Norwegian Energy agrees $1.9bn Shell deal

BY Richard Summerfield

Norwegian Energy (Noreco) has agreed to acquire Royal Dutch Shell’s Danish upstream business – Shell Olieog Gasudvinding Danmark B.V. (SOGU) – in a deal worth $1.9bn, making it the second largest oil & gas producer in Denmark, adding output of 67,000 barrels of oil equivalents per day.

The sale includes SOGU’s 36.8 percent ownership stake in the Danish Underground Consortium (DUC), which leads much of the exploration and development of the Danish portion of the North Sea. The DUC, which started production in 1972, has assets in around 15 offshore fields and accounts for around 90 percent of the country’s oil & gas production. The deal also includes SOGU’s portion of the Tyra gas field redevelopment project including the redevelopment and around $1.1bn in decommissioning costs associated with the assets. In a statement, Norco added that it “…expects to maintain strong production in the years to come. As the Tyra hub is being redeveloped, the portfolio will be revitalised and offer improved economics accompanied by prolonged field life.”

For Shell, the divestment of the business is the latest step in the company’s three year, $30bn divestment plan, which started in 2015 following its purchase of BG Group. To date, Shell has divested large portfolios in the British North Sea, Gabon, Thailand and Canada. Under the terms of the agreement, Shell Trading and Supply and Shell Energy Europe Limited will continue to have oil & gas lifting rights from the SOGU assets for a period after completion.

“Today’s announcement is consistent with Shell’s strategy to simplify its portfolio through a $30bn divestment programme and contributes to our goal of reshaping the company into a world-class investment case,” said Andy Brown, Shell’s upstream director.

Noreco said the deal comprised proven and probable reserves of 209 million barrels of oil equivalents at the end of last year, 65 percent of which were liquids. The company said that funding for the Shell deal would be provided by a private placement of new shares and a convertible bond, as well as a $900m loan from BMO Capital Markets, Deutsche Bank and Natixis.

As the transaction is a ‘share sale’, local SOGU staff primarily dedicated to DUC will continue employment with their current company, which Noreco will own upon completion.

The deal, subject to customary closing conditions and shareholder approval, is expected to complete in H1 2019.

News: Shell sells Danish upstream assets to Norwegian Energy in $1.9 billion deal

M&A appetite declines amid global uncertainty

BY Richard Summerfield

As fears of an escalating US-China trade war and uncertainty over Brexit abound, globally, companies’ appetite for M&A has fallen to a four-year low, according to EY’s biannual ‘Global Capital Confidence Barometer’ report.

Forty-six percent of global executives say that they plan to buy other firms in the next 12 months, a 10 percent decline from the previous year, according to EY. A further 46 percent of respondents to a survey of more than 2600 executives across 45 countries also said they saw regulation and geopolitical uncertainty as the biggest risk to dealmaking activity over the next year.

“Geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button,” said Steve Krouskos, EY Global Vice Chair, Transaction Advisory Services. “Despite stronger-than-anticipated first-half earnings and the undeniable strategic imperative for deals, we can expect this year to finish with much weaker M&A than how it started. The good news is that companies will likely take the break in action as an opportunity to focus on integrating the many deals undertaken over the past 12 months. This is likely to be just a pause, not a complete stop. Fundamentals and the strategic rationale for deals remain strong, and the appetite to acquire will likely grow toward the second half of 2019.”

The escalation of tension between the US and China has already led to an increase in tariffs, Brexit too could drive a tariff increase, though the outcome of the Brexit negotiations is still unknown, despite the close proximity of the UK’s March 2019 exit date. The outcome of the Brexit negotiations is causing some consternation and is a key focus for those executives surveyed. Forty-one percent of respondents would prefer the UK to enter an Economic Free Trade Agreement similar to Switzerland, while 22 percent would prefer a Free-Trade Agreement model similar to that between the EU and Canada. Five percent of executives globally prefer a second referendum of the UK’s EU membership, and 6 percent would prefer a World Trade Organisation rules-based outcome.

Despite the increased uncertainty and decline in global dealmaking appetites, confidence in the M&A market remains high. Ninety percent of respondents expect the market to improve over the next 12 months. For some companies, the coming year will enable them to focus on integrating the deals they have completed over the last few years.

Indeed, some companies intend to use M&A to overcome the ongoing global instability. Twenty percent of executives noted that they are focusing more on international opportunities, including within the UK, which is the number two M&A destination of choice for executives globally, up from fifth position in the April 2018 survey.

Report: Global Capital Confidence Barometer 19th edition

BC Partners to acquire European cable and media operator from KKR

BY Fraser Tennant

In a deal which will boost its position as the communication and media leader in South Eastern Europe, United Group B.V. is to be acquired by private equity (PE) firm BC Partners from fellow investor KKR.

Following completion of the transaction, KKR, which manages multiple alternative asset classes, including PE, energy, infrastructure, real estate and credit, will maintain a substantial minority stake.

The financial terms of the transaction have not been disclosed.

