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The two remaining founders of KKR, Henry Kravis (right) and George Roberts (left), spent an hour with the Financial Times in Tokyo last week chewing over their view of the world, the state of private equity, the Brexit risk and other issues.

The duo, who are cousins, were in town for the annual get-together of KKR partners. The event marked the first time that they’ve held the gathering in Asia.

There was, it quickly turned out, significance in that. Japan, said the two veterans of some of the greatest PE derring-do of the past four decades, is now KKR’s “highest priority” outside the US.

They’d be using, they said, the 70s and 80s playbook from when the mightiest US conglomerates were shedding non-core assets — a process they now expect the likes of Hitachi, Toshiba and Panasonic to get stuck into as activism becomes more successful and companies acknowledge their obligations to shareholders.

KKR’s dealmaking prowess in the 80s was captured in the legendary business book, Barbarians at the Gate. More on this lower down*.

For a market that non-Japanese stock investors have been underweight for more than a year now, that made quite the statement — particularly when Roberts followed it up by saying that he was actually “more comfortable” with Japan than China as matters stand.

Asked to explain a bit further, the two men, who come to these conversations armed with some first-rate anecdotes (including descriptions of exasperated attempts to explain private equity to VIPs on the political world stage who should really know by now), said that Japan was now totally different from when they set up KKR’s Japan office a little over a decade ago.

Some 10 years earlier, said Kravis, he met a chief executive at a Japanese company who proudly told him it had 2,000 subsidiaries. All 2,000 of them, he was told, were core to the company. But nobody says that sort of thing in Japan any more — an observation that’s been made by pretty much every M&A banker, lawyer and PE group eagerly looking at Japan over the past couple of years.

The K and the R of KKR clearly had their differences over Brexit, with Roberts optimistic that a hard Brexit and a weakened sterling would create opportunities for PE. Kravis, in what appeared to be in agreement with KKR’s European team, takes a less upbeat view on the prospects

Read the story by FT editor Lionel Barber and our Tokyo team of Leo Lewis and Kana Inagaki here. If you want to learn more about the other K in KKR, Jerome Kohlberg, here’s his 2015 obituary. For more on the Japanese market, check out our special edition of DD from several months back.

Bryan Burrough, co-author of Barbarians at the Gate, will be joining DD’s Arash Massoudi for two events on June 18 in London. Keep an eye out for details of the talk about the book and his career, to be held at the FT’s new headquarters.

During the evening, Burrough will join Domenico De Sole, chairman of Tom Ford International and former chief executive of Gucci Group, on stage for the next gathering of the DD Forum. Learn more about the DD Forum and inquire about joining in London or New York here.

Goldman takes back M&A crown

After the hammering they took in the fourth quarter — when their division was held responsible for a massive litigation provision stemming from the 1MDB debacle — Goldman Sachs’ investment bankers are once again on top of the pile.

Investment banking was the only one of Goldman’s six main business areas to post an increase in revenues for the fourth quarter, and Goldman chief executive David Solomon (pictured below), himself latterly head of that division, took obvious glee in telling analysts that Goldman is topping 2019’s year-to-date league tables for M&A, equity capital markets and common stock offerings.

The IB results were a bright spot in a quarter where the bank revealed a 21 per cent drop in net earnings compared with the same period a year earlier. Shares in Goldman fell 3.8 per cent to $199.91, as a much anticipated strategic update from Solomon was delayed until next year.

Goldman’s surge up the league tables has been helped by a strategy to broaden its client base that was launched in 2017 to some eyebrow-raising from Goldman insiders, who saw their place as advising masters of the universe, not helping mid-cap companies do deals for a couple of billion dollars.

Stephen Scherr, chief financial officer,said that Goldman had hired more than 40 bankers for that client diversification effort, and added coverage of 1,000 clients.

Success, of course, begets success. While Goldman’s overall headcount fell by 700 in the three months to the end of March, it is creating a new team of 100 or so bankers who will be dedicated to serving smaller clients with enterprise value below $2bn.

Goldman investment bankers needn’t fret over their pay either. Even though the bank cut compensation expenses by 20 per cent in the first quarter relative to the year earlier, Scherr told analysts that there had been no change in pay policy. That means that a great proportion of the bonus pool will be accrued later in the year.

M&A bankers can expect to do particularly well. Goldman’s financial advisory fees surged 51 per cent to nearly $900m in the first quarter versus a year earlier, way better than the 12 per cent rise at JPMorgan’s advisory revenues for the same period (which came in at $644m).

Rivals hoping to put a dent in the Goldman franchise will have to keep trying. Bankers across New York were left wondering how Goldman had missed one of the most lucrative assignments of the year when Bristol-Myers Squibb announced its $90bn takeover of Celgene and GS was nowhere to be found. Had rivals at Evercore, Morgan Stanley, JPMorgan and Citi really cracked the code? Maybe . . .

But less than four months later, Goldman is back at the top of the M&A league table, thanks to Chevron’s $50bn takeover of Anadarko, Fidelity National Information Services’s $43bn buyout of Worldpay and US regional bank BB&T’s $28bn purchase of SunTrust. For now, JPM has to console itself with second place.

Four takeaways from Chevron’s $50bn takeover of Anadarko

1. Start by reading the latest edition of the FT’s Energy Source briefing here

Ed Crooks, US energy and industry editor, has been following the oil sector for years. His main takeaway is that Chevron’s planned $50bn acquisition of Anadarko Petroleum will accelerate the process of the shale industry being absorbed into Big Oil and that there are fundamental financial reasons why we can expect that trend to continue. Smaller independent oil companies are under strain to invest in their own businesses as oil prices remain subdued. That means that the world’s biggest oil companies have an opportunity to snap up decent assets on the cheap, while using their scale to keep costs under control.

