TheChek News Flow

Ørsted’s bankers take out Trump insurance

Political unpredictability has led to unprecedented turbulence in the renewable energy industry

No listed Nordic company has ever raised more capital in one go than Ørsted, which on Monday launched a DKr60bn ($9.4bn) rights issue. What’s more, Ørsted is doing so at a time of unprecedented turbulence in the renewable energy industry. Its bankers will want to make sure that they’re not left holding the bag.

The Danish power group is raising money equivalent to more than 70 per cent of its current market capitalisation, printing new shares at a huge discount. The price of DKr66.6 per share is 38 per cent below where, all else being equal, the stock should settle after the capital raising is complete. That’s known as the “theoretical ex-rights price”.

Rights issues like Ørsted’s are supposed to compensate investors for dilution when a company issues new stock at a discount to the prevailing market price. Investors can put in more cash at the offer price, or sell their entitlement to buy new shares. Without these “tradeable rights”, they would lose out to new entrants. This arrangement is common in the UK and Europe, and rare in the US.

Financial textbooks teach that when a company issues tradeable rights, the discount for the new shares doesn’t really matter. The proceeds from selling rights should fully compensate those who decide not to take part. While the real world doesn’t totally hew to the model, and can leave some investors slightly out of pocket, it is a close enough description.

But the discount does matter in one way. If the shares fall below where the company priced its new stock, the rights become worthless, leaving banks that underwrote the issue on the hook. That miserable situation befell UK lender Bradford & Bingley in 2008. Its rights issue was reset three times, before the bank failed.

A 38 per cent discount leaves plenty of room for error, surely? Perhaps not for a company with as choppy a recent history as Ørsted. Its stock fell by a third on August 11th when it said it needed extra money to carry out its business plan. It later fell by 16 per cent when Donald Trump’s US government forced it to stop work on a US wind farm. A bigger project, Sunrise Wind, is still in progress, but in light of Trump’s unpredictability, that can’t be taken for granted.

Given the uncertainty, underwriters — which include Morgan Stanley, BNP Paribas, Danske Bank, JPMorgan and others — will welcome the buffer. There’s a psychological balancing act too: at too deep a discount, there’s the risk that investors perceive the company is in deep distress.

Ørsted and its financiers seem to have got the balance right. The shares barely moved as details of the rights issue were disclosed. Granted, even once it has its funds, Ørsted has plenty of uncertainty ahead. But at least the company is planning for the worst, and hedging Trump risk as best it can.

SEC allows Exxon plan to limit shareholder activism

Opt-in proxy system would automate retail investor votes to support board positions

Wall Street’s top regulator has awarded ExxonMobil a powerful tool to short-circuit shareholder activism proposals, in the wake of campaigns targeting the oil major over climate change, governance and executive pay.

The Securities and Exchange Commission on Monday issued a “no action” letter indicating its staff would not block a plan by Exxon to build a system before next year’s proxy season that will automate voting by retail shareholders in line with board of director positions.

Under Exxon’s proposal, retail investors who opt into the system would have their votes counted in favour of management unless they choose to opt out. The move comes four years after the company’s stunning defeat in a proxy battle at the hands of a tiny hedge fund seeking to reduce its carbon footprint.

Governance experts said this would provide Exxon management with a strong base of shareholder support at annual meetings, which would make it more difficult for activists to win votes on their proposals. The SEC’s guidance is likely to encourage other US companies to establish similar platforms, a trend that could reduce the influence of proxy advisers and activists to exert influence over votes, they said.  

Exxon said this would allow the 40 per cent of its shareholder base who are retail investors “to be heard, and be counted”, noting that three-quarters of them typically do not vote due to the time it takes to read all shareholder proposals.

“This is a gap we want to close . . . Activist groups often exploit this gap to push political goals at the expense of shareholder value,” Exxon said in a statement, adding that its system would be “an important step forward for American shareholder democracy”.

Activist investors have proposed numerous shareholder proposals urging Exxon management to do more to tackle climate change in recent years, prompting the company to seek ways to blunt their influence.

In 2021 Exxon suffered a bruising defeat at the hands of Engine No. 1, a hedge fund that won three seats on the company’s board following a campaign arguing the oil major faced an “existential business risk” by pinning its future to fossil fuels.

