My Daily Commitment

[al97]

23 Oct - Commercial Awareness - Energy
Topic: Another Mega Energy Deal – Chevron’s $53bn Acquisition of Hess
https://www.ft.com/content/f25f315f-2551-4517-a7a2-2d9418001756
https://www.ft.com/content/42751474-ea28-4bc2-838b-50d564b93189

Last week, I wrote about Exxon’s acquisition of Pioneer which will consolidate its market shares in the energy sector and analysts expect to see more acquisitions soon. Yesterday, Chevron announced its acquisition of Hess.
Exxon indicated their confidence in the future of the oil market despite the race for renewables.
Similarly, the titled acquisition is Chevron’s bold statement about their confidence in the oil market.
The share price proposed by Chevron is only 10% more than the average of Hess’s shares over the past 20 days.
In 2023, $254bn worth of M&A deals in oil and gas industries globally have been recorded, the highest since 2014. It is safe to say that oil rivals are racing to snap up resources by M&A.


Why is Hess attractive?

• Hess owns 30% stake in a 6.6mn acre offshore oil exploration scheme in Guyana – where Exxon is the lead operator and the 465k acre shale project
• It increases Chevron's oil and gas output by more than 10%
• It diversified Chevron’s portfolio of oil assets, which is very concentrated in New Mexico and Texas.
• Guyana is located in South America. Its production went from 0 in 2019 to 260k barrels a day in 2022, expected to reach 480k b/d by 2023 and 1.5mn b/d by 2033.
• Its output from Guyana is expected to grow faster than non-OPEC producers
• The deal will equip Chevron to compete with Exxon

How is BP doing?

• FT reported that BP is at a vulnerable position for a takeover due to falling share price and recent resignation of the CEO.
• Analyst speculated that BP tie up with Shell is possible. It is only of merger at this scale can put them in the same league with Exxon and Chevron.
• Currently, BP has not made any move to pursue a merger or an acquisition.

Interview Question

Who are the biggest players in the oil industry?
BP, ExxonMobil, Chevron, Shell

What is OPEC?
It was formed by four major oil-producing countries: Kuwait, Libya, Nigeria, and Saudi Arabia to maximise the profit of the global oil market.

Name some recent news in the oil industry
Exxon’s acquisition of Pioneer; Chevron’s acquisition of Hess; BP CEO stepped down

 

[al97]

24 Oct - Commercial Awareness - Energy
Topic: EU’s homegrown battery manufacturer plans to go IPO
https://www.ft.com/content/ca7a87b7-8f37-411e-851e-cb83750dba0f
https://www.ft.com/content/47381ec0-00ba-459b-a68e-07591c9c3e5b


Today is another article deep-diving into batteries. I find it helpful to learn about a sector in-depth from the POV of different countries. Previously, I’ve explored China’s battery sector, so this article will be about the EU’s homegrown battery maker – Northvolt – and its growth.

History
Northvolt was founded in 2017 by two Tesla executives. It only use renewable energies in its battery factories – derived mostly from the country’s hydropower resources – and it is aiming to manufacture half of its battery from recycled cells material before 2030.

China

• Putailai, a Shanghai-listed battery supplier is investing $1.3bn in Northvolt – signifying Western’s reliance on Chinese energy sector.
• Putailai is among the four biggest Chinese groups in the sector that account for about 50% of the global market. It is the top synthetic anode producer in China.
• Putailai is building a factory to manufacture anodes, the (-) sign on batteries. The factor will be based in Sundsvall, central Sweden. Northvolt is the factory’s first major customer as the anodes supply from Putailai will help to cut its carbon footprint by more than 90% compared to importing from China.
• Sweden also attracts a series of Asian suppliers including: South Korea’s Dongjin, China’s Kedali

BlackRock
Northvolt raised €1.2bn in convertible bonds from BlackRock. It has more than $55bn in orders from car and truckmakers. Its latest fundraising is backed by three Canadian pension funds: IMCO, CPP, and Omers. Alongside BlackRock, they issued €1.1bn in convertible bonds.

