From Shell eyeing BP in a historic mega-merger to 3G Capital’s surprise $9.4bn move on Skechers, Anthony and Stephen break down the M&A headlines driving markets this week.
They also unpack Sunoco’s $9.1bn cross-border play for Canada’s Parkland and explain what a “fairness opinion” really means.
Essential insight for anyone interested in deals, strategy, and what real money is doing in volatile times.
(00:00) Intro & Topics on the Table
(02:41) Mega M&A Deal: Shell and BP
(24:20) Skechers Acquisition by 3G Capital
(32:40) Sunoco's Acquisition of Parkland
(36:00) Understanding Fairness Opinions in M&A
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome back to the Deal Room.
And we have another jam packed episode for you of mega M&A
deals. It does feel in the Trump
environment at the moment activity is in a bit of a lull.
However, there is some serious action going on in terms of the
headlines in the past week and probably the biggest one has
(00:21):
been Shell weighing a mega merger potentially with BP.
So that's going to be the predominant conversation that
you and I are going to have Stephen, really unpack that.
What has happened to the mighty BP?
Certainly if you're a British person, that definitely has been
a staple of of our lives, certainly for people of yours
(00:42):
and mine age. But what's happening there?
Why shell coming now? How likely is it?
What's the rationale? We'll break it all down.
The other two stories we're going to talk about is APE Firm
3G Capital, really interesting one a little bit different from
some of the regular PE names that we probably talk about, but
they've agreed, agreed to take private a footwear giant and
(01:05):
that's Skechers. And I was surprised by the size
of this, this is knocking close to 10 billion U.S. dollars.
So I definitely myself want to understand Skechers as a
business a little bit more because I don't really know a
great deal about it. But also to unveil a little bit,
you know, the private equity players are quite secretive.
I'd love to know a little bit more about 3G capital.
(01:27):
And then Sunoco AUS fuel distributor to buy Canadian fuel
seller Parkland for 9.1 billion.So another very big deal on the
cars. And this it kind of goes into
that intersection of macroeconomics in terms of
geopolitics, because you've got American firm looking at a
Canadian firm here. And then to, to finish, there's
(01:50):
something called a fairness opinion.
Now, Stephen, you, you mentionedthis, this, these two words to
me just before we began. And I was like, I have no idea
what you're talking about. So I'm intrigued.
So everyone else should be as well because this is a really
important component in any M anda transaction.
And we're going to have a look at that as well.
(02:10):
So let's start with Michelle. I was kind of blown away.
Actually, I was even jumped on our corporate LinkedIn account I
think at 10:30 PM that evening and I thought, look, I got to
get this out to market quick because it just struck me as a
really big deal and and people should know about it.
Yeah, absolutely. Well, gosh, you're, you're on
(02:31):
LinkedIn at 10:30 in the evening.
That is commitment. And I'm, I'm usually not on
LinkedIn at 10:30 in the evening.
Well, I've. So I'll tell you what, BP is a
company that definitely resonates with basically the
British population because we see there point of sale service
stations around the country and they're constantly in the news.
(02:52):
And if you have a pension or if you have a, you know, index
tracker, FTSE 100, BP has alwaysbeen a pretty major component.
And I actually, this is Full disclosure, I bang on a lot
about ESG and sustainability, but I actually did intern at BP
when I was a lot, lot younger than I am today.
(03:15):
Actually, before we begin, I must also stress, Stephen, just
to front run this that if you listen on Spotify or Apple BP do
sponsor the show. So let's just let's just be,
let's just be a little bit careful about how I am right the
performance of BP here because. They do to.
Place adverts on our show Stephen.
(03:36):
Look, I'm going to sing their praises from the rooftop and I
will give no critical opinion asto why they have been
struggling. So this is actually going to be
an advert for BP, weirdly enough, no.
Anyway, so I find it to be a massive massively A massively
interesting company in a, in a, in a really interesting story,
(03:57):
especially for everyone that's interested first in strategy and
then in kind of mega MNA and howthese very, very large M&A deals
bring in macroeconomic context, they bring in governments, they
bring in the, you know, the person on the street and how can
all of this shake out? So I just want to start by
(04:18):
giving a little bit of context because again, you know, and me
and you are close to the same age when I, when I left
university and started working in finance, BP were one of the
consistently one of the three or4 largest constituent parts in
the FTSE 100. And I just want to take a little
journey through their share price over the last 25 years.
(04:42):
So in September 2000, many listeners will not have been
born, but the share price was £650 per share market cap of
about £120 billion. Fast forward to March 2010, the
share price has gone nowhere, 630 lbs.
But by the way, one of the reasons why you invest in BP is
(05:07):
the dividend. It generates massive amounts of
cash that it pays out as a regular dividend.
So it's from a share price perspective, it's definitely a
dividend play now. March 2010, 630 lbs a share,
June 2010, 304 lbs a share. So the share price?
(05:28):
More than half. Now, why was this the case?
This was the Deepwater Horizon spill, absolutely calamitous
explosion in the Gulf of Mexico that effectively destroyed the
company's reputation, especiallyin the US, destroyed the
(05:49):
company's share price, and actually has been weighing on
the company ever since. The company's never recovered to
$650 or 630, sorry, 650 lbs. A share.
Fast forward to August 2018, share price had recovered to 550
lbs. By November 2022, years later,
the share price had dropped to under £200 a share.
(06:13):
Why was this? Well, COVID Russia Ukraine.
Well on the brink of Russia Ukraine, but mainly COVID by
April 2024. As recently as a year ago, the
share price was up at 540 lbs a share, giving it a market
capitalization of closer to £90 billion.
(06:34):
But since April 2024, the share price has been massively,
massively underperforming and inthe doldrums.
So even in the last 12 months, the share price has dropped
almost 30%. And this is in an era where
we're going to talk about, we'regoing to talk about Shell, but
we're going to talk about other oil and gas majors.
(06:55):
This isn't it in an era where Shell, Shell's share price in
the last year is up 89%. So when you've got 2 very
similar companies diverging at this rate, 1 going up 90%, one
going down 30%, Shell is now almost three times bigger than
BP from a market capitalization perspective, 10 years ago, 15
(07:20):
years ago, 20 years ago, we would never even be entertaining
this conversation. They used to be pretty similar
sized companies, but over the last 15 years, due to a
combination of lots of differentthings, BP has become a target
and Shell has become a potentialacquirer.
And just to finish off this little bit of background, BP now
(07:40):
ranks only 9th in terms of market cap in the FTSE 100.
And again, for people like me and you, that is quite
staggering. Yeah, that is that is
staggering. I would have had them at least
in the top five you would have thought.
But I guess there's lots of questions then that starts to to
come to mind about like Shell, is that even possible regulation
(08:05):
from the government standpoint from a what to BP even think of
this? I'm sure this has been muted
before in the past. So what happened there?
Is there any previous conversations that have happened
between these two? Because I would imagine when BP
was down at those previous depressed points that you
mentioned 20/10/2020, surely there was similar murmurings on
(08:29):
the street as as a similar thingand that hasn't happened so far.
So what's to say that it's goingto happen this time?
Yeah, I think a lot has changed since the last kind of mega dips
and it's and it's a combination of BPS weakening and Shells
strengthening. Shell is a really, really well
performing company, right. Strategically, it's been on
(08:51):
point for the last five to 10 years.
It has invested in renewable energy but has focused more on
clean fuels and gas and LNG, really, really big into LNG,
liquefied natural gas. And they have been much better
performing assets than full renewables in the context of
(09:14):
these two companies specializations, right?
You know, they're really good atgetting stuff out of the ground,
refining it and then putting it into putting it into fuels.
