BP’s Struggles, Shein’s Valuation Crash & the Billion-Dollar Rise of Sports Franchises

Hello and welcome back to The Deal Room, and we've got 3 new topics to discuss, all fresh in the news. One being the activist hedge fund Elliott building a stake in struggling BP. And really interested to break this one down with you, Stephen, because I think people, you know, BP is such a synonymous company, I think, with the London, with FTSE, such a staple. The fact that I think a lot of people will be surprised when you look at some of their numbers about how much they've been struggling. And then you combine that with this kind of evil identity that people tend to associate with activist investors. So I'd love to, to see what you think about that, but we're going to also talk about Shein update there. I mean, I saw a Bloomberg, I think it was sources saying that the valuation was getting trimmed down to $30 billion, but I seem to recall it wasn't that long ago and it was $100 billion. So that has gone incredibly south and good to get your thoughts on why exactly that's happening. And then finally, I guess in the spirit of the recent Super Bowl, we can talk the New York Giants. They've hired one of the major elite boutiques to sell them minority stake in the team. And something similar has just come out about the San Francisco 49ers as well. So nothing like blending a little bit of sports and corporate finance to understand these things. So yeah, let's kick it off with BP. What's happening?

Yeah, thank you. And I was actually just looking at the last Deal Room podcast that we did. Musk versus Altman. And I think we put a poll out there, didn't we? And I voted on that poll. I think the poll was, who is going to win the war for AI supremacy? And where was it at last time you checked?

The last time I checked actually was this morning. So I'm pretty fresh with the numbers. So I'll give you the percentage split. Firstly, it was very, very close. And this was the question: who will win the AI race? Was it going to be Elon Musk or Sam Altman? So it's very close. The second hint was it was very similar to the EU referendum for Brexit vote.

Is that 52-48? Those horrible numbers. Oh my gosh.

I thought they'd be printed in your mind, Stephen, but, um, 53%. Siding with Altman. 47, Musk.

I don't— it's a brave person to bet against Musk. Let's just be totally honest about that. I went with Musk, not because I want that to be the outcome, but just because I think it probably will be. And I just saw that Grok has just had a major update today as well. So, and I think, by the way, they're going out— well, Musk is going out and trying to raise some fresh capital for X. At a $44 billion valuation, which was what he bought the company for a few years ago. So who knows, maybe that's a bit of a recovery play. But anyway, we've spoken enough about Musk for, well, probably for the whole of 2025. Let's be honest. So let's talk a little bit about BP. And this is, you know, this is a quite remarkable story. You mentioned it in the beginning. BP is this storied name. I remember Coming out of university and BP was the largest company on the FTSE 100, right? Had a, you know, £100 billion market cap, which at the time was definitely the largest in the FTSE 100. And then the Horizon Deepwater disaster in the Gulf of Mexico happened. And quite frankly, they've never recovered since from a share price perspective and from a strategy perspective and a profit perspective as well. And I'm just going to I'm just— I've got two charts in front of me. One is their share price performance over the last year, and one is their share price performance over the last 5 years. Over the past year, BP share price is down 3%. Remember, S&P 500 up 20%, etc. Last 5 years, BP share price is down 0.5%. So it hasn't moved. It's done nothing. It's generated zero value for shareholders from a share price perspective, notwithstanding dividends. In the last 5 years in an era where other oil and gas companies have started to absolutely fly. And in fact, I was going to save this till later, um, but I'm going to give you a little bit of a quiz. We haven't done a quiz for a while. So what I'm going to do is I'm going to give you a market capitalisation and you are going to tell me which of the oil majors this market capitalisation is associated with. So the first market capitalisation I'm going to give you, and they're all in dollars, even if the company's not domiciled in the US. The first one that I'm going to give you is $485 billion. Which company is that?

ExxonMobil.

He's good. He's good. One from one. $485 billion is the market capitalization of Exxon, putting it well and truly in the top 20 of the S&P. Uh, second one, $200 billion.

Chevron.

One from two. That was Shell. £160 million valuation topping the FTSE 100. Bear that $200 billion in mind for Shell as we go through this. Third one, $1.7 trillion. It's got a trillion.

Excuse me?

And it's not American and it's not British and it's not European. And it's one of the— Well, it's—

Sinopec.

Saudi Aramco.

Saudi Aramco.