The IPO

• This week, FT reported that Northvolt is looking to list on the NASDAQ Stockholm. It has been talking to investment banks to value their company at roughly $20bn and Rothschild is providing advice on the IPO.
• With the IPO, they could become EU’s largest battery maker. They’re backed by Goldman Sachs Asset Management, Volkswagen, BMW, Siemens and Blackstone. They plan to raise $5bn in debt financing, which will cement its status as the EU start-up that raised the largest capital.
• They will start to construct a factory outside Montreal, Canada to rival Asian players.
• The first gigafactory began its construction in Sweden at 2021. It’s planning to open three more, with the help from the generous green subsidies under the IRA.

 

[axelbeugre]

23 Oct - Commercial Awareness - Energy
Topic: Another Mega Energy Deal – Chevron’s $53bn Acquisition of Hess
https://www.ft.com/content/f25f315f-2551-4517-a7a2-2d9418001756
https://www.ft.com/content/42751474-ea28-4bc2-838b-50d564b93189

Last week, I wrote about Exxon’s acquisition of Pioneer which will consolidate its market shares in the energy sector and analysts expect to see more acquisitions soon. Yesterday, Chevron announced its acquisition of Hess.
Exxon indicated their confidence in the future of the oil market despite the race for renewables.
Similarly, the titled acquisition is Chevron’s bold statement about their confidence in the oil market.
The share price proposed by Chevron is only 10% more than the average of Hess’s shares over the past 20 days.
In 2023, $254bn worth of M&A deals in oil and gas industries globally have been recorded, the highest since 2014. It is safe to say that oil rivals are racing to snap up resources by M&A.


Why is Hess attractive?

• Hess owns 30% stake in a 6.6mn acre offshore oil exploration scheme in Guyana – where Exxon is the lead operator and the 465k acre shale project
• It increases Chevron's oil and gas output by more than 10%
• It diversified Chevron’s portfolio of oil assets, which is very concentrated in New Mexico and Texas.
• Guyana is located in South America. Its production went from 0 in 2019 to 260k barrels a day in 2022, expected to reach 480k b/d by 2023 and 1.5mn b/d by 2033.
• Its output from Guyana is expected to grow faster than non-OPEC producers
• The deal will equip Chevron to compete with Exxon

How is BP doing?

• FT reported that BP is at a vulnerable position for a takeover due to falling share price and recent resignation of the CEO.
• Analyst speculated that BP tie up with Shell is possible. It is only of merger at this scale can put them in the same league with Exxon and Chevron.
• Currently, BP has not made any move to pursue a merger or an acquisition.

Interview Question

Who are the biggest players in the oil industry?
BP, ExxonMobil, Chevron, Shell

What is OPEC?
It was formed by four major oil-producing countries: Kuwait, Libya, Nigeria, and Saudi Arabia to maximise the profit of the global oil market.

Name some recent news in the oil industry
Exxon’s acquisition of Pioneer; Chevron’s acquisition of Hess; BP CEO stepped down

Hey @al97,

This is so well-researched, thank you so much for keeping up with this! It is helping me a lot with understanding business deals more in-depth.

Reading about these oil and gas M&A deals really make me question what will be the future of ESG considerations when it comes to remunerative deals like this, especially in the oil and gas industry? With the rise of sustainability concerns, the role of lawyers will also have to include a particular attention to how these types of deals are detrimental to the environment. Many firms now like Vinson & Elkins for instance are committed to acting in their clients’ best interests consistent with our fiduciary duty, client goals, and legal requirements when it comes to ESG concerns. How will the legal system change with the rise of sustainability concerns? And how the oil and gas industry will cope with the increase of stringent measure to limit the negative consequences on the environment? I am really interested in this topic so thank you so much!

