Regulatory arbitrage with Tony & Nat | FT Alphaville

Regulatory arbitrage with Tony & Nat

Looks like ex-BP boss Tony Hayward is about to get seriously rich.


Tony Hayward, who stepped down as BP boss in the wake of the Gulf of Mexico oil spill, will imminently seal his return to the oil industry, by buying into Turkey’s Genel Enerji, in a deal valuing the target at around $4 billion, a source close to the matter said on Tuesday.

Vallares, an acquisition vehicle established by Hayward and financier Nat Rothschild, has agreed in principle a tie-up with Genel Enerji, which owns oil fields in the semi-autonomous Kurdish region of Iraq, and will announce the deal in the coming days, the source said.

The deal expected to net Hayward and his Vallares co-founders millions of pounds.

Under the terms of the IPO, Hayward & Co will see the cash they put into Vallares convert to a 6.67 per cent stake in the event of a large deal such as Genel.

Genel, of course, will be familiar to many readers. It called off a £3.5bn merger with Heritage Oil in November 2009 and then saw its chief executive and co-founder, Mehmet Sepil,  fined almost £1m by the FSA for market abuse. (He was found to have dealt on the back of a positive Heritage drilling report before it had been released to the market).

And that raises an interesting question: would the FSA have allowed Genel to list in London given his track record and the fact that Sepil remains chief executive, according to the company’s website?

Presumably the answer to that question is no.

In fact, there’s little doubt about it.

From the FT (November 2009).

Mehmet Sepil, Genel’s chief executive and co-founder, declined to comment on Monday, only confirming that the merger had fallen through because there was no foreseeable prospect of receiving any payment for its Kurdish exports. But the merger talks were complicated by a Financial Services Authority investigation that Heritage had said could prevent executives from Genel or its unlisted parent Cukurova joining the management of the new company.


But all that can be forgotten about now because Hayward and Rothschild have given the company their seal of approval. As a result, Genel will probably get a premium London listing, with all the tracker money and forced buying that involves. And Hayward & Co will get their millions.

No doubt Vallares will claim Genel, the biggest oil producer in Kurdistan in northern Iraq, will be run by Hayward and his management team. But somehow this all doesn’t pass the smell test.

Bankers call this sort of thing regulatory arbitrage. We can think of other more colourful descriptions.

And it’s also worth noting that if the deal comes off, then Turkish billionaire Mehmet Emin Karamehmet, who controls Genel through his Cukurova Group, will end up with a large stake in company that could in time become a FTSE 100 company.

There’s not necessarily a bad thing, although London-based investors have reason to be wary given what’s gone on at Kazakh mining company ENRC.

Related link:
Vallares eyes Kurdistan investment – FT