Volkswagen chief quits as emissions gloom gathers

BY Richard Summerfield

Volkswagen’s chief executive, Martin Winterkorn, announced his resignation yesterday in light of the increasing scandal around the German car manufacturer’s rigging of emission tests in the US.

Mr Winterkorn’s resignation was a long time coming. Analysts had expected his departure from the firm as soon as the news broke, but Mr Winterkorn remained in his position until Wednesday, only tendering his resignation following an emergency board meeting in the company’s native Germany.

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group” said Mr Winterkorn is a statement released at the conclusion of the meeting. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part. Volkswagen needs a fresh start - also in terms of personnel. I am clearing the way for this fresh start with my resignation.”

Volkswagen also vowed to prosecute those individuals responsible for the scheme to cheat US anti-pollution testing, though the company has not yet stated how many people were involved or whether their identities are known. A special investigative subcommittee has been established by Volkswagen in order to establish the facts of the case.

Volkswagen has championed diesel vehicles in both Europe and the US. Diesel engines account for just three percent of new cars sold in the US, compared to around half in Europe. Better fuel economy and lower carbon emissions have proven to be key selling points for Volkswagen and the wider automotive industry, however the suggestion that the German manufacturer – and possibly other firms – utilised ‘defeat devices’ to beat emissions tests could have long-term repercussions.

To date, Volkswagen has recalled nearly half a million vehicles in the US alone, setting aside around $7bn to cover costs. However, should it be required to modify the 11 million vehicles worldwide that are believed to have the software responsible for the falsified figures, $7bn would be grossly inadequate. Furthermore, Volkswagen could face fines of more than $18bn from the US Environmental Protection Agency. In addition to the internal probe launched by the company, the US Department of Justice has also launched a criminal investigation that could result in indictments against Volkswagen executives.

News: Volkswagen boss quits over diesel scandal

Schlumberger and Cameron agree $14.8bn merger

BY Richard Summerfield

Given the current volatility in commodities, it is little surprise that we are beginning to see more M&A activity in the oil and gas space. To that end, Schlumberger Ltd announced this week its agreement to acquire Cameron International Corp in a deal worth around $14.8bn, including the assumption of debt.

Under the terms of the deal, Cameron shareholders will receive 0.716 Schlumberger shares and a cash payment of $14.44. According to a statement released by the two firms, the agreement places a value of $66.36 per Cameron share, a premium of 37 percent to Cameron’s 20 day volume weighted average price of $48.45 per share. The deal has been approved by the board of directors at both firms. Pending shareholder, regulatory and other closing conditions, the transaction is expected to close in the first quarter of 2016.

Regulatory approval could pose an issue for the two companies. In November, Schlumberger's two closest rivals - Halliburton Co and Baker Hughes Inc - agreed to merge in an effort to lower costs in a pressurised market, but the deal was blocked by antitrust authorities in the US. However, the fact that there is little crossover between the services offered by Schlumberger and Cameron may allay any regulatory concerns.

The acquisition of Cameron is an important one for Schlumberger, given the company’s standing as one of the world’s largest producers of energy equipment. In the statement, Paal Kibsgaard, chairman and chief executive of Schlumberger, noted, “This agreement with Cameron opens new and broader opportunities for Schlumberger. At our investor conference in June 2014, we highlighted how the E&P industry must transform to deliver increased performance at a time of range-bound commodity prices. With oil prices now at lower levels, oilfield services companies that deliver innovative technology and greater integration while improving efficiency, which our customers increasingly demand, will outperform the market.”

The proposed merger of the two companies is not the first time they have been associated. In 2012 the firms established a joint venture – OneSubsea - to target the deepwater industry. OneSubsea is a supplier of heavy duty machinery which allows Big Oil firms to control the flows of oil and gas they find and bring it to the surface.

The acquisition of Cameron is expected to help Schlumberger achieve significant synergies, by lowering operating costs, streamlining supply chains and improving manufacturing processes.

Jack Moore, chairman and chief executive of Cameron, said, “This exciting transaction builds on our successful partnership with Schlumberger on OneSubsea and will position Cameron for its next phase of growth. For our shareholders, this combination provides significant value, while also enabling them to own a meaningful share of Schlumberger. Together, we will create a premier oilfield equipment and service company with an integrated and expanded platform to drive accelerated growth. By bringing together Cameron and Schlumberger, we will be uniting two great companies with successful track records, performance and value creation.  We look forward to working closely with Schlumberger to achieve a seamless post-closing integration and long term value for all of our stakeholders.”

News: Schlumberger to buy oilfield gear maker Cameron in $14.8bn deal

The times they are a-changing

BY Richard Summerfield

The insurance industry is changing at an unprecedented level according to a new report from PwC. 'Insurance 2020 and Beyond: Necessity is the mother of reinvention' reviews  developments in the industry set against PwC’s initial projections, and is based on interviews with more than 80 chief executives officers around the world.