So Shell is now sitting on a cash pile of £35 billion, so not
an insignificant cash pile. And BP's obviously, you know, a
(09:34):
£60 billion market capitalization company at the
moment with $77 billion worth ofdebt on its balance sheet.
So it's a, you know, it's a company that's gone through so
many exogenous difficulties. You know, again, it is never
recovered from deep water and it's been paying 10s of billions
(09:56):
of dollars in liabilities since that 2010 event.
It had to dispose of Rosneft at the beginning of the Russia,
Ukraine war. That was a $20 billion hit to
its top line. So to its to its bottom line,
Sorry. So it's had a lot of different
issues, right? But it's also made some
potentially strategic missteps that have resulted in BP
(10:22):
becoming a target. Now, one of those missteps has
been the kind of maybe we would say the ill-fated move into
renewables, the beyond Petroleum, Bernard Looney, who
was the ex CEO really pushing high into this transition.
Now, there's a couple of points to make here.
(10:43):
One, strategically over the longterm, that makes sense.
You know, strategy can be right,execution can be poor, and
that's what's happened in this case point #2 it's still a
relatively small part of the business from a capital
expenditure perspective. You know, it's, it's in line
(11:03):
with the other oil and gas majors in terms of the amount of
money that it spends investing in renewables.
So there is a little bit of a mumbling, A murmuring that
everyone's pinning the problems of BP on the scapegoat that is
the kind of net zero agenda. Whereas actually there are more
structural problems that have brought the likes of Elliot, big
(11:28):
activist investor to the table to say, look guys, this thing is
being this thing is being run into the ground and it is a
brilliant, brilliant company that's just not being run
properly by by its by its seniorleaders.
Yeah, I just had a quick look because I remember Bernard
Looney being in the press a lot what two years ago.
(11:50):
And as much as it might have been a strategy execution, this
timing, he obviously admitted hehad not fully disclosed past
personal relationships with colleagues and code of conducts
and so forth. So it, it felt like quite a a
misfire on many levels when it all came to light.
It's. Been, it's been a cacophony of,
(12:11):
of, of missteps and, and, and errors and, and, you know, both
from a, from a personnel perspective and from a strategy
perspective. But it, you know, it almost
seems like BP and we'll move on to the kind of deal in a, in a,
in a minute. It almost seems like BP has been
stuck between a rock and a hard place.
(12:32):
The rock being its commitment toenergy transition and the hard
place being Elliot and the activist investors that wanted
to actually continue to make some money and throw off some
cash so that it can pay some dividends.
And something that's super, super interesting here is that
you've got Elliot, big activist asset managers, you know, owns
(12:56):
5% of BP at the moment saying, look, you've got to go.
You've got to wind back on your net 0 ambitions.
And then you've also caught a group of 48 shareholders
representing 2.5% of the ownership of BP, including a lot
of Scandinavian shareholders saying, look, you know, you
can't roll back on these commitments without putting it
(13:18):
to a shareholder vote. You put it to a shareholder vote
a few years ago to say to ask shareholders whether we wanted
to be part of the energy transition and we voted 88% in
favor, right? So that why are you not giving
us a vote to wind back on that commitment that we agreed to.
So they stuck between the kind of the sustainability champions
(13:41):
and the kind of cold hard capitalists.
And they don't really know whether they're coming or
they're going. And it's a really, really
difficult spot for the board and, and, and as I said, for the
management. Just sticking at the context of
you mentioned earlier that Shellhave performed really well in in
recent years. But if you're looking at share
prices only, Exxon's probably performed even better.
(14:04):
And actually last year, Exxon had one of the biggest deals of
the year, certainly in the sector where they acquired
Pioneer Natural Resources for 60billion or so.
Does Shell need this in order tostay competitive or are they
completely like you said, Shell's focus is on LNG and they
(14:25):
just want to expand and they have certain geographies they
dominate. Yeah, I, I don't think that they
need this. I think that there are certain
elements of BP that would be extremely attractive to Shell.
And I think this is, you know, as soon as BP becomes in play,
(14:46):
I'm going to talk about the deal.
Now, as soon as BP becomes in play, the financial analysts
start sharpening their pencils and start thinking about all of
the different combinations of breakups, split outs, buying,
you know, buying different partsof BP who might like which
different part. Is there anyone particular buyer
(15:06):
that really, really would like the whole of BP as a particular
unit? Because remember, and we've
spoken about this on previous episodes, BP is what's called a
vertically integrated company, which means that it has, you
know, exploration and production, IE getting the oil
out the ground. It has refining, it has trading
big arm, and it also has retail and point of sale.
(15:29):
Now there are very, very few companies that would really love
all of that stuff, right? So the analysts, the M&A
analysts, the investment banks and also the equity research
analysts have been doing lots ofwork on what's called the sum of
the parts analysis. So trying to kind of figure out
if this thing was torn apart andthen put either into new
(15:53):
separate entities or bought by rival companies, what would this
thing be worth? And you know, there are, there
are conversations about the sum of the parts value of the
business being upwards of £125 billion, which is greater than
BP's market cap, plus it's debt and E.
(16:13):
And there are specific assets that if taken out, for example,
it's US shale and oil and gas assets that, you know, on their
own could be worth 70, five, $80billion.
So what we need to be thinking about, and again, if I was an
oil and gas investment banker, Iwould be like, all right, here,
(16:35):
here, here's the smorgasbord of potential acquirers.
And here are all of the different things that we could
consider when feasting on feasting on a potential
acquisition of BP. And it might end up being that
certain parts of BP get spun offinto different entities.
(16:56):
There are very, very few players, I believe that would
like the whole thing. But there are certainly players,
you know, even like a veto, the trading house would probably
love their trading arm, right? But if you take the trading arm
out of BP, it's very, very hard to disintegrate that part from
(17:19):
the vertically integrated company.
So you'd almost have to do it asa kind of all right, the whole,
the whole house is up for sale, right.
But we're going to sell, you know, the kitchen appliances to
one buyer. We're going to sell the
foundations to another buyer. But they all need to be sold at
the same time to disentangle this very, very complex company.
(17:39):
Question, what is the cultural alignment or not of these two
firms? My point being is, is that if
they're aligned fine, they couldbe ways to increase those
synergies for the benefit of of of shell or both.
If it's not and there are cultural conflicts in different
(18:01):
nations, so to speak, well then does that make it a more of an
aggressive kind of deal in the sense that basically you're just
going to strip the assets down and it's our way, not a
combination of the two? Yeah, it's an interesting 1.
And I think, I think that there is, there may well be, there
(18:21):
will be cultural differences certainly between BP and Shell
and, and probably even maybe even more so between BP and the
likes of Exxon and Chevron. But I, I get the sense the mood
music within the senior teams atBP is probably 1 where action
(18:42):
needs to be taken, right? And, you know, whatever that
action is, it will probably end up being more favorable than the
kind the the malaise that the company seems to have found
itself in and, and, and the strategic chopping and changing
and, and various initiatives that have been wound back on.
(19:04):
So it's almost like, yeah, yes, there may be some culture
clashes, but we kind of need something to be done.
And I think just obviously we talk, you know, we're talking
about Shell and, and, and BP, but there are other players,
right? And there was a really good FT
article that listed all of the other players that could be
interested in BP and whether they are legitimate, credible
(19:27):
buyers. And you know, the list is
relatively long and I don't wantto spend too much time on it,
but we've got Shell, we've got Chevron, we've got Exxon, we
have Total Energy, the French company.
As I said, we have different, different companies thinking
about buying different chunks ofthe of, of BP.
But then we also have ADNOC which is the UAE oil integrated
(19:52):
oil and gas company. And ADNOC, I know it's a name
that many of you probably wouldn't have heard, but ADNOC
have been really, really interested in this business and
you know they've run the numbers, they've got their M&A
advisors on board. I don't know who they are, but
there is kind of in terms of strategic rationale and
(20:14):
alignment. Of all different parts of the BP
business, with what a company might want, it feels like ADNOC
might end up being the one that wants to take the whole thing,
lock, stock and barrel and not split it out and not carve it up
and do all of these different things.
