Although he was happy that Oliver would have an unusually warm autumn afternoon for his weekly soccer game on Roosevelt Island, Robert knew the current weather pattern meant trouble for him; trying to sell shares of a crude oil tanker company during the warmest week in the largest hydrocarbon-consuming country in the world wouldn’t make his job any easier. Nor would the fact the U.S. suddenly realized it is sitting on top of more oil than the Kingdom of Saudi Arabia.
Robert took a sip of Diet Coke and returned his eyes to the drift of paper spread out on the table in front of him. There was the 286-page Viking Tankers’ prospectus and the forty-five-slide PowerPoint roadshow presentation that had been aggressively marked-up with red pen after his video conference “rehearsal” with the equity sales force at Haakon Gate Capital, the sole bookrunner on the deal.
Off to the side of the stack of paper sat the roadshow meeting schedule which was almost entirely blank. When Robert had asked Magnus Magnusen, the managing director at Haakon Gate Capital, why there wasn’t a single meeting scheduled after his two appointments in Miami, the Norwegian said, “Equity roadshows are just like ships, Fairchild; the best ones don’t know where they will go next. Just proceed to the deviation point and remain flexible for arbitrage opportunities,” Magnus added.
“What deviation point?” Robert complained. “You guys haven’t even told me what city I am supposed to sleep in tonight!”
“Don’t worry, be happy,” the banker said and the line went dead.
Chapter 13
The Greek Grandfather of U.S. Shale Gas
While large U.S. oil firms began migrating operations to other continents in the 1980s and 90s, fracking pioneer George Mitchell (1919-2013) was convinced that the gas reserves located beneath the U.S. could be developed economically. He was right; in 2000 shale accounted for just 1% of U.S. gas production and now accounts for a 30% share that is growing. Mr. Mitchell’s story personifies the American Dream. His father, a goat herder named Savvas Paraskevopoulos, immigrated to the United States through Ellis Island in 1919 and changed his name to Mike Mitchell because it was easier for Americans to spell and pronounce. Before his death, Mr. Mitchell joined Bill Gates and Warren Buffet in “The Giving Pledge,” agreeing to use the majority of his $2 billion fortune for philanthropic causes. “Throughout my life I’ve seen firsthand how even a little financial assistance could mean a chance for struggling students, dedicated scientists, and families to reach their goals,” he said of the gift.
Compiled from information contained in
The Economist and The Giving Pledge
Mr. Xing’s posture was perfect as he sat at his handcrafted, British-made desk sipping decaffeinated green tea and staring out across the pink glow of a dawn that would never really break.
For the past ten years he had occupied the same office on the thirty-third floor of Green Earth Tower, once the tallest building in Shanghai but now dwarfed by dozens of taller ones, yet the view had never stopped changing. He could see his city’s development when he was working late into the night thanks to an ever-growing galaxy of twinkling lights, but in the daytime the changes were almost unbelievable.
From his lofty perch, Mr. Xing could see a hundred massive buildings growing as fast as bamboo shoots, a thousand cranes reaching toward the sky like creatures from a science fiction movie, a fifty-mile snake of traffic slithering toward Pudong and a swarm of aircraft filling the sky like locust. Then there was the sound of progress reverberating through the soundproof glass around him – an unrelenting thud of metal pounding on metal.
Even after the construction boom that preceded the Beijing Olympic Games in 2008, the scale of industrialization in the People’s Republic of China was staggering. His country had spent close to $750 trillion on transportation-related projects alone in the past few years – building 50,000 new miles of roads to accommodate the 100,000 cars that were added to the road every day as more than twenty million people relocated from rural communities to urban ones.
It was the largest human migration to occur during a time of peace, ten times bigger than immigration to the U.S. around the turn of the century, and it was underpinned by a singular theory: people who lived in cities would be more likely to stimulate economic activity than people who lived on farms.