 

[axelbeugre]

24 Oct - Commercial Awareness - Energy
Topic: EU’s homegrown battery manufacturer plans to go IPO
https://www.ft.com/content/ca7a87b7-8f37-411e-851e-cb83750dba0f
https://www.ft.com/content/47381ec0-00ba-459b-a68e-07591c9c3e5b


Today is another article deep-diving into batteries. I find it helpful to learn about a sector in-depth from the POV of different countries. Previously, I’ve explored China’s battery sector, so this article will be about the EU’s homegrown battery maker – Northvolt – and its growth.

History
Northvolt was founded in 2017 by two Tesla executives. It only use renewable energies in its battery factories – derived mostly from the country’s hydropower resources – and it is aiming to manufacture half of its battery from recycled cells material before 2030.

China

• Putailai, a Shanghai-listed battery supplier is investing $1.3bn in Northvolt – signifying Western’s reliance on Chinese energy sector.
• Putailai is among the four biggest Chinese groups in the sector that account for about 50% of the global market. It is the top synthetic anode producer in China.
• Putailai is building a factory to manufacture anodes, the (-) sign on batteries. The factor will be based in Sundsvall, central Sweden. Northvolt is the factory’s first major customer as the anodes supply from Putailai will help to cut its carbon footprint by more than 90% compared to importing from China.
• Sweden also attracts a series of Asian suppliers including: South Korea’s Dongjin, China’s Kedali

BlackRock
Northvolt raised €1.2bn in convertible bonds from BlackRock. It has more than $55bn in orders from car and truckmakers. Its latest fundraising is backed by three Canadian pension funds: IMCO, CPP, and Omers. Alongside BlackRock, they issued €1.1bn in convertible bonds.

The IPO

• This week, FT reported that Northvolt is looking to list on the NASDAQ Stockholm. It has been talking to investment banks to value their company at roughly $20bn and Rothschild is providing advice on the IPO.
• With the IPO, they could become EU’s largest battery maker. They’re backed by Goldman Sachs Asset Management, Volkswagen, BMW, Siemens and Blackstone. They plan to raise $5bn in debt financing, which will cement its status as the EU start-up that raised the largest capital.
• They will start to construct a factory outside Montreal, Canada to rival Asian players.
• The first gigafactory began its construction in Sweden at 2021. It’s planning to open three more, with the help from the generous green subsidies under the IRA.

@al97, another interesting article!

I totally agree with what you said around looking at different countries' points of view regarding a specific business news. As a former international relations student, I am used to being drawn to the different objectives that countries have, and how their approaches differ from one business deal, provision or rule to the other. I wonder if China's domination of the energy sector keeps increasing, especially in the EU, what will EU countries do to respond to this huge trend?
Thanks once again for providing such a detailed analysis of this issue!

 

[al97]

1 Nov - Commercial Awareness - Energy
Topic: Goldman and Morgan Stanley Backed Megadeals in the Oil Sector

Oil sector megadeals open fee gusher for Goldman and Morgan Stanley

The two banks are the biggest winners on Wall Street as energy industry bucks M&A downturn

www.ft.com

The two mega M&A deals – Chevron-Hess and Exxon-Pioneer – brought $260bn to the two banks, each working on energy deals worth about $165bn.

Analysts foresee that there will be more bulk-up between major oil producers to produce cheap barrels in bulk. Therefore, more M&A activities in the oil sector. Goldman and MS will benefit from the deal-making as both have built energy expertise over the past decade.

Investors have pressurised companies to withdraw from organic growth, which is to drill new wells. Instead, they insisted on returning cash, so it has left companies with acquisitions as their very few options. Also, when oil prices soared during the Russian-Ukraine war, energy groups were able to pay back their debt.

The high valuations also made it easy for Chevron and Exxon to strike an all-stock transaction. If they use cash, the share price of oil companies may go down dramatically. But if they use stocks, everybody is affected equally.