I don't know where the shell would be able would want to do
(20:35):
that. There's certainly elements of BP
the Shell would love, but would it take on the rest?
That is, that's why we're going to, you know, we're spending
time on it today. It's such an interesting deal
and we're going to follow it over the next year or so because
unless something dramatic happens, I think that this is,
this is to use a kind of M and aterminology, this is it.
(20:58):
This is an asset that's in play,right?
Yeah. And it being in play, then you,
I guess when you're listing those firms, thinking of that
competitive tension that you as the banker are going to want to
engineer for the purpose of the the price, the ticket kind of
sale price. So what was interesting, I was
having a look at some of the deals, the biggest deals in,
(21:20):
well, the energy sector was one of the kind of staples of MNA
fees, let's say it's the boutiques, a lot of the big
bulge bracket banks. But yeah, I just wondered how
does that work in terms of is there a favoured bank that you
would go to for this type of deal?
Is there a particular kind of track record where one stands
(21:42):
out? I have had a look but yeah I
just wanted to get your thoughts.
Yeah, it's a, it's a really interesting one.
I mean, every large bulge bracket and elite boutique to an
extent elite boutique investmentBank will have an oil and gas
coverage team. And we'll have M&A bankers that
have had a lot of success in this space because a lot of M&A
(22:03):
historically goes on and the deals are really, really big.
Now. Oil and gas is a slightly
different being an oil and oil and gas analyst, whether it's
equity research or coverage, it's a slightly different way of
looking at companies because you're looking, I always think
it's most similar to pharmaceuticals because you're,
(22:24):
you're looking at the assets that have known reserves and
you're having to model the reserves, the value of those
assets and the reserves and the,you know, the number of millions
of barrels of oil available within the control and, and, and
(22:46):
purview of these companies. So you do have to have a certain
expertise if you're going into oil and gas a little bit like
with pharma, you have to kind offorecast the future value of
drug discovery and all of this kind of stuff.
Now, because these deals are so big.
A lot of these deals we, you know, we spoke last year about a
big Chevron Hess deal and the Exxon Pioneer deal and the
(23:10):
Diamondback Endeavour deal as well.
You know, these will require complex financing arrangements,
you know, lots of syndicated debt, potentially maybe a rights
issue, share for share or whatever it might be.
So you want, you want probably the big guys on it and I would,
I would, I would suggest that Goldman Sachs are on every side
(23:33):
or on one side of every single one of these deals and probably
the other big U.S. investment banks as well.
Yeah, those biggest deals. So the Exxon pioneer was City
was the lead advisor, Diamondback Endeavour was
Jeffries and Conoco Phillips acquiring Marathon Oil was
Evercore so. There you go.
(23:53):
Yeah. Look, Jeffries has got a really
good oil and gas team. Evercore definitely, definitely
getting there as well. So yeah, the elite boutiques are
starting to play across the board and certainly on these, on
these on these mega deals. Again, if it's BP, you would
probably expect it to be, you know, a JP Morgan, Goldman Sachs
(24:15):
type because it's just such a big company, right?
And such a complex company. All right.
Well, let's move to show on to story number two of three.
And this is Skechers. So tell me about Skechers.
Yeah, I don't know, is Skechers cool or very, very uncool?
And we're not we're we're not the ones to answer.
(24:36):
This is where I'm very hesitant to put my neck on the line.
I've always thought that they are deeply uncool, but the fact
that they've gone into the deeply uncool segment probably
means that they're ultra cool. And so yeah, I feel like I'm
going to get egg on my face if Icommit too hard to same what I
(24:57):
really say. Yeah, I don't know whether
they've quite got into that kindof Crocs. dot Martin's kind of
all right. They're so uncool.
They're now cool thing that happened over the last few
years. But yeah, let's, let's kind of
withhold our judgement here. Historically, Skechers have been
very, very comfortable, but deeply uncool trainers that that
(25:18):
tended to have more of a foothold within, to excuse the
pun, foothold within kind of, I would say, you know, 50s and 60s
golfers. You know, that I can imagine
them taking off their orthopedicSkechers in order to change into
their golf shoes. And that that's what that's my
(25:38):
vision of Skechers. But it's obviously a lot bigger
than that because it's, it's just been acquired for $9.4
billion and it's a 9 billion revenue, 9 billion a year
revenue business that generates almost a million, a billion
dollars of, of EBITDA. So it's a proper, it's a proper
(26:00):
big company with, with revenue from across the world, you know,
4 billion in the US, 2 billion in, in the UK and Europe and 2
billion in AIPAC. But this is, this is a really
interesting acquisition for a couple of reasons.
Firstly, because of the acquirerand secondly because of the
macroeconomic conditions that this acquisition has been
(26:22):
announced in. So the deal $9.4 billion
acquisition take private. So Skechers publicly listed
company take private by 3G Capital.
And 3G Capital is a super interesting company.
And again, if you've been aroundthis space, been around finance
for a while, you would have heard, heard of 3G Capital in a
(26:44):
way that maybe you wouldn't if you're quite new to this space.
So that I remember living in theStates and hearing 3G being
spoken about a lot because of two deals.
The first was its acquisition in2010 of Burger King for about $3
billion and then it listed it again on the stock market after
(27:07):
18 months for about 5 1/2 billion dollars, but retained
70% ownership of the company andthen merged it with another
company and it's effectively made about 8 times its money
from that deal. It's really interesting,
especially because 3G, you know,it's a, as I said, US Brazilian
investment group run by Brazilian financiers.
(27:27):
So again, there's an interestingelement there, you know,
Brazilian team buying a very American brand.
And then the second one that I remember it being in the news a
lot was when 3G partnered with Warren Buffett to acquire Kraft
Foods and then merge it with Heinz.
Really, really big consumer brands deal that you're
(27:51):
thinking, all right, who are these guys?
3G, you know, they're not, they're not the KKRS, they're
not the Carlyles, but they do very, very irregular, massive,
massive deals where they don't take over the they don't take
over the management of the company.
They still keep them, the company's founder LED and they
use their financing expertise and their buy and build
(28:15):
acquisition expertise in order to improve these companies.
So yeah, 3G capital, take a lookat them.
Burger King AB in Bev was another massive one that they
did. And obviously now and now
Skechers. So Skechers, here we go.
So Skechers the acquisition $63 per share in cash, which is a
(28:36):
30% premium to its 15 day volumeweighted average price or
shareholders can get $57 in cashand one non transferable equity
unit in the new private parent company.
So those non transferable equityunits basically is saying, all
right, I've got a little bit of skin in the game for the private
(28:59):
equity ownership, right. I think 20% of the overall
company is going to be in in those blocks, so $63 a share.
And the one thing that I found super interested interesting
about this in the context of global macroeconomics and
remember Skechers and other footwear companies are about as
(29:19):
susceptible to tariffs as any company.
You've seen Nike share price, you know, they have their main
manufacturing facilities in Vietnam and in China.
So as recently, this is super important.
As recently as January 2025, theSkechers had a share price of
$78 a share, right? Share price fell off a Cliff due
(29:44):
to these tariff announcements. And then 3G announces that it's
going to acquire the company for$63 a share.
Now I'm looking at the one year share price graph at the moment,
and the companies hovered around$70 a share until February until
basically Trump came into power.So what I'm trying to, what I'm,
(30:06):
what I'm getting at here is if 3G believe that this tariff
volatility is temporary and thatthings are going to go back to
roughly where they were. They've picked up a company
that's been trading at $70 a share on average over the last
(30:27):
couple of years for $63 a share,including that 30% acquisition
premium. Now, obviously the inverse is if
these tariffs start getting doubled and tripled down on this
could be a bit of a stranded asset, but it again, it's going
to be one of those really interesting ones.
