Oil giants Concho and RSP merge in $9.5bn deal

BY Fraser Tennant

In a deal which creates the largest crude oil and natural gas producer from unconventional shale in the Permian Basin, Concho Resources Inc. is to acquire RSP Permian, Inc. in a transaction valued at approximately $9.5bn.

Under the terms of the definitive merger agreement, shareholders of RSP will receive 0.320 shares of Concho common stock in exchange for each share of RSP common stock. Upon closing of the transaction, Concho shareholders will own approximately 74.5 percent of the combined company and RSP shareholders will own approximately 25.5 percent.

The deal is also expected to: (i) expand Concho’s strategic portfolio in the Permian Basin to approximately 640,000 net acres; (ii) drive significant operational synergies through development optimisation, shared infrastructure and capital efficiencies, with a present value of more than $2bn; (iii) realise over $60m in annual corporate level savings; (iv) enhance Concho’s three-year annualised production growth outlook within cash flow from operations; and (v) reinforce Concho’s leadership position as the premier Permian pure-play company.

The transaction has been unanimously approved by the board of directors of each company.

“I am extremely proud of the RSP team and the high-quality position we built in the Permian Basin,” said Steve Gray, chief executive of RSP. “As RSP has grown and we have seen the resource play develop in the Permian, we have come to recognise that combining with a company with the scale, investment grade balance sheet and operational excellence of Concho will unlock even more value for shareholders. The combined company will have the vision and necessary financial strength to efficiently develop the tremendous resource potential of these assets with large-scale projects.”

Expected to be completed in the third quarter of 2018, the transaction is subject to the approval of both Concho and RSP shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions. Upon closing, Concho’s board will be expanded to 11 directors and will include one independent member of the RSP board.

Concho will continue to be headquartered in Midland, Texas.

Tim Leach, chairman and chief executive of Concho, said: “This combination allows us to consolidate premier assets that seamlessly fold into our drilling programme, enhance our scale advantage and reinforce our leadership position in the Permian Basin, all while strengthening our platform for delivering predictable growth and returns.”

News: Oil producer Concho to buy rival RSP in Permian push

Broadcom bid for Qualcomm could be quashed

BY Richard Summerfield

According to the Committee on Foreign Investment in the United States (CFIUS), Singapore-based Broadcom Ltd’s $117bn bid for Qualcomm is a national security risk which requires a full investigation.

The decision, which was communicated in a letter to the lawyers representing the two companies from a senior US Treasury official, has complicated, and potentially jeopardised, an already contentious deal. Sending the letter is an unusual move for CFIUS, which normally opines about a transaction once it has been completed.

However, CFIUS’ recent activity reflects wider concerns over the role of Chinese acquirers in important sectors, including the technology space. The letter noted that it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the US telecommunications infrastructure". Any loss of that competitiveness, the letter said, “would significantly impact US national security".

CFIUS also expressed concerns about the national security implications for the US if Chinese companies were able to dominate the nascent 5G market. Broadcom pledged that it would keep the US at the forefront of the 5G market in an attempt to allay the government’s concerns.

Furthermore, CFIUS believe that the merger would alter Broadcom’s relationships with foreign entities and weaken “Qualcomm’s technological leadership", which would allow Chinese companies, such as Huawei, to steal a march on their US counterparts.

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” said Aimen Mir, Treasury Deputy Assistant Secretary for Investment Security in the letter.

CFIUS also identified a number of other concerns surrounding the transaction, such as Broadcom’s reputation for cutting research spending and potential national security risks that could arise from exploiting or compromising Qualcomm’s assets through arrangements with “third party foreign entities”.

Despite CFIUS’ concerns, Broadcom remains optimistic that a deal can still be reached in time for a Qualcomm shareholder meeting due to be held later this month. Typically, CFIUS does not offer opinions involving purely domestic transactions. In November, Broadcom filed to redomicile to the US and is looking at ways to expedite the process.

“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” Broadcom said in a statement. “There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end. Entrusting this effort to a failing Qualcomm management who lacks the support of its owners, and that pays out much of its excess cash flow in fines as a result of serial lawbreaking, would not be in America’s long-term interests”.

News: U.S. sees national security risk from Broadcom's Qualcomm deal

Power and utilities M&A hit $200bn in 2017, reveals new report

BY Fraser Tennant

Mergers & acquisitions (M&A) in the power and utilities sector reached an eight-year high in 2017, seeing 516 deals with a total value of $200.2bn, according to a new report by EY.

In its ‘Power transactions and trends: 2017 review and 2018 outlook’, EY reveals that 2017 saw a 57 percent year-on-year rise in renewables deal value to $42.8b globally, with the US particularly strong – up 71 percent compared to 2016.

Indeed, renewable energy tops the growth agenda in the Americas, with US deal value reaching $102.2bn – the highest recorded level of global investment. Furthermore, networks represented $29.4bn of total Americas deal value, while $28.4bn was attributable to integrated assets, $24bn to generation and $14.2bn to renewables.

“In the Americas, 2017 was marked by three investment themes,” said Matt Rennie, EY global power & utilities transactions leader. “Network assets continued to be highly attractive to investors seeking yield in a low interest rate environment, renewable energy investment activity remained strong, driven in part by ongoing support at state level and investments in energy technology start-ups continued to gain prominence – particularly on the west coast of the US.”

The EY report also notes that investors are continuing to look to yield investments for long-term, stable returns amid low interest rates and excess capital.

“2017 was a formative year in power and utilities transactional activity,” continues Mr Rennie. “Investments in the conventional energy sector were dominated by the changing generation mix, as renewable energy continued to account for an increasing proportion of the system, and low interest rates again drove yield capital toward regulated networks.”