2. Could rival Occidental Petroleum really mount a bid to top Chevron?

Occidental has a market cap of $47bn, which is dwarfed by Chevron’s $227bn equity valuation. That effectively rules out a bidding war, especially as Anadarko opted to accept a lower offer from Chevron rather than take Occidental’s bid, which was deemed riskier.

Then Occidental must convince its shareholders the deal is in their favour. The share price reaction shows there’d be some opposition (OXY is down 6 per cent since the news leaked) so it would need to limit the amount of its shares it offers as part of the deal to avoid a shareholder vote. That means it must use more cash as part of its bid. And therein lies the problem. There’s only so much debt you can hoist on Occidental’s balance sheet before it crashes out of investment grade territory.

3. Who will buy or be bought next?

ExxonMobil is the most likely buyer out there. Why? If you go by the theory that independent shale companies are struggling to stay in business and only Big Oil can consolidate, the remaining options are essentially Exxon or a big European player like Total or Royal Dutch Shell. Who might be bought? Pioneer Natural Resources, Concho Resources and Endeavor Energy Resources are all under observation.

4. Will investors start betting on shale’s revival?

Chevron thinks so, that’s why it just agreed to spend $50bn to buy Anadarko. But there are reasons to remain sceptical. Investors have been frustrated for some time with most US exploration and production companies as they’ve struggled to generate sustained free cash flows from their shale operations. The S&P oil and gas exploration and production industry select index has dropped about 60 per cent from its peak in June. Although Chevron’s endorsement for the industry will be welcomed, it’s unlikely to change the mood among investors dramatically as the industry’s fundamentals (low energy prices) remain unchanged.

Job moves

  • Paul Rawlinson, the head of the international law firm Baker McKenzie, passed away on Friday. Rawlinson had worked at Baker McKenzie for more than three decades and was the first UK-based global head of the firm. More here.

  • Herbert Smith Freehills has named 22 new partners to its global partnership, eight of whom are women. The full list can be found here.

  • Caesars Entertainment will name Anthony Rodio to replace departing chief executive Mark Frissora, the WSJ reports. Rodio, who is currently chief executive of Affinity Gaming, will also take Frissora’s seat on the board.

  • Corie Barry has been named chief executive of Best Buy, making her the first woman to hold the title. Barry, currently the retailer’s chief financial officer, is replacing Hubert Joly, who will become executive chairman of the board. More here.

  • Sycamore Partners has hired Rob Sweeney, the former global head of consumer and retail investment banking at Goldman Sachs, as president of the private equity firm.

  • Wilson Sonsini Goodrich & Rosati has hired Wanda Woo as a partner in the law firm’s corporate and securities practice in Hong Kong. Woo was previously a partner at Kirkland & Ellis.

  • BakerHostetler has hired Douglas Eingurt as a partner in the law firm’s mergers and acquisitions group and its private equity and venture capital team. Eingurt was previously a partner at Dentons.

  • Sidley Austin has hired Tai-Heng Cheng and Simon Navarro as a partner and counsel, respectively, in the law firm’s New York office. Cheng previously chaired the New York international arbitration practice at Quinn Emanuel Urquhart & Sullivan and Navarro was of counsel at the same firm.

  • PartnerRe has hired Jonathan Colello to lead the reinsurer’s property and casualty business in the Americas. Colello was previously president of North America for Axis Re

  • Insys Therapeutics has named current chief financial officer Andrew Long to lead the company, replacing its chief executive Saeed Motahari, as the company deals with ongoing legal costs related to its promotion of an opioid drug, Bloomberg reports.

Smart reads

Quants tackle PE Having already disrupted the asset management world, quant funds have set their sights on the red-hot private equity industry. The FT’s Robin Wigglesworth reports on the various approaches used by systematic trading funds to conquer private equity. (FT)

Scraping the barrel Investors who used blank check companies to capitalise on the US energy boom are learning a tough lesson — many of the oil and gas companies that were acquired by so-called Spacs attached to big industry names have underperformed. (WSJ)

Brexit bargaining The FT’s Cat Rutter Pooley and Patrick Jenkins report on how the City of London’s lobbying efforts to secure ambitious partnerships with its European neighbours have largely failed. (FT)

Trickle-down philanthropy The non-profit organisation Charity: Water’s employees can share in the spoils of hotly anticipated IPOs via a donations programme set up by the company’s founder, which allows wealthy entrepreneurs to donate a small share of their equity in companies such as Uber and WeWork. (NYTimes)

News round-up

Waste Management hauls in rival Advanced Disposal in $4.9bn deal (FT)

AT&T sells back Hulu stake for $1.4bn (FT)

Publicis makes biggest purchase with $4.4bn Epsilon cash deal (FT)

China power giant's $10bn rethink dashes M&A revival hopes (BBG)

Saudi Aramco to take 13% stake in Hyundai Oilbank (FT)

Brewin Dolphin in talks to acquire Investec’s Irish wealth unit (FT)

AB InBev enrolls Citi, BAML to work on $5bn Asia IPO (Reuters)

US hedge funds face court battle with Indonesia mining group (FT)

Trafigura looks to take control of Nyrstar (FT)

Regulators press Deutsche Bank to shrink US investment bank (FT)

Credit Suisse to take majority stake in Chinese joint venture (FT)

Due Diligence is written by Arash MassoudiJavier Espinoza and Robert Smith in London, James Fontanella-KhanOrtenca Aliaj, Sujeet IndapEric PlattJennifer Bissell-LinskLindsay Fortado and Mark Vandevelde in New York, and Don Weinland in Hong Kong.

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