Why Chevron is inking the biggest deal in its history

One scoop to start: Northvolt is looking to list its shares in Stockholm over other venues for one of the largest flotations for a European company in recent years.

In today’s newsletter:

The Big Oil ‘arms race’ has begun

A string of massive deals in the late 1990s and early 2000s — BP-Amoco, Exxon–Mobil and Chevron–Texaco — formed the modern supermajors. Now, a new wave of M&A is set to make those industry giants even bigger.

Bring on the Mega Majors. (DD is currently accepting submissions for a better buzzword.)

Things kicked off earlier this month with ExxonMobil’s $60bn purchase of Pioneer Natural Resources. Then on Monday, rival Chevron agreed to buy US oil and gas producer Hess for $53bn — its largest deal in history.

The all-stock deal offered Chevron a “unique and compelling opportunity” to expand in Guyana — home to the biggest oil discovery of the past decade — among other critical areas as consolidation picks up speed across the industry, said the oil major’s chief executive Mike Wirth. 

“Ours is an industry, especially as you get into the shale patch, that was due for some consolidation,” he said on Monday. “We’ve got too many CEOs per [barrels of oil equivalent] when you look across the whole spectrum.”

Exxon and Chevron now appear to be the leaders of the cut-throat global game of oil Monopoly after back-to-back bets on the long-term resilience of oil and gas demand.

Chevron’s strengthened foothold in Guyana — where Exxon already retains a 45 per cent operating stake — comes just two weeks after Exxon’s Pioneer deal enabled it to more than double its output in the oil-rich Permian Basin shale play of west Texas and New Mexico.

Wirth has insisted Chevron’s mega-deal wasn’t influenced by the former. “These discussions began and were under way well before the announcement or the rumours of the Exxon-Pioneer transaction,” he told the FT. “[This] would have happened had that not happened.”

Still, the timing isn’t lost on many dealmakers — who finally have something to get excited about after a marked slowdown in takeover activity. More mandates loom on the horizon.

“It is an arms race,” said one involved in the sector’s recent flurry. “In most sectors deal one doesn’t necessarily lead to deal two and deal three. I believe in this case it will because timing is of the essence and the two largest players have made their moves.”

Analysts predict that a tie-up between Shell and BP could be next, while cautioning there were a number of severe obstacles to any deal. 

The UK-based energy majors have complained that their valuations have lagged behind their US counterparts in part due to greater pressure on energy companies in Europe to embrace the energy transition — including its uncertainties.

Exxon and Chevron’s shared resistance to pivoting into renewables has steadily earned them more climate-conscious critics. But their “if it ain’t broke, don’t fix it” approach to hydrocarbons has thus far given them an advantage in terms of dealmaking. 

Chevron will spend just $2bn of its $14bn capital spending budget on lower carbon investments this year because such bets offer lower returns. 

Wirth, who at 63 years old recently extended his term as chief executive after Chevron’s board waived the mandatory retirement age so he could remain at the helm, is just fine with that ratio, even as the International Energy Agency has forecasted that demand for fossil fuels will peak before 2030.

“I don’t think they’re remotely right . . . You can build scenarios, but we live in the real world, and have to allocate capital to meet real world demands,” he said of the IEA’s projection in an interview with the FT.

If oil demand remains high into the next decade, as Wirth predicts, the deal could cement Chevron’s status in holding the levers of production. That’s a valuable position, even if today’s flaring geopolitical crises cool down. 

Orcel’s UniCredit strategy: small deals, big impact

Those who were expecting Andrea Orcel to announce a large-sized takeover before the end of his term as chief executive of UniCredit next spring might have been disappointed: “I’d encourage you to stay focused on my priorities: first creating value from within,” said the former UBS dealmaker on Monday. 

Yet, UniCredit’s acquisition of the Romanian assets of Alpha Bank for €300mn and its purchase of a 9 per cent stake in the Greek lender for an estimated €270mn is just what Orcel said he was after. 