$1.7 trillion. You know, absolute most profitable company in the world. So $1.7 trillion Saudi Aramco, $485 billion Exxon, $200 billion Shell. Uh, penultimate one, $280 billion.

Yeah. Is that Chevron?

That is Chevron. $280 billion. And the last one I'm going to give you is $92 billion. Dollars.

I might have said BP, but that sounds a bit generous.

It's BP, £73 billion. Now, obviously it's a bit of a game, but this just goes to show how far BP's star has fallen relative to its biggest competitors. You would mention historically BP in the same breath as Shell and Exxon and Chevron. It's less than half of the valuation of Shell, which is smaller than Chevron, which is half the valuation of Exxon. So BP has absolutely cratered in a time where its competitors have continued to go from strength to strength. So what's the story here? And the story is all about Elliott. And I'm not going to spend too much time on the activist investor Elliott Management, because if you go back to November 2024, we did do a good chunk of an episode about activists. But just as a reminder, activists, what do they do? They're investment managers that take stakes in underperforming listed companies and agitate for change through their voice in shareholder, in annual general meetings. They put out reports saying, look, this company is terribly managed, underperforming, you know, we want to replace the CEO. We want the company to be split up. And I think we spoke about Honeywell. The big US conglomerate Starbucks, they built up big stakes in. These are all activist campaigns and they have just launched a significant move, a significant activist campaign, building up a 5% stake in BP to become the company's third largest shareholder. This is super exciting. As you know, I'm not a BP shareholder, but if I was a BP shareholder, I'd be so thankful that this is now getting the attention of the likes of Elliott, who are very professional and are very successful in driving change in these type of stagnating, relatively directionless, poorly managed businesses. And quite frankly, BP is one of the best examples of that.

Can I just ask, for someone like Elliott or any activist investor, Is it somewhat sector agnostic where there's just a process to go through to turn around one of these companies, or would they be specialists in the energy sector, for example?

Yeah, it's a really good question. The smaller ones would be more sector-focused, and Elliott does have a history of working with the oil and gas sector, including Chevron, but it's now a $70 billion investment manager in terms of assets under management. So it can pull from a pretty deep capital base and go after some of these big fish. A few years ago, BP would be too big even for an activist to take a meaningful enough stake to drive change. But now it's down at £73 billion market cap, and Elliott's only gone from strength to strength. It can build up that £3.8 billion stake in the business. So, what went wrong with BP? So, as we said, the share price has been totally stagnant. Why has that been? Well, I'm going to give you two main reasons. The first is unfortunately a mismanaged and probably misguided move towards renewable energy and low-carbon energies. And this just hasn't worked out. The cash cow, the golden goose that keeps laying eggs for BP has always been oil and gas and oil and gas, you know, for better or for worse, hasn't gone anywhere and is much, much more profitable than the equivalent investments in, you know, in low carbon energy solutions. To the extent that the efficiency of BP's capital expenditure, so its big investments, has been way, way, way below the likes of Exxon and Shell, i.e., the return on investment from big projects. So, it's invested loads of stuff. BP beyond petroleum was the classic tagline. And I'm looking at their annual report at the moment and above in their highlights of their annual report, above the amount of barrels of oil equivalent that they have produced in 2023, above that in the highlights is the number of electric vehicle charge points that they've installed. Now, I can tell you for a fact which one of those two makes the company more money. It's the oil and gas. So, it's been this kind of well-intentioned, but really misguided strategy. And by the way, it's not the only renewable energy-focused, quote-unquote, focused company that struggled over the last few years. But it's just, It's just put a huge, huge drag on this company's share price. The second element is the management of the company. If you remember, I think it was probably 12 months ago, the Bernard Looney scandal was a relatively lightweight scandal, but he ended up resigning. A new guy called Murray Auchincloss has come in. Yeah, just a few question marks about him. Significant question marks about the chair. So, there's BP's chairperson, Helge Lund, and this is Elliott Management's words, has provided, has presided over a period of fairly poor performance and strategic drift. They stopped short of calling for Lund to resign, but there's definitely a question mark against him. That's what Elliott says. So, look, you combine a significant strategic misstep in terms of going renewable with some pretty poor and inconsistent managements. And you have the results, which were a totally stagnant share price, really, really poor financials. Revenue has gone down. EBITDA has gone down over the last 3 years. This is not a company that's performing well in any stretch of the imagination. And this is where Elliott thrives.

