The Exxon problem plaguing Chevron’s Hess takeover

One deal crunch to start: BHP and Anglo American have failed to make progress on terms for their £39bn mining deal, setting the stage for fraught final hours of talks before a deadline for negotiations expires on Wednesday.

In today’s newsletter:

The oil company standing between Chevron and Hess’s mega-deal

When Hess announced on Tuesday it had received enough votes from shareholders to approve its $53bn proposed takeover by Chevron, it didn’t mention the half-trillion dollar elephant in the room.

Completely absent from Hess’s statement: any mention of ExxonMobil, the rival oil company that’s threatening to upend the deal.

The hurdle centres on one of the most lucrative oil reserves discovered in decades, off the coast of Guyana, which played a part in Chevron’s interest in a tie-up with Hess in the first place, the FT’s Myles McCormick and Jamie Smyth report.

Exxon argues its 45 per cent stake in the Guyana Stabroek Block means it has a right of first refusal over Hess’s 30 per cent stake. The fight’s turning out to be a major headache: the arbitration process could delay the takeover to 2025.

It’s a key deal for Chevron chief executive Mike Wirth as he hunts for more growth opportunities — and Guyana is by far the best energy asset available.

Problems built up for the two companies a couple of weeks ago, when leading proxy adviser Institutional Shareholder Services told shareholders to abstain from the vote, arguing they needed more time to see how the Exxon arbitration would play out.

And there’s more bad news for Hess shareholders: they won’t get Chevron dividends due to the delay — and as ISS noted, the premium’s not great either. So while the deal might be good for chief executive John Hess (it values his family’s stake at $5bn) how good is it for shareholders?

While details of the final vote tally weren’t revealed as of writing this, three hedge funds — HBK Capital Management, DE Shaw and Pentwater Capital — said prior they’d abstain. Meanwhile, top shareholders Vanguard, BlackRock and State Street declined to say how they would vote.

This is a critical juncture for Hess. If Exxon wins the arbitration process, Chevron’s threatened to walk away from the deal. That would hand Exxon effective veto power over any future M&A, leaving Hess shareholders in a very weak position.

One person told the FT’s Smyth that Chevron and Hess might look to cut a deal with Exxon — in the form of some sort of fee to bypass the right of first refusal — to get the takeover done.

Exxon’s legal department is poised for a busy 2024 — perhaps too busy. The oil major faces its own shareholder test on Wednesday after it angered large shareholders such as Norway’s sovereign wealth fund and Calpers by suing a small sustainability-focused hedge fund earlier this year, Lex notes.

How far will Exxon go to block Chevron from Guyana’s oil? Send us your thoughts at due.diligence@ft.com.

Elon Musk reveals AI fundraising after all

Being able to take Elon Musk at his word is a top priority for Tesla investors as the electric-car company approaches its annual meeting next month.

The erratic billionaire has been pulling out all the stops to convince shareholders to vote in favour of granting him a colossal number of shares in the company, worth about $50bn.

Also on the ballot is indulging his plan to relocate Tesla’s business incorporation from Delaware to Texas. (His latest ploy is giving voting shareholders a chance to win a personal tour of the Tesla factory.)

In January, the FT broke the news that Musk’s artificial intelligence start-up xAI was talking to investors to raise up to $6bn.

It was a landmark moment for the fledgling company as it develops a chatbot challenger to Sam Altman’s OpenAI — and for Musk, as Tesla shares dropped and X’s own valuation had slumped to about a third of what Musk paid for it.

But after the story was published, Musk posted on X: “xAI is not fundraising and I have had no conversations with anyone in this regard.”

The denial cast doubt on the FT’s reporting, fuelled Musk’s onslaught against the “mainstream media” and resulted in some very frustrated reporters in the FT’s San Francisco bureau.

This weekend, xAI announced that it had raised $6bn, valuing the business at $18bn. Investors included many of Musk’s most loyal backers including Saudi Arabia’s Kingdom Holding, Sequoia Capital and Andreessen Horowitz.

That was particularly ironic as Musk has pitched Grok as a “maximum truth-seeking” alternative to what he has sought to portray as “politically correct” rivals ChatGPT and Google’s Gemini.

Tesla investors, many of whom are annoyed at the amount of time Musk has spent on his other endeavours in the past couple of years, will be looking for signs they can take him at face value on a promise to spend more time advancing Tesla AI if investors grant him the extra shares.

Job moves

• QXO has hired Ihsan Essaid as chief financial officer. He joins from Barclays, where he most recently worked as global head of M&A.

• Starwood Capital Group has hired Matt Smith as a managing director and head of US residential asset management. He previously worked for Brookfield.

• MKP Advisors has hired Tony White as a partner, where he will be responsible for developing and expanding the firm’s corporate advisory business. He previously worked at Bank of America and Jefferies.

• Baker McKenzie has hired Tobias Knapp as a private equity and M&A partner with the firm’s global transactional group. He previously worked for O’Melveny.

• Simpson Thacher has hired Chris Evans as a partner on the fund transactions team in New York. He previously worked for Blackstone.

Smart reads

IPO dreams Shein was set on having a big US public offering in a move that would bridge the divide between Beijing and Washington. Those hopes have faded, the Wall Street Journal reports.

Underwriting windfall National Grid’s £7bn fully-underwritten rights issue is the UK’s biggest equity offering in 15 years. It’s also a jackpot for the banks underwriting the deal, FT’s Alphaville writes.

Retirement doomsday Index funds were always the safe bet, Harper’s writes. Does their rise spell catastrophe?

News round-up

Sabadell woos crucial retail investors in BBVA takeover battle (FT)

Western businesses backtrack on their Russia exit plans (FT)

Saudi Arabia to raise $10bn to $20bn in fresh Aramco stock sale (WSJ)

Former FTX executive Ryan Salame sentenced to 7.5 years in prison (FT)

Boohoo cancels bonuses worth £3mn for top executives amid widening losses (FT)