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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dear reader,
Everyone expects dealmaking to pick up this year — not a high-risk prediction given the collapse in activity in 2023 and the sporadic bouts of euphoria every time some data point or another suggests that central banks may be closer to cutting interest rates.
But the distance between dealmaking doldrums and the kind of blockbuster transactions that really excite us all can feel like a slog. And there is a lot of shoe-leather work to come: this cycle is only just getting going. The Lex column has been following the activity — and will continue to do so.
1) The US oil sector continues to produce classic defensive deals that owe more to the abject uncertainty about the outlook for fossil fuel demand than any expansionary urges. This week’s variant — Diamondback Energy’s $26bn swoop for Endeavor Energy Resources — is the latest in the quest to snap up prime assets in the US Permian Basin. It follows deals by Exxon, Chevron and Occidental in the shale patch since last autumn. The move will pile pressure on those such as ConocoPhillips that have yet to secure their own deal. Read more here.
2) This year has started with a flurry of chatter about the idea of consolidation in European banking. Of course, this is a recurring theme and one that generally comes to nothing. A few weeks ago it was the German banks and the idea that Deutsche Bank could lead the dealmaking. Lex gave that idea short shrift here.
Last week, we looked at similar hopes after the extraordinary comeback by Italian banks, thanks to higher interest rates and government-led efforts to clean up balance sheets. The presence of Andrea Orcel at the helm of one of the best performers, UniCredit, has fuelled deal talk. The UBS veteran doubtless has one eye on combinations. But there is a problem, in European lenders’ dismal valuations, that will need to change first. Read more here.
3) There are many sectors where dealmaking is desirable but challenging, in part because of national sensitivities and the tendency of politicians to get involved. Everything from banks to airlines risks arousing national angst.
Once upon a time, carmakers could be put in the same box. This week, though, Lex looked at Stellantis, the carmaker born out of the 2020 deals between Italy’s FCA (itself a combination as Fiat Chrysler) and Groupe PSA (Peugeot Citroën). It is an unlikely success story being a company that is focused on the European mass market, a slow mover in electric vehicles and pulled between different European governments. And, yet, a good turnaround story has the shares up 70 per cent over the past three years. Find out more here.
4) There have been some real, live attempts at dealmaking in Europe. Italian entrepreneur Diego Della Valle, the controlling shareholder of Tod’s, has teamed up with LVMH-backed private equity group L Catterton with a bid to take the luxury shoemaker private. This is a turnaround story and one that Tod’s has attempted for years. Given the slim premium on offer, minority shareholders may be irritated they are not being offered the same opportunity to profit as Della Valle. Read more here.
5) Meanwhile, there are some markets where big may always be beautiful. After a government-led effort to encourage smaller competitors, a socking great crisis involving multiple failures and a government-led repair effort involving multiple deals, Centrica’s results this week will show that scale remains the deciding factor in the UK energy market. The names may have changed. But that has not.
Lex links
Bank robbers go where the money is. Fraudsters, unsurprisingly, do the same. It is too cheap and easy to set up UK companies.
Can PayPal make Gen Z pay?
Good hair and a lofty valuation: a rare stumble poses the question, is L’Oréal worth it?
Have a great week,
Helen Thomas
Head of Lex
[email protected]
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