Is this an absolute ninja move and a really good representation
(30:50):
of the types of M&A that you cando in volatile environments?
Were sketches on the table for 3G Capital six months ago?
Probably not so super super interesting.
I like this. I like the signal that this is
giving, you know, because like me and Piers talk or you know,
we talk about all the economic data coming in, what the Fed is
(31:12):
saying. Actually, given how the Fed, we
had the interest rate meeting last week, the Fed were
basically saying, look, we're inno rush.
It's the White House that are dictating probably proceedings
and we're acting accordingly. The flag, I think you get the
from here is a real pulse on thereal behind the scenes money.
(31:34):
And if they're feeling confidentto put that money to work, then
to me they're they're in the know because they're probably
pretty aligned to the administration and these things.
And the fact that they're going in at this, when you say that
they're a fairly kind of selective company, means that,
yeah, that that gives me an interesting addition to looking
(31:58):
at the world purely through a market macro lens.
Yeah, it's so interesting. And This is why we would always,
always, always encourage listeners to listen to both
podcasts, right? Even though I prefer if you
listen to this one because you get both sides of it right And,
and they're telling sometimes conflicting stories.
And, and maybe there's a short term element that is discussed
(32:20):
more in the market maker and maybe more of a long term
element discussed in the deal room.
But it's going to give you a much broader understanding.
And actually let's move on to this third story because this
was actually last Monday, I called it merger Monday, there
were $30 billion worth of transactions announced.
One of them was sketches and oneof them was Sonoco, the old
(32:42):
school U.S. oil and gas distributor to buy its
equivalent Canadian fuel seller Parkland for 9.1 billion.
And now again, this is super interesting in the context of
macroeconomics and in the context of potential tit for tat
tariffs in in between the US andCanada.
(33:02):
The US company, Sunoco acquiringa Canadian company.
This is again, this is really interesting and it will be very,
very, it will be very instructive to see whether this
deal goes through from a Canadian regulatory perspective.
(33:24):
And in fact Sunoco in their, in their press release said, look,
we are going, we are committed to Canada.
We're going to retain the Calgary HQ, We're going to
continue the investment in an A Canadian low carbon fuel
refinery and preserve Canadian jobs.
So it's again we're going to have a look and just just to
(33:45):
kind of put a share price lens on it as well, this was this
deal was announced $44 a share, 44 Canadian dollars a share.
Again, as recently as June last year, the company was trading at
over $48 a share. So again, is it one of those,
All right, you know, the share price is down.
(34:06):
It now becomes a really, really attractive asset, assuming that
the volatility and the and the tit for tat between Canada and
the US dampens over the coming years.
So again, it's so interesting tosee how you know the headlines
coming out of the White House are trickling down into deals on
(34:26):
the ground. Just to get a sense of the
likelihood of this progressing at this point, Sunoco's recent
track record, is there anything that we can tell from their
activities from like a management structure or strategy
that they have in terms of recent acquisitions?
Yeah, so, so last year they acquired new Star Energy for 7.3
(34:49):
billion in an all, all stock deal.
I think I think of and and the board has unanimously approved
or recommended the deal for Parkland shareholders.
There's there's lots of stuff that we don't have time to go
into. And it definitely, if you're
interested, take a look at the insurance and outs of the
(35:10):
activist investor in Parkland taking a 20% share and basically
battling against the board and, and and a lot, lots of intrigue
and interesting stuff going on there.
But it seems to be a a sensible transaction.
It's, it's deemed to be what's called accretive to
(35:30):
distributable cash flow from dayone, which basically just means
it's, it's beneficial to the combined entity because they're
buying something cheaper than the than the associated cash
flows that it generates. And our favorite word synergies
there is projected to be $250 million of annual synergies by
year three. Good bit of modelling from the
(35:52):
analysts. So yeah.
So I reckon it will go through Mark Carney.
Let's see. Yeah, we'll, we'll find out.
At the top of the show I did mention something called a
fairness opinion. So break the news.
What are What do we have here? Yeah, I just thought I'd end
with a little bit of a teaching and I was reading the press
(36:15):
release that came out on Parkland's website and it's it's
interesting, we don't talk that much about deal mechanics, but
I'm just going to read a few little snippets from this press
release just to kind of give youan understanding of what tends
to happen when a target is has received an offer and the board
(36:35):
needs to figure out whether it'sgoing to recommend that offer.
So let me go through this. On March the 5th, 2025, Parkland
announced that it's board of directors had initiated a review
of strategic alternatives aimed at identifying opportunities to
maximize value for all shareholders.
A special committee of independent directors.
(36:56):
The special committee was appointed to oversee and lead
this comprehensive review. When we say independent
directors, we're talking about directors that are on the board
but aren't the CEO, aren't part of the executive team.
Following this announcement, discussions with Sunoco
intensified, leading to the transaction.
Based on unanimous recommendations from Parkland
(37:18):
Special Committee and following consultation with its financial
and legal advisors, the board ofDirectors has unanimously
approved the transaction. So it's the special committee
carved out of the wider board that is now with the advice and
opinions of legal and financial advisors is now recommending the
(37:39):
deal. And I'm just going to finish
with this piece. Goldman Sachs Canada and Bank of
America Securities have E provided opinions to the
Parkland board of directors and BMO Capital Markets has provided
an opinion to the Parkland special committee to the effect
that. And then there goes on to be a
lot of legalese, but basically saying independent financial
(38:01):
advisors have provided an opinion that this acquisition,
this price per share, this deal structure is fair and should be
recommended to the shareholders.This is what's called a fairness
opinion. So I'll give you the kind of
headline. The fairness opinion is a
professional evaluation. A bank, you know, banks get paid
(38:23):
a lot of money to do these fairness opinions, typically
from a financial advisor statingwhether the terms of a
transaction, the price, the structure, the financing are
fair to accompany shareholders from a financial perspective.
So it's that third party independent financial advisor
going through and basically saying, yeah, this is this, this
(38:44):
is fair. And therefore it gives
shareholders this nice little kind of comfort blanket that a
bunch of these banks are taking a look at it.
Yeah. Is it fair?
I mean, the banks are incentivized to come up with
certain types of conclusion as much as they'll say that that's
not the case. Yeah, absolutely.
And there is definitely a littlebit of a little bit of double
(39:06):
dipping here, fairness, opinionsusually written by banks that
are not working on the actual deal.
So that that gives a little bit of a barrier.
But yeah, I mean, again, the incentive for the whole industry
is to do deals, and they'll probably be looking at anything
(39:28):
that would be materially unfair as opposed to, you know, as
opposed to trying to block the deal at every time.
So to your point, I just looked at the press release from Sunoco
and Goldman Sachs Canada. Bank of America securities were
advisors to Parkland. BMO Capital Markets, the
(39:49):
Canadian firm, they act as financial advisor to Parkland
special committee. So actually yeah, you're right,
BMO Canada LED were running thatwhereas it's the the Canadian
arms of the US entities of Goldman's of Bank of America who
are actually advisors for Parkland.
Yeah, exactly. And to have that distribution of
different investment banks providing those opinions to
(40:11):
different areas of the board again does give a little bit of
checks and balances, right. But again, it it's not the most,
it's not the most kind of transparent system, but
fairness, opinions, super important.
Every public transaction needs them in order to recommend a
deal to shareholders. Cool.
(40:31):
All right, well that that wraps it up.
So yeah, we we did a pretty similar episode to this just a
few weeks ago and it was very well received.
