Shell has a London problem

One public utility crisis to start: Macquarie, the former owner of Thames Water criticised for loading the utility with debt, is a lender to its stricken parent company. Its investors lent about £130mn to the utility’s holding company Kemble Water Finance Ltd in 2018 and 2020.

In today’s newsletter:

• UK’s stock exchange 

• TikTok taxes

• European IPOs

London listings miss out on the M&A wave

The “valuation gap” between UK and US stock markets has curbed the egos of many London-based chief executives and eaten into their remuneration. But it’s not just about the slighted self-confidence of the median corporate boss.

As more companies consider moving their listings from London to New York, the strategic rationale is increasingly obvious. On Tuesday, Shell’s former chief executive, Ben van Beurden, decried the growing gap with US-listed companies, saying the oil giant was “massively undervalued” in London.

Oil companies listed in the US benefited from a deeper pool of capital and higher valuations, he told the FT in his first public interview since stepping down from the energy giant’s top post at the end of 2022.

On the surface, his complaints may come off as more moaning over the UK’s market malaise. But Shell is facing pressures from US drilling rivals who are using their stock as currency to build a lead in the global game of oil Monopoly, DD wrote back in October.

There has been a wave of M&A activity in the oil patch, led by consolidation among large US drillers who almost exclusively are using stock to finance acquisitions.

This past autumn, Exxon unveiled a $60bn all-stock takeover of Pioneer Natural Resources. Within two weeks, Chevron followed suit with a $53bn all-stock deal for US operator Hess. Drillers like Occidental Petroleum and Diamondback Energy have used stock to finance large deals.

In stock-financed deals, having a misvalued currency is a deal-breaker, and a threat. Low-priced UK buyers would have to in effect overpay for US-listed targets were they to get into the consolidation game. They also carry a target on their backs as US-listed rivals have the ability to strike acquisitions on the cheap.

“Something will have to give,” van Beurden said during an interview at the FT Commodities Summit in Lausanne.

An alternative is consolidation among drillers facing the same valuation gap. Recently, analysts have speculated that a tie-up between Shell and BP could be the next industry mega-deal.

Shell is London’s most valuable listed company and its potential exit would set off alarm bells in the UK.

The move would also hint at a deeply strategic rationale for leaving beyond improved sentiment or the appeal of “more positive” attitudes from investors in the US, as van Beurden said.

TikTok staff face colossal tax bills

Pressure on TikTok is coming from all sides. Just as the video-sharing app battles a potential ban from US lawmakers, now its American employees are up in arms about their remuneration.

Thousands of TikTok workers have been saddled with millions of dollars in tax liabilities on shares in the company they were awarded as part of their pay packages from the Chinese group, but haven’t been able to sell.

The issue relates to a type of share award called restricted stock units — or RSUs — which are a common form of compensation among Silicon Valley start-ups. But those shares can come at a cost: they can result in onerous tax bills when they vest.

ByteDance, TikTok’s Beijing-based parent, has soared in value from $100bn in 2020 to $268bn in December 2023, which meant employees who were granted RSUs years ago expected a windfall.

Last year, billions of dollars of ByteDance RSUs vested after an accounting change by the group, meaning the share awards became subject to income tax. Since then, ByteDance has held only small and irregular buyback programmes and restricted individuals from selling to outside investors.

Instead of a windfall, in many cases workers have been unable to sell shares to even cover their tax liabilities.

Many owe six-figure sums on income they have not received. Among them is Patrick Spaulding Ryan, who was a manager at the company between 2020 and 2022. “This is a horribly managed company,” he told the FT.

The mood is so sour that ByteDance wrote to all staff last weekend to address their concerns, promising to address the liquidity issue and provide “significant buyback opportunities”.

Less than a week before US Tax Day, things are grim. With uncertainty about the company’s future in the US, no concrete details about buybacks and with individuals’ tax bills looming, the situation is likely to get worse before it gets better.

Europe’s IPO market returns — without London’s help

Europe’s IPO market is slowly revving back to life this year, but with little thanks to the UK.

The start of this week brought the latest high-profile listing on the continent, with Spanish family-owned beauty group Puig (pronounced “poodge”) announcing its intention on Monday to float in Madrid in a deal that could raise more than €2.5bn.

That would come on the heels of other deals this year such as dermatology group Galderma, controlled by Swedish buyout group EQT, which raised SFr2.3bn ($2.5bn) in March.

But the IPO window in Europe has been more a case of begrudgingly opening up, as opposed to flown off. And not all of the public listings have been successful. Shares in the CVC-owned German beauty retailer Douglas fell as much as 9 per cent in their Frankfurt debut last month.

Our colleagues at Lex believe Puig, which owns the likes of Paco Rabanne, Nina Ricci and Charlotte Tilbury, may find more favour on the public markets thanks to its diversification in skincare and cosmetics.

Other European IPOs could be on the horizon. Permira-owned Italian luxury sports shoe brand Golden Goose and the private equity group CVC are both eyeing going public.

Yet all these deals have one thing in common: they’ve targeted venues outside of London. London IPOs raised just £0.3bn in the first quarter, compared to €4.8bn in the rest of Europe.

While it has become common to hear laments over the state of London’s capital markets (see Shell, above), Peel Hunt chief executive Steven Fine, who runs one of London’s biggest independent investment banks, issued a particularly striking warning last week.

“Our industry has been dramatically hollowed out over the last five, 10 years,” he told DD’s Ivan Levingston. “If we carry along this trajectory we will end up just like the Irish market, which is dead.”

Job moves

• Citigroup has hired Alex Craddock for a newly created role as the bank’s chief marketing and content officer. He previously worked at BlackRock.

• Jefferies has named Richard Fisher as a senior adviser. He has previously held roles including president and CEO of the Federal Reserve Bank of Dallas.

• Hines, the global real estate investor has appointed John Carr as chief financial officer for Europe, succeeding David Braaten, who will retire.

• Simpson Thacher has hired Javad Asghari as a partner on the energy and infrastructure team in Los Angeles. He joins from Milbank.

Smart reads

OzempicWatchers As WeightWatchers’ stock price languishes, the company is attempting a turnaround that relies on anti-obesity drugs, the FT writes.

Starlinks’ middlemen Elon Musk’s satellite-internet devices have landed in the hands of Russian fighters and Sudan’s paramilitary forces, The Wall Street Journal reports, throwing the billionaire entrepreneur into the messy geopolitics of war.

Bureaucratic maze German companies are trapped in a morass of bureaucratic paperwork, The New York Times reveals. It couldn’t come at a worse time.

News round-up

Taiwanese groups consider overseas headquarters to hedge against Chinese attack (FT)

HSBC to take $1bn hit on sale of Argentina unit (FT)

European ports turned into ‘car parks’ as vehicle imports pile up (FT)

AstraZeneca’s Pascal Soriot ‘massively underpaid at £16.9mn, says top shareholder (FT)

Google expands in-house chip efforts in costly AI battle (WSJ)

Hotel chain Motel One valued at €4.1bn as hospitality dealmaking heats up (FT)