Does a CEO ever survive an activist investor?

Really good question. It, it depends what the activists believe is the root cause. So let's say I'm a relatively new CEO that is totally bought in to the demands of the activist and is basically ponying up to the activist and saying, hey, yeah, I can be the man on the inside to help drive through this split up or this, um, or this strategic change. And by the way, I can probably help get rid of the chairperson as well. You can survive if you, if you, if you do that. But quite often one of the central parts of an activist campaign is, look, there's strategic drift. At the end of the day, who gets paid extremely well? It's the, it's the C-suite and it's the CEO. And, and where does the buck stop? It's the CEO and the chairperson. So they are the ones that are probably going to be in the firing line. And actually, just to add, to compound the misery, I don't know if you saw this article that came out late last week. They've just released their Q4 earnings, BP. The annual cash bonus paid across BP staff, the annual cash bonus is going to be 45% of target. So just imagine you're a trader at BP and you've kind of got your eyes on a, I don't know, a new house or something like that. And suddenly your cash bonus is less than halved because the performance of the business has been so bad. You know, that is, that, you know, I'd be out of there.

So let's move on to the second topic. And as you said, we did do an activist investor breakdown. Couple of months back as an episode. We also did one about Shein when it was kind of gearing up for its IPO. So what's the latest here?

Yeah, so Shein's obviously a company that captures our imagination because it has been so innovative in the way that it has disrupted the fast fashion industry, so much so that it's now the largest producer of clothing or the largest retailer of clothing in the world. And I'm going to get onto the $30 billion, you know, updated valuation and potentially postponed London IPO in a second. But I just want to spare a thought for General Atlantic, Sequoia Capital China, Tiger Global. These are pretty storied names in the world of growth equity and venture capital. But they were the ones that slapped that $100 billion valuation on the company back in 2022. And I've just finished, this is a little bit of an old TV recommendation, but I've just finished watching WeCrashed, the dramatisation of the WeWork rise and fall, replete with egos and parties and all of that kind of fun stuff. So I'm kind of thinking maybe this has just got another Netflix dramatisation written all over it. We've gone from a $100 billion valuation, the third most valuable private company in the world, to investor pressure to slash Shein's IPO valuation to $30 billion. That's down from $60 billion that we all thought the IPO might get away at last year. So this is a real, well, it's a real hammer blow for the company who have been embattled for a number of reasons. We'll get onto that in a second. It's actually a bit of a hammer blow for UK PLC because this was going to be the UK's flagship 2025 IPO. And not only is it looking like it's not going to be at the valuation that gets everyone super excited, but also it's not going to happen certainly in H1, and you never know what will happen in H2. So it's not a great news story from a number of perspectives, but why? So to go from a $100 billion valuation to a $30 billion valuation in 2 years, there's obviously going to be some internal factors. But the main factors are external. So, and it is all about Trump, as, you know, as a lot of these things tend to be. So there's a, there's a relatively obscure tariff policy and levy policy called the de minimis rule that you might have come across in the US that basically says that low-value imports under $800 from elsewhere, from outside of the US, can come into the US duty-free. That means they don't pay a 20% levy that they would do if they were over $800. So, Trump has signed an executive order. This was a couple of weeks ago, signed an executive order just saying, look, we are going to get rid of the de minimis rule. Therefore, not only will every product from Shein coming in from China be subject to a 20% levy, But what else has Trump done? It slapped, he slapped another 10% tariff across the board for all China products, all China imports. So suddenly Shein's cost or kind of cost to the consumer has risen by 30%. Now this is shocking for Shein, but I just want to take a step back and have a chuckle about just how quickly and how chaotically this administration is going about business. So Trump signs this executive order, get rid of the de minimis rule. You know, it's a loophole, it's flooding the US with cheap imports from the likes of China. We're going to get rid of it. And by the way, we're going to give 3 days for it to be implemented. Aye, 3 days to get rid of this de minimis rule. So what ends up happening is absolute chaos at the ports, because instead of these under $800, you know, lots of cargo just going straight onto the back of a truck, you know, very, very limited checks, or off you go, happy days. Suddenly everything needs to be checked. Everything under $800 needs to be checked. And the terminals just don't have the capability to do that. So you've suddenly got crates and crates and crates of cheap stuff piling up at the docks waiting to kind of be processed by a reactive organisation that's just trying to figure out what this de minimis rule means. It's all just totally chaotic.