According to EY, last year also saw a resurgence in M&A involving independent power producers (IPP), particularly in Europe and the US, where IPP deals more than doubled in value – from $15.2bn to $33bn year-on-year. In addition, over the last two years, new energy-focused start-ups raised $746m of funding (series A and B), of which $253m was focused on energy services.

In terms of European deal value, 2017 was similar to 2016 levels, an 11 percent increase in volume to 213 deals. Renewables contributed 30 percent of total deal value, with networks accounting for 27 percent and generation 26 percent. In Asia-Pacific, renewables deal value grew 72 percent year-on-year to $13.5bn.

Mr Rennie concludes: “We also saw the new energy market continue to grow in both scale and importance. As technology companies increasingly become a mainstream contingent within the electricity system, we expect them to focus on arbitraging network peaks and to focus on the long-term needs of a decentralised future energy market.”

Report: Power transactions and trends: 2017 review and 2018 outlook

Standard Life Aberdeen sells insurance business to Phoenix in £3.2bn transaction

BY Fraser Tennant

In a significant expansion of their existing long-term strategic partnership, Standard Life Aberdeen plc has sold its capital-intensive insurance business to Phoenix Group Holdings in a transaction valued at £3.2bn. 

The sale involves the disposal of Standard Life Assurance Limited (SLAL), with Standard Life Aberdeen retaining its UK retail platforms and financial advice business. The businesses transferring to Phoenix as part of the sale include the UK mature retail and spread/risk books and the Europe, UK retail and workplace businesses.

Founded in 1825, SLAL is one of the UK’s oldest life and pensions businesses. Primarily based in the UK and with operations in Ireland and Germany, SLAL is a leading provider of long-term savings and investment propositions, serving around 4.5 million customers and clients.

“This transaction completes our transformation to a capital light investment business, a process started in 2010 with the sale of Standard Life Bank, continuing with the sale of our Canadian business and the merger last year between Standard Life and Aberdeen Asset Management,” said Sir Gerry Grimstone, chairman of Standard Life Aberdeen. “This transaction represents excellent value for our shareholders, including a comprehensive and mutually beneficial strategic relationship entered into with Phoenix, a longstanding partner of the firm.”

In addition, subject to normal commercial and governance constraints, Phoenix has committed to review further investment management mandates not currently managed by Aberdeen Standard Investments, which will be its preferred asset management partner for insurance investment solutions, as well as future consolidation opportunities.

“This is a compelling transaction for Phoenix, consistent with its stated strategy and acquisition criteria,” said Clive Bannister, Phoenix’s chief executive. “The acquisition establishes Phoenix as the pre-eminent closed life fund consolidator in Europe with more than 10 million policyholders and supports a significant increase in Phoenix’s cash generation. The reinforced strategic partnership with Standard Life Aberdeen allows both companies to focus on their key strategic strengths while generating future value.”

Conditional upon the approval of Standard Life Aberdeen’s shareholders and upon relevant regulatory approvals, including from the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA), the sale is expected to complete in the third quarter of 2018. 

Martin Gilbert and Keith Skeoch, co-chief executives of Standard Life Aberdeen, concluded: “With the foundations of a world-class investment company in place we look forward to capitalising on the opportunities that we see ahead of us whilst continuing to deliver for our shareholders.”

News: ‘Standard Life Aberdeen sells insurance business for over £3bn’

Oil & gas M&A outlook optimistic despite five-year low deal volume, says new report

BY Fraser Tennant

An optimistic 2018 is the outlook for mergers and acquisitions (M&A) in the oil & gas sector, despite deal volume last year being at a five-year low, according to a new EY report.

In  its ‘Global oil and gas transaction review 2017’, EY reveals that global oil and gas deal volume hit a five-year low in 2017, with total global transaction value falling to $343bn from $390bn in 2016. Furthermore, while 2017 saw a 21 percent increase in megadeals (deals of more than $1bn), a lack of blockbuster deals (deals of more than $50bn), meant overall deal value fell.

In terms of upstream transactions, deal value climbed to $172bn in 2017, characterised by a strong first quarter and outpacing average deal value across the rest of the year by more than 82 percent. North America dominated upstream activity, with deal value up 19 percent to $94bn. Last year also saw Europe’s best performance in more than five years at $27bn.

Furthermore, increasing activity among private equity players and the adoption of more innovative transaction structures are expected to drive upstream M&A in 2018, as joint ventures between independents become increasingly common and healthier balance sheets encourage growth.

“Risk sensitivity and a continued focus on internal performance improvement may have delayed the uptick in deal volume we expected in 2017,” said Andy Brogan, EY global oil & gas transactions leader. “But the need to demonstrate appropriate returns is now pushing companies to reposition their portfolios and seek economies of scale, which in turn we anticipate will underpin more M&A activity in 2018.”

The report also states that midstream deal volume was up 14 percent in 2017, but deal value contracted to $84bn, down 43 percent relative to 2016. Turning to downstream transactions, deal value declined 12 percent to $59bn in 2017, with the number of transactions also dropping 16 percent compared with 2016. That said, deal values in 2017 were more than $14bn higher than the average recorded over the last five years. The US led other regions in both deal volume and value, with 43 transactions totalling $32bn.

“A lack of blockbuster deals in 2017 highlights the industry’s sense of caution in the post-downturn era,” added Mr Brogan. “But buyer and seller expectations have been narrowing and a robust pipeline of actionable M&A opportunities is now available, underpinned by an increase in the oil price, decreasing valuation gaps and improving market sentiment.

“We expect these trends to continue to prevail in 2018, with M&A activity flowing from portfolio optimisation, increased access to capital markets and value chain integration,” concluded Mr Brogan.

Report: Global oil and gas transactions review 2017