Last year the oil major sued activist investors Follow This and Arjuna Capital in a high-profile legal case that green groups and some shareholders say was an attempt to “silence them”. 

The lawsuit against Follow This was dismissed by a Texas judge on jurisdictional grounds, as the activist group is based in the Netherlands. The judge later dismissed the case against Arjuna when the fund agreed not to refile climate shareholder petitions at the company.

Institutional investors such as Vanguard already offer their clients automated voting systems with choices, including a “vote with the board” option. Some activist groups offer similar services that recruit shareholders and vote their shares in alignment with their progressive agenda. 

Until now the SEC has not granted companies the right to set up this type of automated pro-management voting system over concerns it would concentrate too much power in the hands of board directors and reduce scrutiny.

Exxon’s push to establish a pro-management retail voting platform could dilute activist investor power, according to corporate governance experts, who noted the plan coincided with a push by Republican lawmakers to limit environmental, social and governance activism.   

“[This move] could have a significant effect on the influence that the big indexers and proxy advisers have,” said Lawrence Cunningham, director of the Weinberg Center for Corporate Governance at the University of Delaware. “A movement like this could reduce the power that they have been exercising.”

“Retail tends to vote with management, so if there are challengers or dissidents, retail participation is likely to skew in your favour,” said Ann Lipton, a law professor at the University of Colorado, adding that retail shareholders’ voting turnout was typically low.

In its letter, the SEC said it noted shareholders participating in Exxon’s “retail voting programme” would pay no additional costs and receive an annual reminder of their ability to opt out and cancel their standing voting instruction.

Davis Polk, the law firm which advised Exxon on the voting platform, said the US proxy voting system had long been in need of updating, especially to promote retail shareholder participation, and the current administration was prepared to allow creative solutions to bring retail shareholders into the voting system.

“This could be very impactful for Exxon and other companies with a lot of retail shareholders because if they can attract enough investors to sign up to the platform, then they have higher retail participation for future shareholder meetings unless they later choose to opt out or override the management vote at a meeting,” said Louis Goldberg, a partner at Davis Polk.

The participation of individual investors has been crucial in large proxy contests in recent years as an activist defence tactic.

Disney last year faced a challenge to its board from activist investor Nelson Peltz. The company mobilised its large retail shareholder base, including releasing a video with Disney’s animated characters that urged individual investors to vote with management. In the end, three-quarters of its retail shareholders voted for Disney’s nominees.

Follow This said Exxon’s new voting platform appeared to be another attempt to “suppress the voices of critical investors”, in the aftermath of the oil group’s lawsuit against shareholders in 2024.   

“Obviously, the goal is to suppress votes for change as Exxon wants to continue with fossil fuels for as long as possible. This will not go down well with institutional investors who will lose influence as owners of the company,” said Mark van Baal, founder of the Dutch activist investor. 

The bid comes only weeks after Skydance inked a deal to buy Paramount

The best movies have an abundance of plot twists. The M&A mania sweeping US media is not far off.

Paramount Skydance, backed by the deep pockets of Oracle co-founder Larry Ellison and headed by his son David, is preparing a bid to acquire Warner Bros Discovery. That’s only weeks after Skydance inked a deal to buy Paramount.

This would be a colossal transaction. Warner Bros’s market capitalisation duly shot up from $31bn on Wednesday to $47bn by Friday’s close. Throw in net debt and that takes its enterprise value to about $71bn. Paramount Skydance’s EV is less than half of that. A deal would be on par with Disney’s 2019 acquisition of 21st Century Fox assets for $85bn, including debt.

A combination makes plenty of strategic sense. Combining TV networks, streaming services and content libraries would give the companies scale to better compete against the likes of Netflix and Disney. But the obstacles to a successful marriage are numerous.

For starters, Paramount Skydance will need to convince the target’s shareholders that selling their shares beats a previous plan to break Warner Bros into two publicly traded companies. One was set to house streaming assets like HBO Max and the and film studio businesses. The other, likely to trade at a more meagre valuation, would house the struggling cable and linear television networks.

