ExxonMobil gets its ‘mother fracker’

One highlight to start: On Wednesday, we hosted a special DD Forum in London with Going Infinite author Michael Lewis and the FT’s Henry Mance where we discussed his front-row seat to the collapse of FTX.

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In today’s newsletter:

• Exxon’s ‘mother fracker’ of a deal

• Birkenstock’s rocky first day of trading

• Neil Shen’s big plans for HongShan

The Texas tycoons behind Exxon’s mega-deal

As a short bet, Pioneer Natural Resources wasn’t the worst idea hedge fund manager David Einhorn has conjured. In 2015, when it traded at $178, he prominently dubbed it the “mother fracker” of shale drilling. 

Pioneer has instead yielded the mother of all oil deals. ExxonMobil is buying it for about $64.5bn including debt, or $253 a share. The deal expands its oil reserves roughly 30 months after shareholders voted to oust some of its board directors in part due to environmental concerns.

It’s also the first big acquisition spearheaded by Exxon chief Darren Woods. Pioneer, considered the premier player in the asset-rich Permian Basin, will more than double Exxon’s output from the oilfield. 

Einhorn was right to critique the shaky finances of shale drillers — many, including Chesapeake Energy, were restructured after the pandemic crashed oil prices — but he didn’t fully appreciate the potential of the Permian and how it would reshape energy markets.

It made the US the world’s largest oil driller and has proven to be geopolitically important by supplying natural gas to Europe and threatening Opec.

One family saw it all decades ago. Pioneer traces its roots to a start-up energy concern, Parker & Parsley, founded in west Texas in the early 1960s. 

Its success was shepherded by chief executive Scott Sheffield, the son of a petroleum engineer, who attended high school in Tehran, Iran, where he played quarterback, then matriculated to the University of Texas. 

Sheffield took over from Parker & Parsley’s founders in the 1990s. He merged the company with T. Boone Pickens and Richard Rainwater’s Mesa Petroleum in 1997 and renamed it Pioneer. 

Eventually he focused Pioneer on the Permian near where it was founded and groomed his son, Bryan, in the oil business.

Bryan would then venture out on his own, creating a company called Parsley Energy to develop oil wells acquired by his grandfather, Joe Parsley, one of Pioneer’s founders. 

In 2020, father and son came together when Pioneer acquired Parsley for $7.6bn in a deal that made Bryan hundreds of millions, a modern day oil windfall reminiscent of the James Dean epic movie Giant. 

Now the elder Sheffield, who in April announced plans to retire from Pioneer , stands to see a windfall from the transaction. He owns about $140mn of stock and could get millions in change in control payments, per filings. 

Investment grade-rated Exxon is paying for Pioneer in stock, underscoring how rising rates have changed the equation for megadeals, Lex notes.

Exxon is betting its operational skills can unearth billions in synergies. It also doesn’t appear threatened by activists pushing it away from oil, or by asset managers like BlackRock. The firm helped oust Exxon directors but has subsequently withdrawn from backing many climate campaigns.

“As long as the world needs oil and gas, we’ll all be focused on making sure that they have the most efficient, effective and responsible operator making and producing oil and gas, and doing it with the lowest carbon intensity,” Woods told reporters on Wednesday. 

Birkenstock: the latest IPO to frustrate investors

German sandal maker Birkenstock, which traces its roots back to 1774, has undergone a high-fashion renaissance in recent years. Public market investors haven’t been as quick to hop on the trend, however.

This week its owners raised almost $1.5bn in a US IPO. But shares in the “ugly-shoe” purveyor dropped more than 13 per cent below its initial offering price on Wednesday — the latest sign that the market for initial public offerings has yet to exit its lull.

The declines are a setback for Birkenstock and its private equity owner L Catterton, the firm backed by French luxury fashion house LVMH. (Financière Agache, the family holding company of LVMH boss Bernard Arnault, was one of the main investors in the IPO.)

The drop came after a disappointing earnings report by LVMH earlier on Wednesday, fuelling concerns that a post-pandemic boom in the luxury sector was coming to an end.