So if there are any questions atall about any of the deals, any
of the terminology, anything mentioned, or if you just have
an opinion agreeing or contrasting with what we've said
today, just drop us a comment. And if you aren't already
(40:51):
subscribed to the channel, supereasy to do and we'd really
appreciate it. It'll help us get this show out
to as many people as possible. But Stephen, as ever, thank you
very much for your insights and thanks everyone for listening.
Thank you, Ann.
Hello and welcome back to the Deal Room.
And we have another jam packed episode for you of mega M&A
deals. It does feel in the Trump
environment at the moment activity is in a bit of a lull.
However, there is some serious action going on in terms of the
headlines in the past week and probably the biggest one has
(00:21):
been Shell weighing a mega merger potentially with BP.
So that's going to be the predominant conversation that
you and I are going to have Stephen, really unpack that.
What has happened to the mighty BP?
Certainly if you're a British person, that definitely has been
a staple of of our lives, certainly for people of yours
(00:42):
and mine age. But what's happening there?
Why shell coming now? How likely is it?
What's the rationale? We'll break it all down.
The other two stories we're going to talk about is APE Firm
3G Capital, really interesting one a little bit different from
some of the regular PE names that we probably talk about, but
they've agreed, agreed to take private a footwear giant and
(01:05):
that's Skechers. And I was surprised by the size
of this, this is knocking close to 10 billion U.S. dollars.
So I definitely myself want to understand Skechers as a
business a little bit more because I don't really know a
great deal about it. But also to unveil a little bit,
you know, the private equity players are quite secretive.
I'd love to know a little bit more about 3G capital.
(01:27):
And then Sunoco AUS fuel distributor to buy Canadian fuel
seller Parkland for 9.1 billion.So another very big deal on the
cars. And this it kind of goes into
that intersection of macroeconomics in terms of
geopolitics, because you've got American firm looking at a
Canadian firm here. And then to, to finish, there's
(01:50):
something called a fairness opinion.
Now, Stephen, you, you mentionedthis, this, these two words to
me just before we began. And I was like, I have no idea
what you're talking about. So I'm intrigued.
So everyone else should be as well because this is a really
important component in any M anda transaction.
And we're going to have a look at that as well.
(02:10):
So let's start with Michelle. I was kind of blown away.
Actually, I was even jumped on our corporate LinkedIn account I
think at 10:30 PM that evening and I thought, look, I got to
get this out to market quick because it just struck me as a
really big deal and and people should know about it.
Yeah, absolutely. Well, gosh, you're, you're on
(02:31):
LinkedIn at 10:30 in the evening.
That is commitment. And I'm, I'm usually not on
LinkedIn at 10:30 in the evening.
Well, I've. So I'll tell you what, BP is a
company that definitely resonates with basically the
British population because we see there point of sale service
stations around the country and they're constantly in the news.
(02:52):
And if you have a pension or if you have a, you know, index
tracker, FTSE 100, BP has alwaysbeen a pretty major component.
And I actually, this is Full disclosure, I bang on a lot
about ESG and sustainability, but I actually did intern at BP
when I was a lot, lot younger than I am today.
(03:15):
Actually, before we begin, I must also stress, Stephen, just
to front run this that if you listen on Spotify or Apple BP do
sponsor the show. So let's just let's just be,
let's just be a little bit careful about how I am right the
performance of BP here because. They do to.
Place adverts on our show Stephen.
(03:36):
Look, I'm going to sing their praises from the rooftop and I
will give no critical opinion asto why they have been
struggling. So this is actually going to be
an advert for BP, weirdly enough, no.
Anyway, so I find it to be a massive massively A massively
interesting company in a, in a, in a really interesting story,
(03:57):
especially for everyone that's interested first in strategy and
then in kind of mega MNA and howthese very, very large M&A deals
bring in macroeconomic context, they bring in governments, they
bring in the, you know, the person on the street and how can
all of this shake out? So I just want to start by
(04:18):
giving a little bit of context because again, you know, and me
and you are close to the same age when I, when I left
university and started working in finance, BP were one of the
consistently one of the three or4 largest constituent parts in
the FTSE 100. And I just want to take a little
journey through their share price over the last 25 years.
(04:42):
So in September 2000, many listeners will not have been
born, but the share price was £650 per share market cap of
about £120 billion. Fast forward to March 2010, the
share price has gone nowhere, 630 lbs.
But by the way, one of the reasons why you invest in BP is
(05:07):
the dividend. It generates massive amounts of
cash that it pays out as a regular dividend.
So it's from a share price perspective, it's definitely a
dividend play now. March 2010, 630 lbs a share,
June 2010, 304 lbs a share. So the share price?
(05:28):
More than half. Now, why was this the case?
This was the Deepwater Horizon spill, absolutely calamitous
explosion in the Gulf of Mexico that effectively destroyed the
company's reputation, especiallyin the US, destroyed the
(05:49):
company's share price, and actually has been weighing on
the company ever since. The company's never recovered to
$650 or 630, sorry, 650 lbs. A share.
Fast forward to August 2018, share price had recovered to 550
lbs. By November 2022, years later,
the share price had dropped to under £200 a share.
(06:13):
Why was this? Well, COVID Russia Ukraine.
Well on the brink of Russia Ukraine, but mainly COVID by
April 2024. As recently as a year ago, the
share price was up at 540 lbs a share, giving it a market
capitalization of closer to £90 billion.
(06:34):
But since April 2024, the share price has been massively,
massively underperforming and inthe doldrums.
So even in the last 12 months, the share price has dropped
almost 30%. And this is in an era where
we're going to talk about, we'regoing to talk about Shell, but
we're going to talk about other oil and gas majors.
(06:55):
This isn't it in an era where Shell, Shell's share price in
the last year is up 89%. So when you've got 2 very
similar companies diverging at this rate, 1 going up 90%, one
going down 30%, Shell is now almost three times bigger than
BP from a market capitalization perspective, 10 years ago, 15
(07:20):
years ago, 20 years ago, we would never even be entertaining
this conversation. They used to be pretty similar
sized companies, but over the last 15 years, due to a
combination of lots of differentthings, BP has become a target
and Shell has become a potentialacquirer.
And just to finish off this little bit of background, BP now
(07:40):
ranks only 9th in terms of market cap in the FTSE 100.
And again, for people like me and you, that is quite
staggering. Yeah, that is that is
staggering. I would have had them at least
in the top five you would have thought.
But I guess there's lots of questions then that starts to to
come to mind about like Shell, is that even possible regulation
(08:05):
from the government standpoint from a what to BP even think of
this? I'm sure this has been muted
before in the past. So what happened there?
Is there any previous conversations that have happened
between these two? Because I would imagine when BP
was down at those previous depressed points that you
mentioned 20/10/2020, surely there was similar murmurings on
(08:29):
the street as as a similar thingand that hasn't happened so far.
So what's to say that it's goingto happen this time?
Yeah, I think a lot has changed since the last kind of mega dips
and it's and it's a combination of BPS weakening and Shells
strengthening. Shell is a really, really well
performing company, right. Strategically, it's been on
(08:51):
point for the last five to 10 years.
It has invested in renewable energy but has focused more on
clean fuels and gas and LNG, really, really big into LNG,
liquefied natural gas. And they have been much better
performing assets than full renewables in the context of
(09:14):
these two companies specializations, right?
You know, they're really good atgetting stuff out of the ground,
refining it and then putting it into putting it into fuels.
So Shell is now sitting on a cash pile of £35 billion, so not
an insignificant cash pile. And BP's obviously, you know, a
(09:34):
£60 billion market capitalization company at the
moment with $77 billion worth ofdebt on its balance sheet.
So it's a, you know, it's a company that's gone through so
many exogenous difficulties. You know, again, it is never
recovered from deep water and it's been paying 10s of billions
(09:56):
of dollars in liabilities since that 2010 event.