While the economies of the world were mostly thankful for the ripple effects created by China’s hyper-stimulated double-digit GDP growth, Mr. Xing had been deeply challenged by it. He had been challenged by how to satisfy his country’s ever-increasing need to find power that was cheap enough and clean enough to be sustainable now that China had surpassed the U.S. as the world’s largest importer of energy – burning more than ten million barrels of oil each and every day.
Now he finally had the answer: American Refining Corporation.
Mr. Xing turned his eyes away from the sooty world outside his windows and focused on the sleek black Japanese telephone sitting on his desk. It had taken unbelievable self-control to have resisted calling Piper Pearl for the past three months and he could wait no longer.
Mr. Xing and his team had agreed that there was simply no greater bang for the buck than taking a run at buying ARC. In addition to their oil holdings in the Middle East, ARC’s massive reserves of Marcellus and Utica shale gas would give them the clean fuel they needed to run their power plants. The politically aggressive overture would also send a priceless powerful public relations message to the world; China was so committed to protecting the environment by transitioning to cleaner energy that it was making a play for a brand name American energy company. The road would be bumpy, but in the end he knew the strategy couldn’t lose.
It was time to make the call.
***
Piper Pearl stumbled out of the private elevator that opened onto his $95 million penthouse apartment. As the investment banker gazed at the necklace of lights strung around Central Park, an eight-hundred-acre preserve he considered to be his own backyard, he felt as though he’d attained a state of grace.
It was nine o’clock on a Sunday night and he had just come home from a three-hour huddle at the back table of the Carlyle Hotel with the Chairman of the United States Treasury – who happened to be Piper’s former mentor at Allied Bank of England. Over the course of one-hundred-eighty minutes, the two men consumed forty ounces of Lobster Thermidor, submerged thirty-eight stone crab claws in butter and emptied two bottles of Grand Cru white Burgundy; it was the sort of meal that might have immediately preceded the French Revolution.
The banker’s trance was broken by the melody of his mobile phone coming from deep within his brown corduroy trousers. He paused when he examined the screen of the device and saw the word “Xing” illuminated in green; he couldn’t immediately recall anyone with that name.
Although just three months had passed since his meeting with Mr. Xing and Alexandra at his usual table at the Four Seasons Hotel, Piper had pitched more than two-hundred transaction ideas in the meantime. Even as he grew older and rose to higher and higher positions within the bank, he never failed to practice one of the first lessons he’d learned in his career: if you threw enough deals at the wall something was bound to stick.
“This is Piper Pearl speaking,” the banker said with the slightest of slurs. The alliteration of his name not ideally suited to his quotidian consumption of wine. “Who is this?”
Piper spilled a collection of loose change, three packs of matches, an assortment of keys and a swollen money clip onto the elegant table standing on the black-and-white marble tiled foyer floor.
“Good evening, Mr. Pearl,” Mr. Xing said softly. “I am Mr. Xing,” the man said and then, after a pause, added, “from Shanghai.”
“Oh, hey pal!” Piper cried out as he remembered who the man was. “What a nice surprise!”
Although Piper had been initially excited when his freshman roommate University of Texas, Rocky DuBois, asked him to sell his company, the banker had quickly lost interest when ARC’s infla
ted stock price turned off every potential buyer.
“Thank you,” Mr. Xing said.
“I thought you had forgotten about me,” Piper said.
“I will never forget you, Mr. Pearl,” Mr. Xing said. “I realize it has taken some time but I have now had the opportunity to discuss your proposal for American Refining Corporation with our new leaders in Beijing,” Mr. Xing said as he stared dismally into his computer screen at the upward price trend of every form of energy.
“And…” Piper asked as he stepped out of his trousers and into the freshly pressed pajama pants that his housekeeper laundered, folded and placed under his pillow every day.
“And I’d like to talk to you more about the deal,” Mr. Xing said.
“I should tell you up front that I’ve received a substantial offer for the company from another party,” Piper fibbed as he lay down on his bed. “And those folks are already halfway through their due diligence process.”
