shell will continue to accelerate revenue and earnings growth over the next few quarters, we are maintaining our long-term Outperform rating on the stock.
Shell, which faces stiff competition from peers such as BP plc (BP) and Exxon Mobil Corp. (XOM), currently retains a Zacks #3 Rank (short-term Hold recommendation).
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