They aren’t the only companies confronting turbulent markets. The lukewarm debut follows similar listings by Arm, Instacart and Klaviyo, all of which priced their IPOs at the top of or above their target ranges before seeing mixed trading results. 

Things have been even worse in Europe, DD’s Ivan Levingston and the FT’s George Steer report, where companies including French software group Planisware and German military contractor Renk have delayed listings, citing hesitant investors.

“We’re done for the year,” said one European banker familiar with the market, adding that they anticipated further listings intended for this year to be delayed.

Neil Shen plots a post-Sequoia global expansion

It has been four months since Sequoia Capital, one of the world’s most prolific investing empires, announced it was splitting its US and Chinese arms into two independent entities.

Now Neil Shen, the billionaire boss of HongShan — as Sequoia’s former Chinese unit is now known — is plotting a global expansion as a slowdown in the domestic economy pushes it overseas. 

Shen made his name with early investments in TikTok parent ByteDance and ecommerce giants Alibaba and Meituan. His partnership with Sequoia, rooted in the idea of marrying American money with Chinese entrepreneurs, proved lucrative for nearly two decades.

But rising tensions between Washington and Beijing had made it increasingly difficult for the Silicon Valley-headquartered firm to invest in industries such as semiconductors and artificial intelligence in China.

Shen raised $9bn across four funds last year, including from US investors, defying a slowdown in fundraising for China-focused funds. But a depressed tech environment following a regulatory crackdown, an anaemic listings market and a slowing domestic economy have turned his attention overseas.

The outward push could see the group invest in foreign companies targeting the Chinese market or those founded by overseas Chinese entrepreneurs. 

One place Shen has his eye on is the European electric vehicle market. HongShan has invested in a series of Chinese EV groups and suppliers including Envision, and is scouting out opportunities in the continent’s electrical vehicle and battery market where there are synergies with its existing portfolio companies. 

“Neil is really pushing his companies to expand into overseas markets,” said one person close to Shen. “HongShan is still calling itself a Chinese firm, but the story now is about taking China globally.”

Job moves

• Moelis & Company founding partner Elizabeth Crain, who was succeeded as chief operating officer by Kate Pilcher Ciafone earlier this month, is leaving the investment bank at the end of the first quarter of 2024, according to an internal memo seen by DD.

• DIF Capital Partners, the Dutch infrastructure firm being bought by CVC, has promoted Kanan Joshi, based in New York, and Caine Bouwmeester, based in London, from managing director to partner.

• The Teachers’ Retirement System of the State of Illinois has named Ghiané Jones as its deputy chief investment officer. She was previously a managing principal at Meketa Investment Group in Chicago.

• Kirkland & Ellis ESG partner Ruth Knox has joined Paul Hastings as a partner in London.

• Jennifer Ezring has returned to Latham & Watkins as a partner in its banking practice, based in New York. She joins from Cahill.

Smart reads

Proceed with caution Private credit returns may fail to reflect the future risks of the fast-growing asset class, Reuters’ Breakingviews writes.

Filling the void Acquiring First Republic was just the beginning of a wider plan by JPMorgan Chase to muscle in on its Silicon Valley rivals, Bloomberg reports.

And one smart listen The FT’s San Francisco correspondent Camilla Hodgson explains what US antitrust regulators’ affront on Amazon could mean for the Big Tech giant’s future on Behind the Money.

News round-up

Goldman Sachs sues Malaysia over 1MDB settlement (FT)

Caroline Ellison says she felt ‘relief’ as FTX fraud was exposed (FT)

Metro Bank bondholders give approval to refinancing deal (FT) 

Czech minister warns over attacks by newspaper co-owned by Daniel Křetínský (FT) 

Elon Musk’s vision for free speech on X tested by Israel-Hamas war misinformation (FT)

Lloyd’s poised to resist calls for direct compensation over slavery role (FT)

BP says transition strategy ‘unchanged’ by leadership turmoil (FT)