Regulatory intervention is also unlikely because Washington is occupied with 2024 presidential election. The White House wil not want to be accused for causing oil price to rise for interfering.

Other banks are also involved in oil deals: Citi advised Exxon on $102bn worth of energy deals this year, including the $5bn acquisition of oil company Denbury in 2023. JPM advised on $89bn worth of transactions in 2023. Other boutique investment banks include Centerview Partner, Evercore

Interview questions:

What is an all-stock acquisition?
When the Buyer offers the Seller (company’s shareholders) a premium over the target company’s share price. This way, the Seller may earn a capital gain if the target becomes a much-improved company after the acquisition. As opposed to all-cash deals where Buyer assumed all the risks of the acquisition, all-stock is dilutes the risk to the target’s shareholders too.

 

[al97]

3 Nov - Commercial Awareness - Tech
Topic: AI Summit in the UK
https://www.ft.com/content/0869d0ec-a6fd-4fec-844a-61f837ed21a9

US upstages Rishi Sunak with AI regulation plan

Gina Raimondo announces new safety institute on day UK prime minister begins Bletchley Park summit

www.ft.com

Hi, I'm very happy to announce that I have been offered a paralegal position at a PE-focused firm in London. It's not the end (a TC), but I think it's a significant progress. It starts on next Tuesday, so I'm feeling nervous and excited at the same time. I will remain committed to this thread, but I think it's a good idea to take time off LinkedIn so let's stay in touch here!

Today's news is about AI Summit. When I attended Covington Insight Series, the trainees shared that it was something that they were working on. It is worth noting that Covington is strong on regulatory law, with a notable focus on science and tech, so I'm not at all surprised that they will be heavily involved in a lot of public policy work.

28 countries rallied to participate at the inaugural AI Summit, hosted by the UK at Bletchley. Countries involved China, Nigeria, Japan, France, and Germany. From the tech end, executives from Open AI, Microsoft, Meta, and Google attended. Topics include the risks of AI safety, loss of control of AI, and international cooperation.

Pressure from US
On the same day of the AI Summit, the US announced that they are setting up their own institute to police AI. Not just the US, but even in China and EU, they’re adopting their own set of measures with significant disparity. If the countries are to be ranked in the order of strictness on tech companies (pro-innovation), it would be as such:

China > EU > UK/ US

Regardless, it’s worth noting that China’s presence at the Summit is landmarking success on the part of UK.

 

[axelbeugre]

3 Nov - Commercial Awareness - Tech
Topic: AI Summit in the UK
https://www.ft.com/content/0869d0ec-a6fd-4fec-844a-61f837ed21a9

US upstages Rishi Sunak with AI regulation plan

Gina Raimondo announces new safety institute on day UK prime minister begins Bletchley Park summit

www.ft.com

Hi, I'm very happy to announce that I have been offered a paralegal position at a PE-focused firm in London. It's not the end (a TC), but I think it's a significant progress. It starts on next Tuesday, so I'm feeling nervous and excited at the same time. I will remain committed to this thread, but I think it's a good idea to take time off LinkedIn so let's stay in touch here!

Today's news is about AI Summit. When I attended Covington Insight Series, the trainees shared that it was something that they were working on. It is worth noting that Covington is strong on regulatory law, with a notable focus on science and tech, so I'm not at all surprised that they will be heavily involved in a lot of public policy work.

28 countries rallied to participate at the inaugural AI Summit, hosted by the UK at Bletchley. Countries involved China, Nigeria, Japan, France, and Germany. From the tech end, executives from Open AI, Microsoft, Meta, and Google attended. Topics include the risks of AI safety, loss of control of AI, and international cooperation.