“Is that so?” Mr. Xing asked doubtfully as he studied his manicured cuticles, admiring the bright white of the orderly half-moons.
“You bet,” Piper said. “The buyers have about fifty lawyers camped out in ARC’s office in Houston right now going through the data room,” Piper said as he felt himself drifting off toward sleep.
“We will do it,” Mr. Xing said. “We will buy American Refining Corporation. Please inform Mr. DuBois of our intentions immediately.”
Piper was tired, but he was never too tired to play.
“That’s great, Mr. Xing, but I just don’t think you’ll have time to play catch-up on this one,” Piper said. “I’ll be sure to keep you in mind if and when another deal like this ever comes around I heard the Canadians might sell off some gas-producing assets within the next five or ten years. Of course, I can’t even imagine where energy prices will be by then,” he chortled.
“What if I told you that we will pay all cash?” Mr. Xing asked. “What would you say then?”
Piper’s eyes opened wide and he suddenly felt alert. “I would tell you that cash is king,” Piper smiled. “And that might make all the difference in a transaction with so much potential execution risk.”
Gazing into the beautiful darkness of Central Park from his perch on the corner of 59th and Fifth Avenue, Piper Pearl did what every natural-born broker does the moment a deal may have been conceived – he calculated his own M&A fee – 1% of $15 billion – or $150 million. Not a bad payday for having a few cocktails at the Four Seasons Hotel in the company of Alexandra Meriwether.
“This leaves us with just one other matter,” Xing said slowly.
“Which is?” Piper asked. He had begun his soothing nightly ritual of counting airplanes as they made their final approach down into Newark Airport.
“As you may know, Mr. Pearl, clean burning natural gas is important to us,” Mr. Xing said.
“The twentieth century was the century of oil,” Piper said, parroting something he had read in the newspaper recently, “but the twenty-first century will be the century of gas. This is especially true for you,” he added.
“And what is that supposed to mean?” Mr. Xing asked.
“It means that you guys really get a bum rap when it comes to pollution,” Piper said.
“Proceed,” Mr. Xing said cautiously as he pushed the tip of a freshly sharpened German pencil into his finger.
“Here’s how I see it; the entire world wants you to be their factory and manufacture all the junk they don’t want to make themselves – stuff that all just ends up in a landfill or in the ocean anyway, right? Everyone expects you to make all this stuff cheaper than anyone else can make it because you pay your people less money and you’re a little looser on the rules.”
“This is the economic doctrine of Comparative Advantage,” Mr. Xing said.
“Exactly, but then all these developed countries hassle you for having a pollution problem,” Piper said. “That just doesn’t seem right to me since without China there wouldn’t even be a Wal-Mart. And without China people might actually realize their standard of living has been dropping for the last twenty years.”
“I appreciate your sensitivity on the complex matter of global development, Mr. Pearl,” Mr. Xing said. “There are many trade-offs and sacrifices that must be made if my people are to enjoy the same kind of opportunities that your people have been enjoying for the last one hundred years. I can assure you, however, that we are taking this situation very seriously. In fact, our next five-year plan specifically tasks us with switching many of our power plants from coal and oil to clean-burning natural gas.”
“Then ARC is perfect company for you to buy,” Piper said. “Rocky’s boys have discovered a quarter-million acres of shale gas up in Utica and Marcellus. Far as I can tell, the entire United States of America is sitting on top of that stuff. It’s a good thing nobody smokes around here anymore!” Piper chuckled and immediately thought about stepping onto his terrace to have one last cigarette.
“Importing American gas is exactly what we intend to do,” Mr. Xing said as he looked out at the sooty gray-green morning, wondering whether his son would be able to attend school when the air quality was so poor.
Mr. Xing knew from the time of day that the sun had risen above the horizon but the ashen sky was still devoid of sunlight. He missed the vibrant colors of Europe and America and was looking forward to going to Davos, Switzerland the following week to make a presentation that would telegraph the “mega changes” that China was making to its energy policy.