While the value of a broken-up Warner Bros — which Morgan Stanley puts at $33bn — is far below its current equity value, its shareholders may have been hoping those parts might later attract their own separate bids at premium prices. Ellison, here, may be hoping to pre-empt a bidding war. Bank of America thinks a take-out price could be at least $30 a share, or $74bn in equity value.

Meanwhile, Paramount Skydance carries about $11bn of net debt, equivalent to about 4 times its ebitda. An acquisition could lead to its ratings getting downgraded to junk and its borrowing costs being pushed up. The risks are heightened by the execution difficulties in merging not two — but three — of the biggest media companies in the US.

On top of that, there is the political uncertainty. Although President Donald Trump is friendly with the Ellisons, a merger would be an opportunity for the administration to insist on conditions. Skydance only got regulatory approval to merge with Paramount after agreeing to eliminate diversity programmes and appoint an ombudsman for CBS News.

The elder Ellison, who briefly became the world’s richest man last week after a jump in the shares of Oracle, presumably has some sway when it comes to arguing Paramount Skydance’s case. Whichever scenario ultimately unfolds, the media and entertainment industry is about to undergo another round of upheaval.

Salesforce’s CEO said this would be the ‘absolute year of Agentforce,’ the name of his company’s AI product. It hasn’t turned out that way, as the enterprise software pioneer faces skeptical customers and greater competition from its peers as well as AI startups.

Salesforce CEO Marc Benioff was upset.

Last fall, one of his technical teams told large Salesforce customers that using Agentforce, the software firm’s new artificial intelligence for automating customer service and other functions, would require extensive planning. The product information the Salesforce team shared with those customers acknowledged the complexity of making the AI perform well.

That message contradicted Benioff, a charismatic salesman who had been telling customers that using the AI was a cinch and they could set up AI agents to handle customer service discussions and other tasks in minutes.

A senior Salesforce leader said that when Benioff noticed the disconnect, he complained to colleagues that the technical team advising large customers, known as Well-Architected, was acting “crazy” and should be fired.

Two months later, after Agentforce became available to all customers, the Well-Architected team was quietly disbanded, with some members taking severance packages and others finding new roles in the company, a former Salesforce manager said. But the team’s insistence that setting up agents was harder than it looked ended up being right, and Benioff was proven wrong: The company has struggled to sell Agentforce in the past year, in part because of the extensive prep work customers need to do to make it work right. And Salesforce in August said it would relaunch the Well-Architected program.

“Many of you told us, clearly and passionately, that it was a mistake” to end the team, two Salesforce executives wrote in a post to customers last month. “You were right.”

Last week, Salesforce issued a less-than-stellar revenue forecast for its current fiscal quarter, raising questions about the quality of Agentforce as well as what kind of money enterprises are willing to spend on it.

The result came despite Benioff’s comments to investors in February that Salesforce was “excited to be…in that kind of rarefied air of delivering a multi-billion dollar AI product line.” Besides customer service, Agentforce also aims to automate sales outreach and responses to IT helpdesk requests.

Benioff isn’t sitting still. When customers found the initial price of Agentforce too high, Salesforce earlier this year lowered the cost per task that the AI handled and also allowed customers to pay in bulk at a discount. After agents created using Agentforce gave inaccurate responses to questions, Salesforce made several acquisitions—including $8 billion for a corporate database firm—and other investments to give the agents better data to work with.

Benioff has found a way out of numerous tough spots since co-founding Salesforce more than a quarter-century ago, but his current circumstances are especially challenging. In turning the entire company’s focus to selling AI agents, Benioff is betting that Salesforce’s deep ties with many of the world’s largest companies, and the fact that these customers are already storing their data in its applications, will make Salesforce the logical choice when those firms decide to adopt AI.

The strategies Salesforce and other software providers have used in the past to drum up interest in new products aren’t working as well for AI products. Those strategies typically include letting customers try out products for free and explaining the business challenges they can help solve.

But this approach hasn’t worked well with AI. While many corporate employees love generalized chatbots like ChatGPT for their own productivity, businesses are taking a more skeptical view of paying for AI after early experiments with the technology. CEOs are increasingly scrutinizing how much money they’re saving by using AI services geared toward enterprises.