Pressure from US
On the same day of the AI Summit, the US announced that they are setting up their own institute to police AI. Not just the US, but even in China and EU, they’re adopting their own set of measures with significant disparity. If the countries are to be ranked in the order of strictness on tech companies (pro-innovation), it would be as such:

China > EU > UK/ US

Regardless, it’s worth noting that China’s presence at the Summit is landmarking success on the part of UK.

@al97 Congratulations on your paralegal job, this is amazing and you should be so proud of you! As you said, this is not the end but it is an amazing step towards that finish line as this experience will substantially help you secure a training contract, I am sure of it.

It is so inspiring to see you thrive and be so passionate about the law and the business world, you motivate me to research areas of law I had never thought of and I want you to know how appreciative me and others are for your commitment to these daily posts, so thank you so much!

As for your ranking of countries based on strictness on tech companies, I have to agree completely. I remember reading something last year when I was applying to vacation schemes around the fact that tech companies were largely moving to the US, especially the European ones, as the US are allowing a much more comfortable environment for small tech companies to flourish. I wonder if the EU specifically will be working hard towards competing with the US on this.

Thank you again and congratulations! Good luck on your journey!

 

[al97]

4 Nov - Commercial Awareness - Tech
Topic: Western Digital walked away from merger with Kioxia
https://www.ft.com/content/28b822f3-63bc-4cc6-b39e-50fe996aaad6

Western Digital is a California-based semiconductor maker
Kioxia is one of the largest manufacturers of NAND flash memory. It is a semiconductor unit under Toshiba.
Private equity was also involved. Bain Capital led a consortium that bid for Kioxia at $18bn back in 2017, which was the biggest PE-led deal in Japan at the time.
The merger was seen as Bain’s ambition to exit and consolidate a strong semiconductor supply chain between US-Japan.
However, the South Korea-based competitor, SK Hynix, opposed to the deal. Despite having $3.5bn investment in the Bain-led investment, the deal was perceived to threaten its market share. The merged entity is twice the size of SK.
Bain also struggled to go through an IPO. It planned to list Kioxia in 2020, but COVID and US-China tensions have halted the plan. Kioxia is still considering an IPO but the global demand for memory chips have fallen. It appears that PE firms are struggling to get a clean exit and make returns on their investments.

Shares in Western Digital fell by 6% after the announcement.

 

[al97]

9 Nov - Commercial Awareness - Private Equity
Topic: WeWork Filed for Chapter 11 Bankruptcy
https://www.ft.com/content/775ec01c-1f57-4105-bbc2-b048865056f7

The bankruptcy
WeWork struck an agreement with nearly all of its creditors to transform $3bn of existing loans and

WeWork was powerful during its prime. At one point, it surpassed JPMorgan Chase as New York’s largest commercial tenant and controlled the second most square feet in London, right below the government. In 2017, the CEO, Neumann, persuaded SoftBank to invest $4.4bn nad brought the valuation to $20bn. At this point, FT reported that WW’s valuation was actually closer to $3bn. Just a year later, Softbank committed another $4.5bn. In 2019, the company was valued at $47bn.

Why did WeWork fail?
The expanded rigorously by buying properties all over the world because they believe that companies, from small start-ups to Fortune 500, will eventually abandon long office leases and ultimately move into flexible co-working space, like the ones WeWork provided. However, during COVID-19 social distancing policies, nobody was using office at all. Secondly, companies also realised they were able to cope with hybrid working mode, so it isn’t necessary to transform to co-working space. The CEO’s addiction issue was also discussed. He smokes marijuana and drinks alcohol heavily. However, Softbank concluded that addiction issues are not sufficient to ounce him as a CEO, it is only when he commits violent crime.

 

[Mike Wazaoski]

Hi @al97

I appreciate the consistency of your content! It’s concise and clear.

I am making a commercial law updates TikTok page. Primarily focusing on ESG and Data/ Tech.

Can I use your updates as content for some of these posts?

Happy to credit your work however you see appropriate.

Thanks!