“Sounds like we’re on the same page,” Piper said. “What’s the issue?”
“The issue, Mr. Pearl, is that in order to transport the American gas and its related products to China we will need to gain control of a fleet of highly specialized gas tankers,” Mr. Xing explained. “This is our condition.”
“What’s your condition?” Piper asked. His mind was still foggy from the evening’s excessive consumption.
“The ships, Mr. Pearl,” he said with a hint of irritation. “We will need gas carrying vessels to come along with the deal and there happen to be a fleet of fifteen such vessels under construction at Regal Shipbuilding in Korea that would suit our requirements perfectly.”
“So go buy them,” Piper said. “I sell companies, not boats.”
“We have tried to buy the vessels and we have failed,” Mr. Xing explained.
“What’s so hard about buying some boats?” Piper asked.
“Shipping is not our core business and we are not experienced in such matters,” Mr. Xing said. “That is why we need the assistance of Mr. DuBois.”
“What do you mean his assistance?” Piper asked. “Rocky DuBois is an oilman not a boat broker.”
“The point is, Mr. Pearl, that these fifteen LNG vessels must come along with our purchase of ARC or we are not interested in buying the company. We are happy to pay for the vessels in addition to the full $15 billion asking price that we will pay for American Refining Corporation. All we ask in return is that ARC find out who owns those LNG carriers and then structure a deal for us to gain control of them,” Mr. Xing said.
“Whatever,” Piper said having grown bored with the conversation.
“Does that mean we have a deal?” Mr. Xing asked and crossed his fingers as he awaited the reply from the sleepy banker. “Will you help us gain control of the vessels?”
“Yeah,” Piper said, figuring he could hold Alexandra’s bonus hostage until she found the boats. “Let’s do this thing, Xing.”
Chapter 14
Shipowners as Children
You capital providers need to remember we shipowners are all children and we will always be. So you need to understand that if you keep giving us sweets we will eat them. Do not blame us when we get sick and you have to clean up the mess because it will be your fault…once again!
Robert Bugbee, President,
Scorpio Tankers, Inc.
“It’s time to Rock and Roll!” Rob
ert Fairchild announced to no one in particular after he sprang from a taxicab on Miami’s Collins Avenue and bounded up the stone steps toward the lobby of the Delano Hotel.
As the figurehead CEO of Viking Tankers dramatically parted the twenty-five-foot wall of billowing white linen that served as the front door of the trendy hotel, he felt like an actor stepping on stage to give the performance of a lifetime – which is exactly what he was about to do. The problem was that when his eyes slowly adjusted to the dim light in the cool and cavernous lobby he realized the theater depressingly deserted.
Even after he had stepped further into the empty hotel and peered into a warren of crevices and corridors he couldn’t seem to locate any human life. That was when Robert Fairchild considered the unlikely possibility that the hard working and hard playing Norwegian investment banker Magnus Magnusen had made a scheduling snafu. After all, why on earth would Luther Livingston, a teetotaling bachelor from the Lutheran church in Salt Lake City, possibly want to meet Robert in a fashionable South Beach hotel to discuss the high-octane IPO of Viking Tankers?
With the heels of his freshly polished wingtips clicking like a metronome on the gray concrete floor, Robert moved toward the ethereal glow and briny breeze filtering into the seaward side of the lobby. He glided past an abandoned sushi bar and a dozen purple couches, a mahogany pool table and an immense wood-paneled wall twinkling with a séance worth of votive candles.
When he arrived at the oceanfront side of the hotel and walked onto the elevated terrace, he witnessed a scene that reminded him of Bosch’s The Garden of Earthly Delights. At the bottom of the steep set of stairs in front of him was a long, thin swimming pool lined with lounge chairs positioned beneath two rows of towering royal palm trees, their bushy green fronds rushing in the steady onshore breeze. At the far end of the pool was a large group of scantily-clad men and women who were swarming around an oceanfront Tiki bar like moths on a light bulb.
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