It had to dispose of Rosneft at the beginning of the Russia,
Ukraine war. That was a $20 billion hit to
its top line. So to its to its bottom line,
Sorry. So it's had a lot of different
issues, right? But it's also made some
potentially strategic missteps that have resulted in BP
(10:22):
becoming a target. Now, one of those missteps has
been the kind of maybe we would say the ill-fated move into
renewables, the beyond Petroleum, Bernard Looney, who
was the ex CEO really pushing high into this transition.
Now, there's a couple of points to make here.
(10:43):
One, strategically over the longterm, that makes sense.
You know, strategy can be right,execution can be poor, and
that's what's happened in this case point #2 it's still a
relatively small part of the business from a capital
expenditure perspective. You know, it's, it's in line
(11:03):
with the other oil and gas majors in terms of the amount of
money that it spends investing in renewables.
So there is a little bit of a mumbling, A murmuring that
everyone's pinning the problems of BP on the scapegoat that is
the kind of net zero agenda. Whereas actually there are more
structural problems that have brought the likes of Elliot, big
(11:28):
activist investor to the table to say, look guys, this thing is
being this thing is being run into the ground and it is a
brilliant, brilliant company that's just not being run
properly by by its by its seniorleaders.
Yeah, I just had a quick look because I remember Bernard
Looney being in the press a lot what two years ago.
(11:50):
And as much as it might have been a strategy execution, this
timing, he obviously admitted hehad not fully disclosed past
personal relationships with colleagues and code of conducts
and so forth. So it, it felt like quite a a
misfire on many levels when it all came to light.
It's. Been, it's been a cacophony of,
(12:11):
of, of missteps and, and, and errors and, and, you know, both
from a, from a personnel perspective and from a strategy
perspective. But it, you know, it almost
seems like BP and we'll move on to the kind of deal in a, in a,
in a minute. It almost seems like BP has been
stuck between a rock and a hard place.
(12:32):
The rock being its commitment toenergy transition and the hard
place being Elliot and the activist investors that wanted
to actually continue to make some money and throw off some
cash so that it can pay some dividends.
And something that's super, super interesting here is that
you've got Elliot, big activist asset managers, you know, owns
(12:56):
5% of BP at the moment saying, look, you've got to go.
You've got to wind back on your net 0 ambitions.
And then you've also caught a group of 48 shareholders
representing 2.5% of the ownership of BP, including a lot
of Scandinavian shareholders saying, look, you know, you
can't roll back on these commitments without putting it
(13:18):
to a shareholder vote. You put it to a shareholder vote
a few years ago to say to ask shareholders whether we wanted
to be part of the energy transition and we voted 88% in
favor, right? So that why are you not giving
us a vote to wind back on that commitment that we agreed to.
So they stuck between the kind of the sustainability champions
(13:41):
and the kind of cold hard capitalists.
And they don't really know whether they're coming or
they're going. And it's a really, really
difficult spot for the board and, and, and as I said, for the
management. Just sticking at the context of
you mentioned earlier that Shellhave performed really well in in
recent years. But if you're looking at share
prices only, Exxon's probably performed even better.
(14:04):
And actually last year, Exxon had one of the biggest deals of
the year, certainly in the sector where they acquired
Pioneer Natural Resources for 60billion or so.
Does Shell need this in order tostay competitive or are they
completely like you said, Shell's focus is on LNG and they
(14:25):
just want to expand and they have certain geographies they
dominate. Yeah, I, I don't think that they
need this. I think that there are certain
elements of BP that would be extremely attractive to Shell.
And I think this is, you know, as soon as BP becomes in play,
(14:46):
I'm going to talk about the deal.
Now, as soon as BP becomes in play, the financial analysts
start sharpening their pencils and start thinking about all of
the different combinations of breakups, split outs, buying,
you know, buying different partsof BP who might like which
different part. Is there anyone particular buyer
(15:06):
that really, really would like the whole of BP as a particular
unit? Because remember, and we've
spoken about this on previous episodes, BP is what's called a
vertically integrated company, which means that it has, you
know, exploration and production, IE getting the oil
out the ground. It has refining, it has trading
big arm, and it also has retail and point of sale.
(15:29):
Now there are very, very few companies that would really love
all of that stuff, right? So the analysts, the M&A
analysts, the investment banks and also the equity research
analysts have been doing lots ofwork on what's called the sum of
the parts analysis. So trying to kind of figure out
if this thing was torn apart andthen put either into new
(15:53):
separate entities or bought by rival companies, what would this
thing be worth? And you know, there are, there
are conversations about the sum of the parts value of the
business being upwards of £125 billion, which is greater than
BP's market cap, plus it's debt and E.
(16:13):
And there are specific assets that if taken out, for example,
it's US shale and oil and gas assets that, you know, on their
own could be worth 70, five, $80billion.
So what we need to be thinking about, and again, if I was an
oil and gas investment banker, Iwould be like, all right, here,
(16:35):
here, here's the smorgasbord of potential acquirers.
And here are all of the different things that we could
consider when feasting on feasting on a potential
acquisition of BP. And it might end up being that
certain parts of BP get spun offinto different entities.
(16:56):
There are very, very few players, I believe that would
like the whole thing. But there are certainly players,
you know, even like a veto, the trading house would probably
love their trading arm, right? But if you take the trading arm
out of BP, it's very, very hard to disintegrate that part from
(17:19):
the vertically integrated company.
So you'd almost have to do it asa kind of all right, the whole,
the whole house is up for sale, right.
But we're going to sell, you know, the kitchen appliances to
one buyer. We're going to sell the
foundations to another buyer. But they all need to be sold at
the same time to disentangle this very, very complex company.
(17:39):
Question, what is the cultural alignment or not of these two
firms? My point being is, is that if
they're aligned fine, they couldbe ways to increase those
synergies for the benefit of of of shell or both.
If it's not and there are cultural conflicts in different
(18:01):
nations, so to speak, well then does that make it a more of an
aggressive kind of deal in the sense that basically you're just
going to strip the assets down and it's our way, not a
combination of the two? Yeah, it's an interesting 1.
And I think, I think that there is, there may well be, there
(18:21):
will be cultural differences certainly between BP and Shell
and, and probably even maybe even more so between BP and the
likes of Exxon and Chevron. But I, I get the sense the mood
music within the senior teams atBP is probably 1 where action
(18:42):
needs to be taken, right? And, you know, whatever that
action is, it will probably end up being more favorable than the
kind the the malaise that the company seems to have found
itself in and, and, and the strategic chopping and changing
and, and various initiatives that have been wound back on.
(19:04):
So it's almost like, yeah, yes, there may be some culture
clashes, but we kind of need something to be done.
And I think just obviously we talk, you know, we're talking
about Shell and, and, and BP, but there are other players,
right? And there was a really good FT
article that listed all of the other players that could be
interested in BP and whether they are legitimate, credible
(19:27):
buyers. And you know, the list is
relatively long and I don't wantto spend too much time on it,
but we've got Shell, we've got Chevron, we've got Exxon, we
have Total Energy, the French company.
As I said, we have different, different companies thinking
about buying different chunks ofthe of, of BP.
But then we also have ADNOC which is the UAE oil integrated
(19:52):
oil and gas company. And ADNOC, I know it's a name
that many of you probably wouldn't have heard, but ADNOC
have been really, really interested in this business and
you know they've run the numbers, they've got their M&A
advisors on board. I don't know who they are, but
there is kind of in terms of strategic rationale and
(20:14):
alignment. Of all different parts of the BP
business, with what a company might want, it feels like ADNOC
might end up being the one that wants to take the whole thing,
lock, stock and barrel and not split it out and not carve it up
and do all of these different things.
I don't know where the shell would be able would want to do
(20:35):
that. There's certainly elements of BP
the Shell would love, but would it take on the rest?