Orcel has suggested his preferred dealmaking option was smaller deals with a minimum capital impact that would strengthen UniCredit in crucial markets. The Alpha Bank deal delivers just that: UniCredit’s combined operations are set to become Romania’s third-largest lender. 

The investment in the Greek bank comes amid increased signs of the country’s rebound from a sovereign debt crisis a decade ago. Last week, rating agency S&P upgraded the country’s debt to investment grade.

UniCredit is buying its equity stake in Alpha Bank from the Hellenic Financial Stability Fund, the country’s bank recapitalisation fund set up during the debt crisis.

“It’s a great start to the disinvestment process and a reflection of Greece’s regained credibility and growth opportunities,” said Alex Patelis, chief economic adviser to Greece’s prime minister Kyriakos Mitsotakis.

Orcel said he was content to make small, strategic bets: “[For] the time being and for the foreseeable future this is the best alliance we could have struck.”

DD is still betting that he will go big. Once a dealmaker, always a dealmaker. 

No one does corporate drama quite like the French

French IT services group Atos has been in a slow-motion crisis for a few years now as its business is disrupted by cloud computing and it churned through CEOs.

But the crisis has suddenly sped up in the past week since the group announced it was replacing its chair, the embattled private equity boss Bertrand Meunier, but would stick with his much contested plan to split the group in two and sell its legacy business to Czech billionaire Daniel Křetínský. 

The shares have lost almost 20 per cent since the governance shake-up that thrust former UniCredit boss Jean Pierre Mustier into the hot seat as its new chair. They fell 10 per cent on Monday alone after an idea was floated by lawmakers to nationalise Atos to protect its sensitive super computing technology that the French military relies on for its nuclear arsenal.

But nationalising a company for the relatively small slice of its business (less than 10 per cent of sales, as one former executive estimated) linked to French sovereignty is a folly that even the interventionist French are unlikely to do. The finance ministry quickly issued a denial that such a thing was being envisioned.

The jitteriness shows how deep the mess is that Mustier has to clean up. Will he be able to find a path through the muck to finalise the deal with Křetínský before Atos stumbles into a liquidity crisis? Or will he end up going back to the drawing board and choosing a different approach such as selling assets?

But people in Paris financial circles are playing a new parlour game: debating whether the implosion of Atos is better or worse than other baroque sagas that corporate France has produced.

Job moves

• Qatar Airways chief executive Akbar Al Baker has announced he will leave the airline next month.

• UBS and Credit Suisse have combined their strategic insights groups following the Swiss lenders’ historic deal. The new unit will be co-led by the teams’ existing leaders: UBS’s James Arnold in London and CS’s Rick Faery in New York.  

• Brookfield Asset Management has hired former Worldpay chief Sir Ron Kalifa as vice-chair and head of financial infrastructure investments. 

• Alternative asset manager P10 has named Goldman Sachs Asset Management co-head Luke Sarsfield as chief executive.

• WPP-owned media agency GroupM has sacked a senior Shanghai-based executive after Chinese police detained the high-ranking employee on suspicion of bribery last week.

Smart reads

The home loan loophole The $1.4tn FHLB, a government system meant to help Americans obtain mortgages, is being used by some clever investors as a way to get cheap money, Bloomberg reports.

Clashing narratives Kremlin-linked tycoon Magomed Musaev has claimed he is behind the deal to buy Forbes, according to audio tapes obtained by The Washington Post. But the US tech founder leading the deal says there’s no Russian involvement.

Betting on bonds A lift on the US ban against trading Venezuelan debt has sent some Wall Street investors on a risky hunt for profits, the FT reports.

News round-up

Roche agrees $7.1bn deal for Telavant to boost drug pipeline (FT)

Big university endowments hampered by start-up writedowns (Wall Street Journal) 

Web Summit CEO resigns after comments on Israel-Hamas conflict (Reuters) 

Private equity firms face worst year for exiting investments in a decade (FT)

How China’s property crisis has unfolded, from Evergrande to Country Garden (FT)

International Flavors mulls $3.5bn sale of pharma solutions business (Bloomberg)

Will Revolut ever get a British banking licence? (FT)