The legal fight imperilling a $53bn mega-deal

One scoop to start: McKinsey claimed in marketing materials that it had advised the Chinese central government on boosting domestic consumption and reforming healthcare policy, raising fresh questions over the consulting firm’s denial that it ever worked for Beijing.

In today’s newsletter:

• A $53bn takeover faces a test

• Shein considers listing in the UK

• Barclays turns to Blackstone

Merger lawyers caught in a Chevron and Exxon oil slick

Nobody except the maniacs who become corporate lawyers care much about merger subsidiary structures. These boxes have odd and perhaps risqué names . . . “double dummy”, “Up-C”, “Morris Trust”, “reverse triangular” (which honestly sounds like something very different).

Well, these might finally matter now. In securities filings this week, US oil company Chevron disclosed a potential hang-up for its pending $53bn all-stock acquisition of smaller rival, Hess Corporation.

The crown jewel of Hess is a 25 per cent stake in Guyana’s offshore, deepwater oilfield known as Stabroek. Chevron expected to become the new rightful owner of the stake which might be worth $30bn to $40bn all by itself.

But now, its larger US rival Exxon, which controls Stabroek with a 45 per cent stake, is asserting a possible “right of first refusal” to buy Hess’s Stabroek stake which it says it would possess if there is a change of control at Hess.

On the surface, Exxon seems to have a point. Chevron is paying a roughly 10 per cent premium, in shares, to acquire Hess. John Hess, the chief executive and part of the founding family, is getting a $56mn package of parachute payments.

However, Chevron and Hess say the actual technical structure of the deal does not create the kind of change of control contemplated by the Exxon right of first refusal. No one has shared the language and for now, Exxon obviously disagrees.

As Lex notes, there are big picture reasons why Exxon may want to be more generous than litigious here. But at its core, we have a nerdy corporate law dispute on our hands.

There is some chance the dispute ends in arbitration. But Chevron says even if Exxon were legally vindicated, the Chevron/Hess tie-up would be voided because the Stabroek stake travelling with the rest of Hess is a closing condition.

Hess then would simply revert to a standalone company (and its banker Goldman Sachs would be out a $76mn success fee). And the legal geeks would be back to their labs to find some other formula that could yield a successful Hess sale.

The massive IPO that London could actually win

London may get the signature initial public offering it has been craving after Cambridge-based semiconductor design group Arm chose to list in New York and a number of large companies moved their listings away from the UK.

Shein, the buzzy fast-fashion group backed by a who’s who of venture capital investors, has pitched London as an alternative destination for its listing if it is unable to list in the US, reports the FT.

But London-based bankers shouldn’t rejoice too much. The Singapore-headquartered company is considering the UK as its ties to China have proven controversial in the US, according to two investors in the company.

Shein continues to pursue a US listing as a priority and has also considered Hong Kong. But the UK has emerged as an alternative as politicians in Washington probe the company’s ties to Beijing, such as its alleged use of cotton from Xinjiang.

The company was originally founded in China, and relies on factories in the country to produce the cheap goods that underpin its fast-growing business.

British government figures said Shein chair Donald Tang requested a meeting with chancellor Jeremy Hunt last month. They added that during an “introductory chat”, Tang said he “didn’t like what the [Securities and Exchange Commission] was doing in the US” and that he was looking at a possible listing in London.

“We aren’t pushing them but of course would welcome an IPO,” said a UK government official. Shein declined to comment.

However, the fast-fashion group filed paperwork with the SEC to list in the US at the end of last year, where it expects to fetch a higher valuation than in the UK. Shein was valued at more than $60bn in its most recent private fundraising round last year, down from a peak of $100bn.

The UK Treasury said: “We have developed reforms to boost the UK as a destination for IPOs, including making it easier for companies to list more quickly,” adding: “The government does not comment on individual companies.”

That sounds like a friendlier stance than in the US.

This month US senator Marco Rubio wrote an open letter to SEC chair Gary Gensler urging the regulator to demand “enhanced disclosures” from the company. He wrote that Shein’s move to approach the regulators in Beijing to approve its IPO “raises serious doubts that its IPO filings are complete and accurate”.

If Shein were to list in London, it would be a welcome relief after a brutal stretch for UK stock markets. But Shein’s unique motivations indicate the share offering would be no panacea for a broad malaise.

Blackstone becomes a banker to banks

Blackstone isn’t a bank and prides itself on having a trim balance sheet with few corporate liabilities for chief executive Stephen Schwarzman and president Jonathan Gray to worry about.

But the world’s largest private equity group is becoming a force in the banking industry by buying assets from lenders looking to cut risk and lighten their own balance sheets.

Barclays on Tuesday agreed to sell about $1.1bn worth of credit card debt to Blackstone, as the British bank steps up efforts to move assets off its balance sheet in advance of more onerous regulations, the FT reports.

The sale is expected to be the first in a series of transactions to reduce its risk-weighted assets and comes a week after Barclays chief executive CS Venkatakrishnan laid out an ambitious plan to return £10bn to shareholders through dividends and share buybacks.

Selling existing debt to Blackstone will allow the bank to increase its lending capacity without adding to its capital requirements or risk.

The deal underscores how large private capital groups such as Blackstone that face fewer restrictions than banks are stepping into mainstream debt markets to help alleviate capital pressures on large lenders.

Since the collapse of several large US regional lenders last March, Blackstone has been buying assets from banks and managing them on behalf of its credit and insurance clients. These customers carry lower costs of capital than banks, making them a good home for many loans, Gray told the FT last May.

Blackstone has struck billions of dollars of similar deals with a handful of banks. Unlike rivals such as Apollo Global and KKR, both of which own large insurers, Blackstone manages assets it acquires on behalf of insurers such as Allstate and AIG.

But Blackstone is not entirely asset light.

The FT reported on Monday it carries a growing liability to the University of California because of a performance promise it offered in exchange for a $4.5bn investment into its property fund a year ago.

Job moves

• The UK’s Takeover Panel, which oversees local deal activity, has named Barclays’ co-head of M&A for Emea Omar Faruqui, as its director-general. He will join the panel on a two-year secondment from the bank beginning in May.

Smart reads

Wirecard whistleblower The insider who exposed the fraud that led to the German payments group’s collapse has criticised the country’s whistleblower protection laws in an interview with the FT.

AI boom After an artificial intelligence-driven business bonanza that has sent Nvidia’s valuation to the $2tn stratosphere, other companies now want to reduce its dominance, the Wall Street Journal reports.

Spac Saviour A Spac deal involving Donald Trump’s social media platform Truth Social could provide the former US president with a financial lifeline to pay a $454mn penalty, the New York Times writes.

News round-up

Klarna in talks with banks for US IPO at $20bn value (Bloomberg)

Currys rejects higher takeover bid from Elliott (FT)

Carlyle and Abu Dhabi’s IMI agree new funding for Barclay family (FT)

EQT raises €22bn for private equity deals (FT)

Abrdn chief rules out breaking up asset manager (FT)

Financial Times launches venture arm, invests in Charter (Axios)