That is, that's why we're going to, you know, we're spending
time on it today. It's such an interesting deal
and we're going to follow it over the next year or so because
unless something dramatic happens, I think that this is,
this is to use a kind of M and aterminology, this is it.
(20:58):
This is an asset that's in play,right?
Yeah. And it being in play, then you,
I guess when you're listing those firms, thinking of that
competitive tension that you as the banker are going to want to
engineer for the purpose of the the price, the ticket kind of
sale price. So what was interesting, I was
having a look at some of the deals, the biggest deals in,
(21:20):
well, the energy sector was one of the kind of staples of MNA
fees, let's say it's the boutiques, a lot of the big
bulge bracket banks. But yeah, I just wondered how
does that work in terms of is there a favoured bank that you
would go to for this type of deal?
Is there a particular kind of track record where one stands
(21:42):
out? I have had a look but yeah I
just wanted to get your thoughts.
Yeah, it's a, it's a really interesting one.
I mean, every large bulge bracket and elite boutique to an
extent elite boutique investmentBank will have an oil and gas
coverage team. And we'll have M&A bankers that
have had a lot of success in this space because a lot of M&A
(22:03):
historically goes on and the deals are really, really big.
Now. Oil and gas is a slightly
different being an oil and oil and gas analyst, whether it's
equity research or coverage, it's a slightly different way of
looking at companies because you're looking, I always think
it's most similar to pharmaceuticals because you're,
(22:24):
you're looking at the assets that have known reserves and
you're having to model the reserves, the value of those
assets and the reserves and the,you know, the number of millions
of barrels of oil available within the control and, and, and
(22:46):
purview of these companies. So you do have to have a certain
expertise if you're going into oil and gas a little bit like
with pharma, you have to kind offorecast the future value of
drug discovery and all of this kind of stuff.
Now, because these deals are so big.
A lot of these deals we, you know, we spoke last year about a
big Chevron Hess deal and the Exxon Pioneer deal and the
(23:10):
Diamondback Endeavour deal as well.
You know, these will require complex financing arrangements,
you know, lots of syndicated debt, potentially maybe a rights
issue, share for share or whatever it might be.
So you want, you want probably the big guys on it and I would,
I would, I would suggest that Goldman Sachs are on every side
(23:33):
or on one side of every single one of these deals and probably
the other big U.S. investment banks as well.
Yeah, those biggest deals. So the Exxon pioneer was City
was the lead advisor, Diamondback Endeavour was
Jeffries and Conoco Phillips acquiring Marathon Oil was
Evercore so. There you go.
(23:53):
Yeah. Look, Jeffries has got a really
good oil and gas team. Evercore definitely, definitely
getting there as well. So yeah, the elite boutiques are
starting to play across the board and certainly on these, on
these on these mega deals. Again, if it's BP, you would
probably expect it to be, you know, a JP Morgan, Goldman Sachs
(24:15):
type because it's just such a big company, right?
And such a complex company. All right.
Well, let's move to show on to story number two of three.
And this is Skechers. So tell me about Skechers.
Yeah, I don't know, is Skechers cool or very, very uncool?
And we're not we're we're not the ones to answer.
(24:36):
This is where I'm very hesitant to put my neck on the line.
I've always thought that they are deeply uncool, but the fact
that they've gone into the deeply uncool segment probably
means that they're ultra cool. And so yeah, I feel like I'm
going to get egg on my face if Icommit too hard to same what I
(24:57):
really say. Yeah, I don't know whether
they've quite got into that kindof Crocs. dot Martin's kind of
all right. They're so uncool.
They're now cool thing that happened over the last few
years. But yeah, let's, let's kind of
withhold our judgement here. Historically, Skechers have been
very, very comfortable, but deeply uncool trainers that that
(25:18):
tended to have more of a foothold within, to excuse the
pun, foothold within kind of, I would say, you know, 50s and 60s
golfers. You know, that I can imagine
them taking off their orthopedicSkechers in order to change into
their golf shoes. And that that's what that's my
(25:38):
vision of Skechers. But it's obviously a lot bigger
than that because it's, it's just been acquired for $9.4
billion and it's a 9 billion revenue, 9 billion a year
revenue business that generates almost a million, a billion
dollars of, of EBITDA. So it's a proper, it's a proper
(26:00):
big company with, with revenue from across the world, you know,
4 billion in the US, 2 billion in, in the UK and Europe and 2
billion in AIPAC. But this is, this is a really
interesting acquisition for a couple of reasons.
Firstly, because of the acquirerand secondly because of the
macroeconomic conditions that this acquisition has been
(26:22):
announced in. So the deal $9.4 billion
acquisition take private. So Skechers publicly listed
company take private by 3G Capital.
And 3G Capital is a super interesting company.
And again, if you've been aroundthis space, been around finance
for a while, you would have heard, heard of 3G Capital in a
(26:44):
way that maybe you wouldn't if you're quite new to this space.
So that I remember living in theStates and hearing 3G being
spoken about a lot because of two deals.
The first was its acquisition in2010 of Burger King for about $3
billion and then it listed it again on the stock market after
(27:07):
18 months for about 5 1/2 billion dollars, but retained
70% ownership of the company andthen merged it with another
company and it's effectively made about 8 times its money
from that deal. It's really interesting,
especially because 3G, you know,it's a, as I said, US Brazilian
investment group run by Brazilian financiers.
(27:27):
So again, there's an interestingelement there, you know,
Brazilian team buying a very American brand.
And then the second one that I remember it being in the news a
lot was when 3G partnered with Warren Buffett to acquire Kraft
Foods and then merge it with Heinz.
Really, really big consumer brands deal that you're
(27:51):
thinking, all right, who are these guys?
3G, you know, they're not, they're not the KKRS, they're
not the Carlyles, but they do very, very irregular, massive,
massive deals where they don't take over the they don't take
over the management of the company.
They still keep them, the company's founder LED and they
use their financing expertise and their buy and build
(28:15):
acquisition expertise in order to improve these companies.
So yeah, 3G capital, take a lookat them.
Burger King AB in Bev was another massive one that they
did. And obviously now and now
Skechers. So Skechers, here we go.
So Skechers the acquisition $63 per share in cash, which is a
(28:36):
30% premium to its 15 day volumeweighted average price or
shareholders can get $57 in cashand one non transferable equity
unit in the new private parent company.
So those non transferable equityunits basically is saying, all
right, I've got a little bit of skin in the game for the private
(28:59):
equity ownership, right. I think 20% of the overall
company is going to be in in those blocks, so $63 a share.
And the one thing that I found super interested interesting
about this in the context of global macroeconomics and
remember Skechers and other footwear companies are about as
(29:19):
susceptible to tariffs as any company.
You've seen Nike share price, you know, they have their main
manufacturing facilities in Vietnam and in China.
So as recently, this is super important.
As recently as January 2025, theSkechers had a share price of
$78 a share, right? Share price fell off a Cliff due
(29:44):
to these tariff announcements. And then 3G announces that it's
going to acquire the company for$63 a share.
Now I'm looking at the one year share price graph at the moment,
and the companies hovered around$70 a share until February until
basically Trump came into power.So what I'm trying to, what I'm,
(30:06):
what I'm getting at here is if 3G believe that this tariff
volatility is temporary and thatthings are going to go back to
roughly where they were. They've picked up a company
that's been trading at $70 a share on average over the last
(30:27):
couple of years for $63 a share,including that 30% acquisition
premium. Now, obviously the inverse is if
these tariffs start getting doubled and tripled down on this
could be a bit of a stranded asset, but it again, it's going
to be one of those really interesting ones.
Is this an absolute ninja move and a really good representation
(30:50):
of the types of M&A that you cando in volatile environments?