The insurance space is at an important crossroads. Going forward, the industry will need to deal with significant changes to customer behaviour and acclimatise to technological advancements and new distribution and business models. More stringent local, regional and global regulatory developments will also contribute to the changing nature of the industry between now and 2020.

The report, which took five years to produce, notes that digital developments in particular have had a significant impact on the insurance space – an impact that is likely to grow over the next five years. Digital developments have helped insurers to enhance their customer profiling, develop sales leads, tailor their financial solutions to individual needs and, for non-life businesses, improve claims assessment and settlement.

Many of the firms surveyed said they have taken steps to improve their digital distribution channels. They have initiated new programs to help integrate their product lines into a client’s life, with pay-as-you-drive applications for smartphones just one example of such integration.

Going forward companies will be required to utilise ever more sophisticated sensors, big data analytics and communicating networks as the much lauded ‘Internet of Things’ becomes more commonplace. Jamie Yoder, PwC Global Insurance Advisory Leader, notes, “The emerging game changer is the change in analytics, from descriptive (what happened) and diagnostic (why it happened) analysis to predictive (what is likely to happen) and prescriptive (determining and ensuring the right outcome).”

Report: Insurance 2020 and beyond: Necessity is the mother of reinvention

M&A activity in power and utilities sector hits four-year Q1 high

BY Fraser Tennant

Mergers and acquisitions (M&A) activity within the power and utilities (P&U) sector propelled Q1 deal value and volumes to a four-year high, according to a new EY report.

The first quarter data showcased in EY’s ‘Power transactions and trends 2015’ reveals that total deal value reached US$29.7bn, deal value in Europe (the leading Q1 M&A destination) was US$11.4bn, and the total Q1 deal volume was 101 – all pointers to yet another strong year for M&A in the P&U sector.

The demonstrably burgeoning level of M&A activity seen across the globe is partly due, says EY, to energy reforms and unbundling (ERU) – an emerging trend involving governments opening up their energy sectors to competition. Indeed, ERU has recently been introduced in China and Japan, with both territories initiating reforms designed to break the dominance of state-owned monopolies.   

“We expect to see more deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," confirms Matt Rennie, EY’s global TAS power & utilities leader. “Conventional P&U companies are expected to focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

The EY report also states that: (i) during Q1, US utilities turned to consolidation to meet the challenges of a stringent regulatory environment, weak earnings growth and declining returns on equity; (ii) in Europe, utilities continued to sell assets – mostly to financial investors – as they prioritised core business; (iii) Asia-Pacific deal activity was dominated by Chinese utilities, which are looking to consolidate to secure greater market share in the domestic market; and (iv) in Africa, a lack of local funding sources created opportunities for foreign investors to take a prominent role in financing power projects, as governments made moves to ease risks for investors.

“As the year progresses, we expect to see a rise in the number of deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," continues Mr Rennie. “Given a weak growth outlook in key regions, conventional P&U companies will focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

Report: Q1 2015 Power transactions and trends

M&A likely in oil & gas space

BY Richard Summerfield               

Over half of the companies operating in the oil & gas sector are contemplating acquisitions in the coming 12 months, according to a new report from EY.

The report – EY’s 'Oil and Gas Capital Confidence Barometer' – which surveyed 112 oil & gas company executives, notes that the industry is in the process of rebounding from the adverse effects of the recent sharp decline in oil prices. As a result, 56 percent of surveyed firms believe they will “actively pursue acquisitions” over the next 12 months – more than double the number of executives who responded similarly in October 2014.

"For the first time in five years, more than half our respondents are planning acquisitions in the next 12 months, as deal pipelines continue to expand," said EY global vice chair for transaction advisory services Pip McCrostie. However, despite the recent acquisition of BG Group by Royal Dutch Shell, the main focus for acquiring companies will not be big ticket mega-mergers. Indeed, most acquiring companies – 70 percent of respondents – are likely to focus on mid-market transactions, with the majority of deals expected to be pitched at around $250m. A further 24 percent of surveyed firms are planning acquisitions of between $251m and $1bn, while just 4 percent of companies are believed to be considering deals worth in excess of $1bn.

The survey was conducted in February and March when Brent crude price averaged below $60 per barrel; accordingly, many of those executives surveyed felt that an improvement in the oil & gas space was inevitable. Ninety-nine percent of respondents felt that the overall deal market would improve or remain stable over the next 12 months. A further 97 percent expressed similar confidence in the global economy.

Despite the resurgence of confidence in the oil & gas sector’s deal environment, residual macroeconomic concerns may still curtail some M&A activity. Increasing volatility in commodities and currencies, as well as persistent disruptive geopolitical influences, cast a potential shadow over future deal activity.  In order to mitigate these risks, firms in the oil & gas space will attempt to cut costs and achieve synergies while continuing to look for opportunistic acquisitions.

Report: Oil and Gas Capital Confidence Barometer