 

[al97]

16 Nov - Commercial Awareness - Private Equity
Topic: Private Equity Being Creative
https://www.ft.com/content/32dbf11f-0254-496c-8c77-c813987febeb
https://www.ft.com/content/ff1b5904-5210-4c56-9157-7f2b4c05a750


Hello, glad to be back. I’m aware that this thread has become more like a weekly rather than a daily commitment. My apologies. I did not expect the workload to kick in so quickly. If anyone has any experience at a PE firm as a paralegal, please please feel free to share your (actionable) tips on how to impress the associates/seniors, so you can pass your probation…

Something I read the past week that really interest me was the direction that PE funds are going to survive the high interest rate era.

First, it is the boom of private credit. I will touch on this briefly because this has been mentioned in my previous thread. Private credit is basically loans provided by a lender other than a bank. Unlike corporate bonds, private credit loans are not traded on the public market and they often cater to borrowers who are easily rejected by banks, which have very little risk appetite. A recent example of private credit growth is Blackstone. Blackstone recently raised $400mn to boost its private credit arm. The loan was securitised by the private credit fund that is worth $52bn.

Second, PE firms are borrowing money from banks at a fund level. This is notable because the portfolio companies that PE firms own borrow money by securitising themselves. For example, if CVC IX owns Tinder (being CVC’s portfolio company) and if Tinder requires a loan, it will borrow money from the bank by collateralising its own assets. However, now that we’ve an era of high IR, banks are reluctant to lend to high-risk companies with little prospect of paying back. If these portfolio companies are unable to get a loan > they struggle to grow as a business > unable to generate lucrative returns for LPs > the GPs suffer. Therefore, some agree that it is a better strategy for the funds to do the borrowing because banks are willing to lend at a low interest rate to a fund with much money i.e. Blackstone. However, some LPs are not very happy because the funds are using their money as a collateral to borrow from banks. In the event that the loan is defaulted, it is the LPs money that would be used to pay back the debt.

 

[Lopez2017]

18 Sep - Commercial Awareness - Law firm as a business
Topic: Paul Weiss’s second raid of Kirkland partners
Link: https://www.ft.com/content/09a8a911-e406-441f-85af-25d1539cdc1b
https://www.ft.com/content/5e430125-c107-4cc6-866b-478f7d84b7aa
https://www.ft.com/content/44ae74d1-53c5-4674-b7db-433e1d0a0279

Last week, US firm Paul Weiss raided 12 new partners from KE who specialised in private equity and one partner from Linklaters in M&A.

1. PW’s ferocious expansion

This is the second time they raided KE partners. The first time was reported on 14th Aug and the raid included approx 4 partners from the London office as well as a team in LA, all of which are directed at Kirkland, mainly from the private equity team

The raid aligns with PW’s plan to expand in London and set up an office in LA. FT wrote that this is a short-term strategy to attract partners but very expensive in the long run.

In my opinion, Kirkland relied on this strategy to expand to the top in terms of revenue, so PW is simply replicating. Now that we have entered a high-interest rate era, it is doubtful whether it is a risky move for PW to spend this much money to poach expensive partners. Alternatively, the news can be a strong argument that the PE team will be busy again

1. US executives bypassed London partners to hire new partners from a rival
   1. How is the relationship between US HQ executives and MPs from other offices?
   2. Can they “plant” new partners without consulting them first?

1. Impact on the London legal market.

This is apparent in the staggering rise of NQ’s pay. Though in my opinion, the need to escalate in line with inflation plays a role, but a lucrative salary at US firms are major contributor to UK firm's pay rise.

Especially at NQ level, where the gap is stark between Magic Circle (105k in 2022) and US firms (150k in 2022). In 2023, four MC firms (except for Slaughters at 115k) increased to NQ pay to 125k, which is a steep increase from last year, but it’s still substantially lower than the average of US.

Seeing that US firms are increasingly dominant in the City, how will London compete to attract the best talent?

They've done it again lol