“We are delighted to partner with United Group’s management team and KKR to support the company’s next phase of growth,” said Nikos Stathopoulos, a partner at BC Partners. “United Group is a high-quality asset, with defensive growth characteristics, leading infrastructure, differentiated content and loyal customers. Its attractive and integrated business model and regional leadership position it well for further organic and acquisitive growth.”

Since its inception, BC Partners’ PE team has completed 104 PE investments in companies with a total enterprise value of €129bn and is currently investing its tenth private equity fund.

Investing in United Group since 2014, KKR has helped the company to become the leading provider of communications and media services in South Eastern Europe. United Group’s fibre and cable networks have the largest presence in the region, covering 1.82 million homes which benefit from broadband speeds substantially higher than local peers and high quality local and international content.

Over the past 18 years, United Group has expanded its presence through both organic growth and acquisitions, now employing over 3400 staff. “We are proud of the way in which United Group has developed,” said Jean-Pierre Saad, managing director at KKR. “It is a great example of a truly convergent operator across communications and media with market leading product innovation and services.”

Acting as advisers to BC Partners are Morgan Stanley and LionTree, while Credit-Suisse is advising United Group. The transaction is subject to relevant regulatory approvals.

Mr Saad concluded: “We will remain closely committed to the further development of United Group and are looking forward to working with BC Partners and the management team to further strengthen the company’s growth.”

News: BC Partners snaps up majority ownership of cable firm United Group from KKR

Barrick Gold and Randgold Resources agree $6.5bn deal

BY Richard Summerfield

Barrick Gold Corporation, the world’s largest gold mining company, has agreed to acquire Randgold Resources for $6.5bn in an all-share deal, securing the biggest deal in the gold mining space for over three years.

The two companies expect the deal to close by the first quarter of 2019, pending customary closing conditions and shareholder approval. Once completed, Barrick, which will be listed in both New York and Toronto, will own five of the world’s 10 lowest-cost gold mines. The majority of the company’s focus will be on Africa and the Americas.

Barrick’s shareholders will own about two-thirds of the new business and Randgold investors the rest. Under the terms of the deal, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the Randgold, the companies said.

In a statement announcing the deal, John L. Thornton, executive chairman of Barrick, said: “The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry, bringing together the world’s largest collection of Tier One Gold Assets, with a proven management team that has consistently delivered among the best shareholder returns in the gold sector over the past decade. Our overriding measure of success will be the returns we generate and not the number of ounces we produce, balancing boldness and prudence to deliver consistent and growing returns to our fellow owners, a truly simple but radical and achievable concept. There are no premiums in the merger because we strongly believe in the opportunity to add significant value for our shareholders from the disciplined management of our combined asset base and a focus on truly profitable growth.”

“Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital,” said Mark Bristow, chief executive of Randgold. “The merged company will be very different. Its goal will be to deliver sector leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions. By employing a strategy similar to the one that proved very successful at Randgold, but on a larger scale, the New Barrick Group will leverage some of the world’s best mines and talent to create real value for all stakeholders.”

2018 has been a challenging year for the industry. The price of gold has fallen more than 8 percent and the shares of both Barrick and Randgold have declined more than 30 percent. The companies hope that the merger will enable them to cut costs and drive profitability.

News: Canada's Barrick Gold to buy Randgold for $6.5 billion

Marsh & McLennan to buy JLT for $5.7bn

BY Richard Summerfield

Marsh & McLennan, one of the world’s largest insurance brokers, has agreed to acquire British rival Jardine Lloyd Thompson Group (JLT) for around $5.7bn. The deal, the latest in a series of mergers in the insurance sector, is expected to close in spring 2019, subject to customary antitrust and regulatory approvals, and the approval of JLT’s shareholders.

Under the terms of the deal, holders of JLT's common shares will receive a cash consideration of £19.15 for every JLT share held, a 38 percent premium on the average price of JLT’s shares over the past three months. The total cash consideration equates to $5.6bn in fully diluted equity value, or an estimated enterprise value of $6.4bn. The transaction will be funded by a combination of cash on hand and proceeds from debt financing.

"The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders,” said Dan Glaser, president and chief executive of Marsh & McLennan. “The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues. On a personal level, I have come to know, and respect, Dominic Burke and his management team from my time both at MMC and as an underwriter. I am confident that with the addition of the talented colleagues of JLT, Marsh & McLennan will be an even stronger and more dynamic company,” he added.

The deal is expected to achieve annual cost synergies of around $250m within three years of completion, according to Marsh & McLennan, though the realisation of these cost synergies will likely result in one-time integration costs of approximately $375m. In total, Marsh & McLennan expects to cut 2 to 5 percent of the combined company’s jobs. Savings are also expected in real estate and IT operations. Annual revenue is expected to rise to $17bn after the deal closes.

The insurance space has seen a spate of consolidation deals announced this year as the industry grows accustomed to tougher regulations and more attractive prices. In March, AXA agreed to acquire XL Group for $15.3bn, around a month after American International Group said it would buy reinsurer Validus for around $5.6bn.

News: Marsh & McLennan to pay £4.3 billion for British insurance broker JLT