“Many of the customers we’re working with are now saying, ‘Let’s pause on the Agentforce conversations,’” said Adam Mansfield, a practice leader at UpperEdge, which helps customers negotiate deals with Salesforce and other software providers. “They’re kind of fatigued by it and they want to talk about getting more out of what they already have.”

Generational Gap

A generational gap could be part of the problem, with tech startups and other young companies incorporating AI into their business operations faster than larger companies.

This is a challenge not just for Salesforce but for rivals such as ServiceNow, SAP, IBM, Oracle, Amazon Web Services and Microsoft, each of which have a large base of enterprise app customers. (The latter three firms have cloud-server businesses that cater to tech startups and other large AI developers, which more than makes up for the challenge involving selling AI apps.)

Further complicating things, these firms are now competing head-on with each other in selling AI agents in ways they didn’t used to. That raises questions about how many of their dueling products will get traction, as customers won’t buy the same type of product from multiple providers.

“The good news for enterprises is that there are so many companies bringing AI products to the table and so they are going to have lots of choices,” said Matt Carbonara, a startup investor who previously worked for Citigroup’s venture arm. “At the same time, being inundated with choices can slow down the process of deciding what to buy.”

Salesforce also finds itself battling startups like Sierra and Decagon that are zeroing in on its largest businesses: customer service and sales management.

Instead of being an “add-on sale” to the products Salesforce already has, Agentforce is “just another competitor” selling agents, said another consultant who works for numerous large Salesforce customers. (And Agentforce has been powered in part by OpenAI technology, likely adding to Salesforce’s costs.)

To Salesforce’s credit, it is one of the few companies to indicate how its agent software is selling, which is a reason Agentforce’s weak sales are garnering attention. And despite chatter sparked by Klarna and other firms last year that said they would use AI to build their own versions of Salesforce apps, that hasn’t happened.

But Benioff may nevertheless have to contend with activist investors, who have watched as Salesforce’s shares have significantly underperformed those of enterprise software peers over the past couple of years.

While many large companies have moved slowly to adopt agents due to data security and privacy concerns, Salesforce bears some responsibility for raising investors’ expectations for Agentforce, said Rishi Jaluria, an equity analyst at RBC Capital Markets.

“It’s really important when companies are coming out with all these new AI features and products that they under-promise and over-deliver,” he said.

Benioff said at one point on the call with analysts that Salesforce “is not a company in crisis,” even though none of the analysts had suggested that.

Benioff has done the opposite. On the earnings call in February, he lauded Agentforce’s “incredible accuracy” and claimed that “customers are really telling us that we’re light years ahead of other providers.”

Benioff Grumbles

Meanwhile, Benioff has to contend with a scrappy new wave of agent startups, one of which is run by someone he knows well.

Bret Taylor, the former Salesforce co-CEO who left in 2022 to co-found Sierra, said recently on TITV that customers are willing to pay higher costs for AI as long as it helps their business.

“You’re seeing this surge of startups right now just because our products are better, candidly, and they work better, and that’s what matters right now,” he said.

For now, Sierra is likely generating less than $100 million in annualized sales, a drop in the bucket for a firm the size of Salesforce. Taylor said he is racing to win deals because it’s a matter of time before customers shift back to buying their software from a provider like Salesforce that offers a suite of enterprise products.

In some internal discussions, Benioff has grumbled about a handful of his employees leaving to join Sierra and taking their customer relationships with them, according to a person who heard the comments. But he and his senior staff are confident that corporate chief information officers will eventually stop flirting with AI startups like Sierra and go back to trusted vendors, said the person.

Benioff has frequently referenced the path of Equinox, which operates a chain of luxury fitness clubs, as a case study for the effectiveness of Agentforce. About eight months ago, Equinox began using Salesforce’s AI agents to help customers find specific types of information on its website and mobile application, such as what time a particular location opens and closes, said Eswar Veluri, the company’s chief technology officer.

Since Equinox doesn’t have a huge volume of customer inquiries, it doesn’t plan to reduce the size of its 20-person “concierge” team, which still handles things like membership cancellations and billing questions, he said. While Equinox uses agents to let customers ask questions and get information about the various classes it offers, customers get routed to human staff when they ask follow-up questions.