Such a details guy, Stephen, come on. It's just, we're doing this for the greater good here.

Yeah. Once again, your accent, quite fantastic. But yeah, I mean, to implement something like this with just over 48 hours notice, I mean, it caused complete and utter chaos. And obviously to Shein, you've already got the kind of headwinds of labour and supply chain controversies, geopolitical risks, the softening on fast fashion as a very attractive place to invest. Add that to the fact that its biggest market is suddenly putting an extra 30% cost on top of these extremely cheap goods, and that is why this valuation is getting slashed.

So from Shein's perspective as a company themselves, might they want to just let's just cancel the whole thing. Is it a case of, you mentioned those growth private equity firms, those VC names, are they the ones who are like, no, no, no, this has to happen because we need to get the money out on the other side? How do you marry those two forces?

Yeah, it's really interesting. And I think that again, the WeWork story, because it's fresh in my mind, provides a good representation of the way that VCs work in the context of these extremely highly valued companies. Now, in the case of WeWork, Benchmark Capital was their anchor investor basically all the way through, and they made so much money investing very early on and then selling some of their proportion, some of their shareholding as the valuation ratcheted up that even though they invested at too high a valuation at the end, They had made so much money in the early rounds that they were still quids in. So it's probably quite likely that the likes of General Atlantic and Sequoia have made shedloads off of the initial investments when Shein was very, very small and recycled some of that upside to maybe take a punt on the $100 billion valuation. So they'd probably be in an okay position from an ROI perspective. It's still a massive breakthrough success, even at $30 billion valuation. But yes, I think there will be a call to recycle this capital through an IPO. There will be pressure on this company to get something done in 2025 because there's only so long investors can wait until there is an exit event and a liquidity event. So even if there's a little bit of a haircut from those lofty valuations or even quite a significant haircut, they're still going to be Again, to take the WeWork example, IPOing at $30 billion based off of a very lofty $100 billion valuation is pretty bad, but it's not WeWork bad. So you can always use that example as a benchmark.

Yeah. You mentioned about the BP trader getting the 47% bonus. One of my very close friends from university, She's very senior in the fashion space as a buyer, and she just left after working for many years very hard, working up into a leadership role. And she actually flipped, and part of that to go to Shein 12 months ago, and part of that was all wrapped into this IPO as obviously part of a package. Oh, I feel bad for her.

Well, this is it. And there are some very, very somber, sobering learnings from things like that, things like this WeCrashed 8-part series. And one of the things that's probably worth, you know, a bit of a lesson is just as the IPO was announced with WeWork, $48 billion— actually, sorry, it was a $60 billion IPO valuation. That's what everyone was getting really excited about. And the rumours were spreading like wildfire in WeWork HQ. All of the original employees were starting to go, what does that mean? Okay. So that means my stake's worth $30 million, $60 million. They started to spend that money before the IPO was launched. And then obviously everything came crashing down. The S-1 was filed and it was a total joke, community-adjusted EBITDA, you know, a load of elevating the world's consciousness, et cetera. And these people that had started to get excited and started to spend that upside, were left with really, really big holes in their pockets. So, again, wait until that money hits your bank account before you start spending it.

There you go. It's a lesson for life right there. Dropping bombs here. So, all right. The final story, New York Giants. So, yeah, we haven't done— it felt like we went through a string of episodes talking about sport and finance, but we haven't done in a while. So, yeah, interested to hear about this one.

Yeah. So, the headline here is that the New York Giants hire Moleskine. Again, as you said earlier on in the piece, a significant player in the elite boutique IBD advisory space. So New York Giants hire Moelis to sell minority stake in their team at a valuation of upwards of $7.85 billion. Again, these valuations for sports teams go from strength to strength, and I'm actually just going to do a little bit of a quiz here. I was going to give you a really, really hard quiz, but this is going to be a little bit easier. So, in the top 20, there are— in the top 20 on the Forbes 50 Most Valuable Sports Franchises, there's, I think, 14 American football teams, but there's also a number of basketball teams and you like your basketball. So, I'm going to ask you a basketball question. Can you name the top 3 most valuable basketball franchises? In the world?

