Mark Kleinman: Is £300bn Shell merger Total summer speculation?
Mark Kleinman is Sky News’ City Editor and is the man who gets the City talking in his weekly City PM column. This week he tackles the Shell merger, Cineworld closure and Dan Wagner’s Rezolve AI.
Is £300bn Shell merger Total summer speculation?
August has arrived, so the annual M&A silly season is officially upon us. This year’s deal volumes to date has shown a significant recovery in takeover activity involving British companies as bid targets, with the investment platform Hargreaves Lansdown, Cannes Lions-owner Ascential and housebuilder Crest Nicholson among the ongoing situations in the London market.
A rumoured monster deal has also recently come to the attention of City traders, though: the idea that Shell could be weighing an offer for Total, the French state-backed energy giant.
Shell has a market value of £175bn, while Total is capitalised at Euros149bn (£125.7bn). A tie-up would therefore put it among the largest M&A deals ever announced. According to one market source, a merger of the two oil behemoths could eventually pave the way for a listing of the combined company in New York, enabling it to try to address the valuation discount both CEOs have flagged in relation to their London and Paris-traded stock.
Despite the persistent noise in recent weeks, I’m assured there’s no foundation to the speculation. “It’s not even on the industry chessboard,” scoffs one sector insider.
Shell, which is due to issue second-quarter earnings this morning, has plenty of its own performance issues to address, particularly across its vast upstream operational portfolio. Wael Sawan, its newish chief executive, has been clear that this, rather than transformational M&A, is his primary focus.
French politics, particularly against the current backdrop, would also make structuring a deal with Total, nigh-on impossible: the idea of Paris surrendering, or even sharing, control of one of its national champions seems fanciful.
There’s also the question of whether the two companies’ portfolios even make a logical fit, according to analysts. Total’s stock price under Patrick Pouyanne, its chief executive, has outperformed that of Shell, which would mean a share-based transaction could be comparatively expensive for the London-listed company.
Sawan insisted several weeks ago that the US listing project was not live, yet Shell’s valuation discount to ExxonMobil remains stark based on virtually every key oil company performance metric. If that persists, expect Shell’s largest shareholders to begin pushing for Sawan to start contemplating the kind of corporate action gripping the City’s summer rumour mill – or a defection of its listing across the Atlantic.
Cineworld closure plan is a Blockbuster crisis
Roll the closing credits. Cineworld’s decision to immediately shut six sites, with many more under threat of closure unless landlords agree to swingeing rent compromises, underlines the still-parlous state of its business in Britain.
The company, now owned by its lenders following huge debt-for-equity swap last year, briefly explored a sale of its UK arm in May before switching its attention to a restructuring plan.
Requiring creditor approval, the proposals are proving contentious among a number of landlords – and with good reason. One described a statement last week implying closures would be restricted to the initial handful of identified sites as “smoke and mirrors”.
Industry sources say rivals including Vue Entertainment, which is run by the cinema grandee Tim Richards, and cash-strapped Odeon are watching intently with a view to cherry-picking Cineworld sites which have been earmarked for closure.
Cineworld’s decline, briefly arrested last year by bankruptcy proceedings in the US which also involved a pre-pack administration of its UK holding company, is not solely the fault of a debt-addicted former management team.
The Greidinger brothers, who created the company and turned it into the world’s second-largest multiplex operator, placed a series of acquisition bets which, like all Hollywood dramas, fell victim to circumstances.
The pandemic, in particular, cast doubt on the survival of the entire industry, while last year’s Hollywood writers’ strike dealt another hammer blow to cinema operators badly in need of a pipeline of blockbusters.
That doesn’t deflect from the conclusion, though, that Cineworld has been a poorly run business, with a board indulging its former bosses’ empire-building instincts with little regard for prudent balance sheet management. Its future looks more Blockbuster video than blockbuster success.
Wagner has Rezolve to drive New York listing
Spare a thought for Dan Wagner. More than two-and-a-half years after announcing the combination of his mobile commerce start-up with a New York-listed SPAC, the fizz has well and truly gone flat on AI-focused companies quoted on the US markets.
That’s unlikely to deter Wagner, whose propensity for overcoming setbacks is notable even in a field where rhinoceros-style skin is de rigueur.
The founder of Powa Technologies, another e-commerce venture which collapsed spectacularly in 2015, has drawn a string of tech investors who have followed him since the company’s inception; it also attracted capital from the government’s Covid Future Fund (although the list of other recipients of that pool of money does not automatically inspire confidence).
I understand that Rezolve will announce today that its stock will begin trading in New York tomorrow. Intriguingly, it coincides with a new wave of SPAC listings in the US, which – when you consider the deluge of companies which have collapsed after SPAC mergers (Arrival, Cazoo, Virgin Orbit et al) – is a savage indictment of investors’ myopia.
If Wagner somehow manages to make Rezolve a sustainably successful business on the public markets, he’ll deserve to serve his former sceptics a big slice of humble pie.