Equinox also evaluated agents from Sierra before choosing Agentforce. Veluri said the company was already using Salesforce in other parts of its business, like tracking customer sales leads, and therefore felt it could scale its agent usage faster on Salesforce than it could by using Sierra, which would have required custom software to integrate with its systems, he said. (An Equinox spokesperson declined to comment on how much the company spends on Agentforce and other Salesforce products.)

Agentforce Awakens

As Benioff disbanded the Well-Architected team in late October, Agentforce seemed to get off to a fast start, with 3,000 paying customers by February. That prompted Benioff to declare on an earnings call that month that this would be the “absolute year of Agentforce.”

But on the same call, Amy Weaver, Salesforce’s chief financial officer at the time, cautioned that because Agentforce was still new to many customers, Salesforce expected it to see only “modest” sales in its fiscal year ending in January next year.

It was around this time that some customers began seeing Agentforce give incorrect answers, known as AI hallucinations, as they tested how the software handled customer service inquiries. Another issue was Salesforce’s initial model of charging $2 for every conversation its AI agents handled with customers, which was double the price of some of its rivals.

In May, Robin Washington, the new chief financial officer, said Agentforce had passed $100 million in annual order value, a metric that combines new contracts and renewals. A Salesforce spokesperson said AOV is the same as annual recurring revenue, the value of contracts over the next 12 months.

The spokesperson wouldn’t elaborate on how Salesforce calculated the figure. Agentforce is often bundled with other services such as databases, making it difficult to break out revenue from just that product, according to a consultant who works with Salesforce customers.

While Salesforce has improved the accuracy of Agentforce and the company disclosed 6,000 customers are paying for it, some Salesforce customers are still wary of using it for critical business functions. One Salesforce consultant said that none of the dozen or so consumer retail product companies he works with are using Agentforce for customer service interactions because they aren’t confident that the software can accurately handle tasks such as changing orders to a different shipping location.

Sales Leads Ignored?

Earlier this month, the pressure on Benioff seemed to elicit some memorable comments from him on the conference call with stock analysts.

He said Salesforce was using agents to respond to the 20 million to 100 million people who have reached out to the company over its 26-year history but were ignored because Salesforce didn’t have enough salespeople to respond. (A former senior Salesforce sales executive said Benioff’s comment about the number of customers or potential customers that were ignored wasn’t true.)

Despite Benioff making numerous references to customers using Agentforce, such as DirecTV and Williams Sonoma, he spent more time talking about how Salesforce internally is using the tech to automate more roles. That made some analysts wonder if he was trying to distract from a lack of customer adoption.

Benioff said at one point on the call with analysts that Salesforce “is not a company in crisis,” even though none of the analysts had suggested that.

Major AI chatbots were happy to help.

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Lingbo Zhu was scribbling on a sheet of paper last week, sketching out a lineup of batteries that no other company could match. Zhu is international chief technology officer of China’s Contemporary Amperex Technology Ltd., the world’s largest battery maker, which took another leap forward last week.

Just days earlier, on the eve of Europe’s largest auto show in Munich, Zhu stood on a stage and added a blockbuster new battery called the Shenxing Pro to CATL’s lineup. As we reported, he said the battery could deliver almost 400 miles of driving range and, when it needed more juice, a driver could add 210 miles of range in 20 minutes.

Now, sitting with me at CATL’s sprawling exhibit at the show, he sketched out more of CATL’s offerings. They included a battery that is ultra cheap and offers modest range, and another that costs more but goes farther.

Then he offered a peek into the future. CATL was working on a battery that was both relatively cheap and offered even longer range. But it wasn’t quite ready yet. When I pressed Zhu on the details, he conceded that this version couldn’t be charged enough times to go into an electric vehicle.

He was excited about it nonetheless. If it worked, the battery chemistry that CATL dominates—a mix of conventional lithium, iron and phosphate, known as LFP—could capture 90% of the market. “Then this will be a huge hit,” he told me.

