The Gulf oil company chasing $50bn in deals

One thing to start: Disney is pushing into the US sports betting industry, tying its ESPN cable network to the casino and online gambling company Penn Entertainment in a $2bn deal.

And another thing: WeWork, the US office space company SoftBank once valued at $47bn, has warned for the first time that it faces “substantial doubt” about its ability to continue as a going concern.

In today’s newsletter: 

Meet the Adnoc deal machine

What do Brazil’s Braskem, Austria’s OMV and Germany’s Covestro have in common? They are all in talks to tie up with the Abu Dhabi National Oil Company, the lesser-known Middle Eastern oil giant. 

Adnoc stands out among the typically conservative world of national oil companies, which includes peers such as larger rival Saudi Aramco, for its aggressive dealmaking. But this year the group has hit the gas — literally.

Not only has Adnoc pursued natural gas deals in the eastern Mediterranean and Azerbaijan, but it’s also building a global portfolio spanning chemicals, plastics and beyond.

It’s all part of a plan under its chief executive Sultan al-Jaber to transform the highly profitable state enterprise into a diverse, increasingly international business.

To add to his busy plate, al-Jaber is also the president of this year’s COP28 climate summit, an appointment that has sparked heavy criticism from environmental activists.

Despite his jam-packed schedule this year, the deals involving Adnoc keep stacking up.

Over the past two years, Adnoc floated five subsidiaries at a roughly $140bn combined market capitalisation. 

Now the company is focused on expansion. It’s seeking a €13bn takeover of German chemical company Covestro and in the midst of a nearly $8bn joint bid for Brazilian petrochemical maker Braskem alongside US investor Apollo Global Management.

It’s also working on an ambitious plan to merge its chemicals division with that of OMV in what could be a more than $30bn deal.

The group is able to pursue those transactions simultaneously thanks to its investment unit, akin to its own “investment bank”, led by former Morgan Stanley banker Klaus Froehlich.

In an otherwise dismal year for M&A, Adnoc has been able to attract Wall Street talent with the promise of a bevy of transactions.

And Adnoc is leaning in while others hold back this year, at a time when valuations are more attractive for would-be buyers.

“This is the new Adnoc and it’s much more aggressive and innovative than it ever used to be,” said Qamar Energy’s Robin Mills.

Italy drops tax bombshell on banks

Just before hitting the beach, Italy’s outspoken deputy prime minister Matteo Salvini — who once campaigned to leave the euro and advocated for a flat tax — made a parting statement that sent shares in the country’s banks crashing. 

Salvini told a late-night press conference on Monday that the government had decided to introduce a 40 per cent levy on lenders’ profits resulting from higher interest rates to help businesses and first-time homebuyers. 

Analysts scrambled to unpack the measure, which lacked any substantial detail, for the better part of Tuesday. Salvini, meanwhile, called it “common sense”, though the measure sent shockwaves through the country just as parliament went on recess for the summer.

A statement published in the afternoon, after the Milan bourse had shed more than €10bn, shed some light on the situation. It said the threshold for imposing the 40 per cent tax on the net interest margin, or the gap between banks’ lending and deposit rates, would be based on the difference between net interest income in 2021 and the figure for 2022 or 2023, whichever is larger. 

But late Tuesday evening, the situation changed again. The finance ministry issued a statement more than 24 hours after the measure was passed saying the levy would be capped at 0.1 per cent of a bank’s risk- weighted assets “to safeguard lenders’ financial stability”. An initial leaked version of the draft text said the cap would be 25 per cent of net assets. 

Large lenders like Intesa Sanpaolo and UniCredit are set to be the biggest contributors, but local banks such as Banco BPM and state-owned Monte dei Paschi di Siena are expected to take the largest capital hit. Jefferies said the average capital impact would be 60 basis points on core tier one capital, a critical measure of banks’ financial health.

Investors weren’t pleased. One said this was Giorgia Meloni’s rightwing, nationalist government’s first major stumble after largely following in the footsteps of former prime minister Mario Draghi on economic and financial policy. 

Cole Smead of Seattle-based Smead Capital Management, a UniCredit investor, said: “Capitalism that weakens bank lending will never lead to prosperity. This looks like a game of picking winners and losers. In reality, it’s a game of losers and losers.”

Diageo, Diddy and a bitter dealmaking hangover

When Diageo made Sean Combs, the US rap star also known as Diddy, the face of its premium vodka Cîroc in 2007, bottles flew off the shelf.

“I hit the club, ordered some Grey Goose, switched it for Cîroc to give Puff’s stock a boost,” goes Jay-Z’s and Kanye West’s 2011 track “Primetime”.

But the London-listed drinks giant’s second collaboration with Diddy — buying a 50 per cent stake in premium tequila DeLeón via a joint venture with Combs in 2014 — has failed to live up to expectations for both parties.

Now the deal has spiralled into what’s set to be a bitter legal battle between the musician and the conglomerate over the terms of their partnership.

Combs sued Diageo in May for breach of contract, alleging that the drinks giant had underinvested in DeLeón and Cîroc and typecast them as “black brands’‘ for “urban” consumers. 

He accused the company of racial discrimination, alleging that executive Stephen Rust told Combs in late 2019 that “if he were Martha Stewart his brands would be more widespread”.

Diageo called the allegations “a transparent attempt to pressure Diageo into an early settlement of a planned parallel arbitration process”, accusing Combs of failing to fulfil his duty as a 50 per cent owner and alleging he only invested $1,000 while the drinks group put in more than $100mn.

Still, Diageo isn’t doing too badly. The maker of Johnnie Walker and Tanqueray reported a jump in annual sales earlier this month with consumers happy to pay for premium spirits. 

After betting billions on George Clooney-backed Casamigos, Ryan Reynolds’s Aviation Gin and others, however, the court case will force it to reckon with the fact that none of its celebrity-backed deals are immune to risk.

“Spirits have a horizon measured in decades, not in years. And no celebrity can possibly be relevant for many, many decades. Even George Clooney has a limit,” said Euromonitor analyst Spiros Malandrakis.

Job moves

• Goldman Sachs’ chief of staff John Rogers, one of the bank’s most influential executives, is stepping back from his role. He is handing over his responsibilities to Russell Horwitz, a former Goldman partner who left the group in 2020 to join Citadel, where he was employed until June.

Smart reads

The $158mn question Apollo founder Leon Black, one of the private equity industry’s best known names, is facing further scrutiny from the Senate Finance Committee over his ties to Jeffrey Epstein. Airmail investigates the full extent of their relationship.

Caravan Club An alleged gangster has applied to put part of billionaire Robert Bull’s caravan park empire into administration. Some large investors could get burnt, Bloomberg reports.

The Partnership Founded less than 60 years ago, Wachtell, Lipton, Rosen & Katz is America’s most profitable law firm. The Economist takes a look inside.

News round-up

Wall Street groups fined $555mn by regulators over messaging violations (FT)

​​Dish to buy EchoStar as Ergen shifts to wireless (Bloomberg)

TSMC to build €10bn chip plant in Germany (FT)

Altice: pressure mounts for Drahi to sell BT investment (Lex)

Telecoms face mounting pressure to consolidate (FT)

Mixed year for French wine as champagne flows (Reuters)

Law firm Dentons hives off China business as Beijing tightens regulation (FT)