How Jefferies Scored the XTO-Exxon Deal

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A deal the size of Exxon’s purchase XTO Energy usually involves only the heaviest of Wall Street heavyweights. So how did Jefferies & Co.. – a firm on the rise but not in Wall Street’s top tier — end up as an adviser to XTO Energy?

The answer dates to Jefferies’ 2005 acquisition of Randall & Dewey — an oil and gas advisory firm. Randall & Dewey had long ties to XTO Energy. Its founder — Jack Randall — has been a director at XTO Energy since 1997. The firm also advised on five of XTO’s top 20 deals, according to Dealogic.

A review of XTO proxy statements shows that Jefferies’ Randall & Dewey advised XTO on a number of deals and issuances over the years and was paid $8 million for “advisory services in connection with the acquisition of certain properties” this year and $10 million for the firm’s stake in “producing properties in Alaska’s Cook Inlet in 2001, according to SNL Financial’s Joe Mantone.

So when XTO decided to look at options, it turned to Jefferies and two Randall & Dewey bankers — Ralph Eads III, now chairman of the Jefferies’s energy group and David Rockecharlie, the group’s co-head. (Interestingly, the two bankers themselves have a long history together. Prior to coming to Randall & Dewey, they worked at SG Warburg, DLJ, and El Paso Corp.)

Jefferies looked at options from the sale of the company to possible joint ventures, which some other firms in the space like Chesapeake Energy have pursued, according to people familiar with the matter. Jefferies’ preferred path was for XTO to sell itself to Exxon. Keith Hutton, XTO’s CEO, agreed and pitched the sale to his counterpart at Exxon, Rex Tillerson, according to these people.

The deal propelled Jefferies up the league tables (the rankings of M&A advisers by announced deal volume). Since 2005 the firm had failed to crack the top 40 in the global league tables. As of last Friday, it ranked 39th. After the Exxon-XTO deal, it moved to 18th.

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