CATL’s dominance is really China’s dominance of the global battery market. One of CATL’s primary advantages is its vertical integration, with ownership of key lithium mines, stakes in component manufacturers, and by far the world’s largest global constellation of battery gigafactories.

CATL’s success shows how China has come to dominate the battery industry. The company has stuck with the conventional LFP battery chemistry, but squeezed out efficiencies in production and performance, while obsessing over quality. Western battery manufacturers, meanwhile, tried to leapfrog current technologies with new chemistry but mostly failed to get their batteries to market.

Though Beijing gave CATL the upper hand—forcing foreign automakers to use its batteries—the company’s manufacturing prowess allowed it to win over these captive customers and win a gladiatorial fight with Chinese rivals. It is one of the world’s premier global manufacturing brands, on par with Taiwan’s TSMC, Toyota and Hon Hai Precision Industry, the assembler of Apple products.

Today, CATL owns 38% of the lithium-ion battery market, far ahead of its closest competitors—China’s BYD at 18% and South Korea’s LG Energy Solution 11%.

How CATL delivered top performance with its Shenxing Pro battery explains why it will be so difficult to unseat the company from its industry dominant position, or even erode its market share. The battery’s cathode, which is responsible for the greater driving range and fast charging, comes from Shenghua New Material, in which CATL owns a 17% stake.

Shanghua found a better way to make the cathode, said Sam Adham, head of battery value chain at CRU Group, a battery research firm. To improve performance, Shenghua significantly reduced the size of the particles within the cathode powder, winnowed out impurities and more uniformly coated the cathode with carbon, according to a new report by CRU. Because the particles are so small, they can be packed far more densely within the cathode, which is the change that delivers the better performance. “It’s precise process control. It's a higher material standard,” Adham told me.

CATL was so impressed that it made a $70 million advance payment for 80% of Shenghua’s production through 2029. Chinese EV makers scrambled to tie up what remained of Shenghua’s production. CATL’s big western customers, Tesla, Ford General Motors and Volkswagen, missed out and are stuck with an earlier generation of its batteries, which don’t provide the same fast charge or driving range. Though a handful of Chinese companies have announced a similar cathode, Shenghua’s product delivers by far the best results, Adham said.

Beijing is treating all of these advanced cathodes as a strategic technology: It has prohibited CATL, Shenghua and other companies from exporting the machines that make the cathodes and the know-how behind them.

Western startups are trying to compete: Vivas Kumar, CEO of Mitra Chem, a California startup that uses the same LFP chemistry as CATL, told me his company had developed a similar advanced cathode that is under evaluation by potential stationary storage customers. But it could take years to get through these trials and move into production.

Zhu, who earned his Ph.D. at Georgia Institute of Technology, was among the first employees hired at CATL. In 2011, Zhu was working as a scientist at Dow Chemical in Michigan. That was the year CATL was launched, and its chief scientist, Wu Kai, was visiting Dow. “He was trying to find some materials, and at the same time he also tried to find people,” Zhu said. “I’m one of them.”

In 2015, Zhu and CATL got lucky. The Chinese government imposed a rule requiring foreign automakers to use locally made batteries if they wanted to qualify for EV subsidies. Only CATL had the free capacity to manufacture batteries of international quality at large scale, and it got all the business. BMW, GM, Mercedes-Benz, VW and later Tesla all became its customers.

By 2017, CATL was the world’s largest battery maker, a designation it has held ever since. Western rivals speak of CATL as invincible. They shy away from producing anything CATL has set its own mind on, knowing they can’t beat it on cost or quality.

Geopolitics could change the game. South Korea’s LG Energy Solution has begun making LFP batteries in Michigan, and GM plans to do so in Tennessee in 2027. But the LG plant uses a conventional LFP cathode, and not the advanced version that CATL is launching. Unless it can get its hands on advanced LFP, GM seems likely to be behind as well.

In other words, CATL is still likely to be on top.

Zhu recalled that, in CATL’s first plant, it took 15 seconds to make each battery cell. Today, the company makes one cell every second. Zhu’s team isn’t stopping, he said—it’s working on multiple batteries, including some with exotic chemistries.

“Of course, there is a lot of failure sometimes,” he said. “But we really believe science and technology always move forward.”

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