Were sketches on the table for 3G Capital six months ago?
Probably not so super super interesting.
I like this. I like the signal that this is
giving, you know, because like me and Piers talk or you know,
we talk about all the economic data coming in, what the Fed is
(31:12):
saying. Actually, given how the Fed, we
had the interest rate meeting last week, the Fed were
basically saying, look, we're inno rush.
It's the White House that are dictating probably proceedings
and we're acting accordingly. The flag, I think you get the
from here is a real pulse on thereal behind the scenes money.
(31:34):
And if they're feeling confidentto put that money to work, then
to me they're they're in the know because they're probably
pretty aligned to the administration and these things.
And the fact that they're going in at this, when you say that
they're a fairly kind of selective company, means that,
yeah, that that gives me an interesting addition to looking
(31:58):
at the world purely through a market macro lens.
Yeah, it's so interesting. And This is why we would always,
always, always encourage listeners to listen to both
podcasts, right? Even though I prefer if you
listen to this one because you get both sides of it right And,
and they're telling sometimes conflicting stories.
And, and maybe there's a short term element that is discussed
(32:20):
more in the market maker and maybe more of a long term
element discussed in the deal room.
But it's going to give you a much broader understanding.
And actually let's move on to this third story because this
was actually last Monday, I called it merger Monday, there
were $30 billion worth of transactions announced.
One of them was sketches and oneof them was Sonoco, the old
(32:42):
school U.S. oil and gas distributor to buy its
equivalent Canadian fuel seller Parkland for 9.1 billion.
And now again, this is super interesting in the context of
macroeconomics and in the context of potential tit for tat
tariffs in in between the US andCanada.
(33:02):
The US company, Sunoco acquiringa Canadian company.
This is again, this is really interesting and it will be very,
very, it will be very instructive to see whether this
deal goes through from a Canadian regulatory perspective.
(33:24):
And in fact Sunoco in their, in their press release said, look,
we are going, we are committed to Canada.
We're going to retain the Calgary HQ, We're going to
continue the investment in an A Canadian low carbon fuel
refinery and preserve Canadian jobs.
So it's again we're going to have a look and just just to
(33:45):
kind of put a share price lens on it as well, this was this
deal was announced $44 a share, 44 Canadian dollars a share.
Again, as recently as June last year, the company was trading at
over $48 a share. So again, is it one of those,
All right, you know, the share price is down.
(34:06):
It now becomes a really, really attractive asset, assuming that
the volatility and the and the tit for tat between Canada and
the US dampens over the coming years.
So again, it's so interesting tosee how you know the headlines
coming out of the White House are trickling down into deals on
(34:26):
the ground. Just to get a sense of the
likelihood of this progressing at this point, Sunoco's recent
track record, is there anything that we can tell from their
activities from like a management structure or strategy
that they have in terms of recent acquisitions?
Yeah, so, so last year they acquired new Star Energy for 7.3
(34:49):
billion in an all, all stock deal.
I think I think of and and the board has unanimously approved
or recommended the deal for Parkland shareholders.
There's there's lots of stuff that we don't have time to go
into. And it definitely, if you're
interested, take a look at the insurance and outs of the
(35:10):
activist investor in Parkland taking a 20% share and basically
battling against the board and, and and a lot, lots of intrigue
and interesting stuff going on there.
But it seems to be a a sensible transaction.
It's, it's deemed to be what's called accretive to
(35:30):
distributable cash flow from dayone, which basically just means
it's, it's beneficial to the combined entity because they're
buying something cheaper than the than the associated cash
flows that it generates. And our favorite word synergies
there is projected to be $250 million of annual synergies by
year three. Good bit of modelling from the
(35:52):
analysts. So yeah.
So I reckon it will go through Mark Carney.
Let's see. Yeah, we'll, we'll find out.
At the top of the show I did mention something called a
fairness opinion. So break the news.
What are What do we have here? Yeah, I just thought I'd end
with a little bit of a teaching and I was reading the press
(36:15):
release that came out on Parkland's website and it's it's
interesting, we don't talk that much about deal mechanics, but
I'm just going to read a few little snippets from this press
release just to kind of give youan understanding of what tends
to happen when a target is has received an offer and the board
(36:35):
needs to figure out whether it'sgoing to recommend that offer.
So let me go through this. On March the 5th, 2025, Parkland
announced that it's board of directors had initiated a review
of strategic alternatives aimed at identifying opportunities to
maximize value for all shareholders.
A special committee of independent directors.
(36:56):
The special committee was appointed to oversee and lead
this comprehensive review. When we say independent
directors, we're talking about directors that are on the board
but aren't the CEO, aren't part of the executive team.
Following this announcement, discussions with Sunoco
intensified, leading to the transaction.
Based on unanimous recommendations from Parkland
(37:18):
Special Committee and following consultation with its financial
and legal advisors, the board ofDirectors has unanimously
approved the transaction. So it's the special committee
carved out of the wider board that is now with the advice and
opinions of legal and financial advisors is now recommending the
(37:39):
deal. And I'm just going to finish
with this piece. Goldman Sachs Canada and Bank of
America Securities have E provided opinions to the
Parkland board of directors and BMO Capital Markets has provided
an opinion to the Parkland special committee to the effect
that. And then there goes on to be a
lot of legalese, but basically saying independent financial
(38:01):
advisors have provided an opinion that this acquisition,
this price per share, this deal structure is fair and should be
recommended to the shareholders.This is what's called a fairness
opinion. So I'll give you the kind of
headline. The fairness opinion is a
professional evaluation. A bank, you know, banks get paid
(38:23):
a lot of money to do these fairness opinions, typically
from a financial advisor statingwhether the terms of a
transaction, the price, the structure, the financing are
fair to accompany shareholders from a financial perspective.
So it's that third party independent financial advisor
going through and basically saying, yeah, this is this, this
(38:44):
is fair. And therefore it gives
shareholders this nice little kind of comfort blanket that a
bunch of these banks are taking a look at it.
Yeah. Is it fair?
I mean, the banks are incentivized to come up with
certain types of conclusion as much as they'll say that that's
not the case. Yeah, absolutely.
And there is definitely a littlebit of a little bit of double
(39:06):
dipping here, fairness, opinionsusually written by banks that
are not working on the actual deal.
So that that gives a little bit of a barrier.
But yeah, I mean, again, the incentive for the whole industry
is to do deals, and they'll probably be looking at anything
(39:28):
that would be materially unfair as opposed to, you know, as
opposed to trying to block the deal at every time.
So to your point, I just looked at the press release from Sunoco
and Goldman Sachs Canada. Bank of America securities were
advisors to Parkland. BMO Capital Markets, the
(39:49):
Canadian firm, they act as financial advisor to Parkland
special committee. So actually yeah, you're right,
BMO Canada LED were running thatwhereas it's the the Canadian
arms of the US entities of Goldman's of Bank of America who
are actually advisors for Parkland.
Yeah, exactly. And to have that distribution of
different investment banks providing those opinions to
(40:11):
different areas of the board again does give a little bit of
checks and balances, right. But again, it it's not the most,
it's not the most kind of transparent system, but
fairness, opinions, super important.
Every public transaction needs them in order to recommend a
deal to shareholders. Cool.
(40:31):
All right, well that that wraps it up.
So yeah, we we did a pretty similar episode to this just a
few weeks ago and it was very well received.
So if there are any questions atall about any of the deals, any
of the terminology, anything mentioned, or if you just have
an opinion agreeing or contrasting with what we've said
today, just drop us a comment. And if you aren't already
(40:51):
subscribed to the channel, supereasy to do and we'd really
appreciate it. It'll help us get this show out
to as many people as possible. But Stephen, as ever, thank you
very much for your insights and thanks everyone for listening.
Thank you, Ann.
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