It's a good question. I would say just given legacy and location, and, uh, I'd probably say New York Knicks is probably on that list. I'd probably say from the legacy point of view and just brand, you've just had the Luka Dončić big trade in the States, which everyone who follows that will know. So the Lakers, LeBron.

Mm-hmm.

Uh, yeah, good question. The final one, Someone like Philadelphia was big back in the day, but I think the original Philly team in like the '60s when they were champs pivoted to become the Golden State Warriors. So, because it's a franchise, so they move about. So even though Philly still exists, it's either Philly or Golden State Warriors, I'd say.

I tell you what, you may not be particularly hot on oil and gas majors, but you've absolutely smashed this. Golden State Warriors. New York Knicks, and the LA Lakers are all in the top 10 most valuable sports franchises in the world. By the way, the highest football club, uh, you know, soccer team, Real Madrid, followed by Man United.

What's the price difference between those two, out of interest?

So, well, Real Madrid is valued at $6.6 billion and Manchester United is valued at $6.55 billion. So they're really vying for the top spot. But obviously this list is totally dominated by American football teams. And we are talking here about New York Giants, but there was actually an announcement, another article last week that came out talking about the San Francisco 49ers selling a 10% stake at a $9 billion valuation. So these valuations are going up and up and up. And I'll tell you before I get onto the reasons why I was going to, I was looking because the New York Giants are one of the original NFL franchises, and I was looking at some of the names of the original teams in the NFL in the 1920s, and I was going to ask you to say what city they were from, but I thought that would be too hard because you've got, you've got, uh, American football teams like the Kenosha Maroons, the Racing Legion, the Dayton Triangles, the Canton Bulldogs. The Decathlon Staleys and the Acron Pros. So, there you go.

Yeah, wouldn't have got any of that.

Little bit of, little bit of niche knowledge. But anyway, so why are the Giants selling a stake? Well, again, there's probably two main reasons for this. So, the Giants have been owned by the Mara family since 1925. They sold a 50% stake to the Tisch family in 1991. So, it's family-owned. And they've retained control over the last 30, 40 years. What has changed? Well, one, and we reported on this back in August of 2024, their new rules have allowed private equity firms to take a minority stake in NFL franchises. And if you remember, it was a maximum of 10% for one particular private equity firm. Passive stake, no agency, no voting rights, a totally silent investor. And any one particular NFL firm can have up to 30% private equity ownership from 3 separate private equity firms. So this is the first time that PE has been able to get a slice of this extremely attractive asset class. So point 1. Point 2, We're going to go back to Trump. Trump has, has been starting to say that he is going to clamp down on some of the tax benefits for families owning sports franchises. So, there's a lot of different reasons why it is beneficial for a family to own a sports team from a tax perspective. Firstly, sports teams are often structured as LLCs, limited liability companies, which means that they're earnings or losses can end up on the owner's personal tax returns. So this could actually become a tax deduction for those with sprawling portfolios. If the sports team makes a loss, you can offset that loss against taxable gains elsewhere in your portfolio. Trump wants to shut that off. Also, there's been some really, really generous benefits to passing on sports franchises through generations from an inheritance tax perspective. And again, Trump wants to close that loophole. Maybe this is because Trump is trying to generate more revenue for the USAPL Inc., but I reckon it's because he kept trying to buy NFL sports franchises back in the day, and no one wanted Trump as an owner. So, the Buffalo Bills got approached, the Dallas Cowboys he wanted a slice of. He couldn't get any of them, so now he's just clamping down. It's vengeance.

I thought these were his buddies anyway, all this sort of crowd that we're talking about, his family money. But yeah, you're probably right. It makes a lot of sense what you said.

Yeah, again, it's this weird Trump-Musk insecurity, ego frenemy thing where one day I can be part of the gang, and then if the gang rejects me, then I'm going to hate on the gang. You know, it's all so petty. But, um, This is why the 49ers story came out last week. This is why the Giants are selling a minority stake. Cash in whilst the going is still good to private equity that can now get a slice of the action. So expect a lot more of these type of deals in the next couple of years.

Great stuff as ever, Steven. Thank you very much for that. And that will conclude the Conversation episode for this week. Do not forget, because I know a portion of our listeners they listen but are not subscribers to the channel, and you may or may not have reviewed or left a comment yet, but we really appreciate some feedback. Always love to learn and get better, and we will see you next week. Thank you very much.

Thanks, Ant.