January 2016

The Sopranos, Pinot v. Merlot and Road Trips


For nearly a decade viewers sat down on Sunday nights to watch the saga of a fictional New Jersey crime family. When the series ended with the death of Tony Soprano, many viewers were hungry to know what happened next. I harbored a wish that Meadow, Tony’s daughter, would take over the crime family and become a female crime lord. But the series would have no sequel.

In the 1980’s, Ray-Ban reached a decision to stop manufacturing Wayfarer sunglasses, a style that had been popular for thirty years. Then the movie Risky Business was released, and sales skyrocketed. Plans to discontinue the line were shelved.

In 1995, one business production line would be decimated while another greatly expanded due to a film based on a neglected novel. That film, Sideways, starred Paul Giamatti and caused wine manufacturers to redouble their production of Pinot Noir. Sales of Merlot tumbled and ten years later, still have not recovered.

The story was largely biographical: life had beaten down a young man who once had shown great promise. A divorce and an unsaleable novel left him broken. He decides to go on a road trip with Jack, his old college roommate who wants to have one last fling before his upcoming marriage (are all great American novels archetypically road stories? Huckleberry Finn, On the Road?)

What could possibly go wrong?

While Sideways continues to impact wine list choices, unlike the Sopranos, there is a sequel. In that book, Vertical, the two characters have their roles reversed. The author’s alter ego, Miles, is now wealthy and a cult hero. His college roomate Jack is the one on the skids. Jack has gotten a divorce from his wealthy wife in part because of his antics during the road trip. Now it is Jack who lives in the studio apartment with limited job prospects.

Miles’ mother has had a stroke and is confined to a nursing home. No stranger to the grape herself, all she wants is to escape from a California nursing home to go live with her sister in Wisconsin. Miles enlists Jack in a scheme to break her out--what could possibly go wrong?

Like the first book, Vertical is a finely-tuned combination of comedy and sadness with a bittersweet inevitable conclusion.

There is no way to know whether Meadow Soprano would eventually have taken control of her father’s crime family; but now there are further adventures of Miles and Jack to entertain. {Note: as it turns out, there is a third book in the series called Chile, which involves a journey to South American wine country.}
(In an ironic twist, Vertical couldn't find a home with a traditional publisher. So Rex Pickett, the author, went the indie publishing route. All three books are available on Amazon.)

Five Stop Signs along Saudi Aramco’s IPO Road


In 1980 Saudi Arabia nationalized an oil company that had until that time been known as the Arabian American Oil Company. Christened with a new name, Saudi Aramco, and a single sovereign shareholder, the nationalized company continued to do business as before, but as a wholly-owned enterprise of the Saudi government. 

Saudi Arabia has had a spotty IPO history. The Saudi stock market is less than twenty years old. The first initial public offerings were successful and investors profited. Unfortunately, too many came to believe that it was impossible to lose money in an IPO. In 2006, a bubble formed and when it burst, investors were stunned. In one year, the stock exchange lost 52% of its value. The country’s regulatory agency, the Capital Markets Authority, started restricting such offerings.

When it comes to money, memories are short and yesterday's lost dollar is quickly forgotten in view of  the quick buck to be made tomorrow. Spurred on by low oil prices and hungry advisors, the Kingdom has announced that it is considering a Saudi Aramco IPO, that is, privatizing the company.

The world sat up and took notice because Saudi Aramco is the largest oil company in the world. The common wisdom is that this will be a good move for Saudi Arabia and will help the Kingdom shore up its currently ailing balance sheets. But there are more than a few stop signs along the way.


Like most government institutions in a country where young graduates aspire to a government job, Saudi Aramco is bloated with Vice-Presidents and other upper-level managers. It has grown fat. If Saudi Aramco is to be run more like a business this fat will be trimmed. Those who lose their jobs won’t be happy.


An IPO is not simply a question of setting a price, selling shares to the public and standing back to see what happens. Due diligence will have to be performed prior to the IPO. This means audits and inventory. The eyes of the world will be on Aramco’s oil reserve estimates, but trained eyes will want to see the results of audits.
The long-postponed audit of the Materials Division, for example, will have to be performed, and the millions of dollars of missing equipment explained. The contractor suffering a two-year ban because it was selling missing Aramco equipment in Abu Dhabi will have to explain what most would call a theft.

Panicked Aramco officials figure that they can bury such matters in a footnote. Beware: the analysts at Goldman, Sachs know how to find and read buried footnotes. And they are very, very good at it.


A Saudi IPO will mean the loss of Aramco’s sovereign immunity in the United States. Under Mendenhall v. Saudi Aramco, 991 F.Supp. 856 (D.Tex. 1998) Aramco has been able to ignore the U.S. court system in disputes with suppliers and employees. No longer: the reason the courts have granted Aramco immunity is because up to this point it is a creature of the Saudi state, with one shareholder. Once the company’s shares are publicly traded this will no longer be the case. There will be no principled reason to maintain the immunity. Aramco will be susceptible to suing and and being sued like any other company.

This is important because sweeping events like the Raytheon building fire under the rug will no longer be possible. It has been six months since the fire and somehow Aramco has forgotten to issue a report or even identify the victims. Age, ethnicity and gender discrimination, and retaliation for filing contractor claims will no longer be the order of the day.

Bracewell, Patterson (I mean Giuliani) will celebrate the IPO. As will White + Case and others too numerous to mention who will be salivating at the prospect of representing the new privatized Aramco in the United States. (
fn. Bracewell, Patterson (now Bracewell Giuliani) represented Saudi Aramco in the Mendenhall case.)


The Deputy Crown Prince, HRH Mohamed bin Salman bin Abdulazziz al-Saud, is on record saying one of the benefits of the IPO will be greater transparency. He is absolutely correct. There is much corruption that will be uncovered during this process and it will not all be just in the Materials or Contracting Divisions.


The Kingdom expects to maintain control over Aramco by only selling a minority position to the public; say 10% or so. This is great idea in theory but here are three new words never heard before in the Aramco context: shareholder derivative lawsuits. Shareholders will expect dividends to be declared. Other management decisions will be closely scrutinized by investors. The courts can and will order management decisions to be changed.


One of the ostensible reasons for the Saudi Aramco IPO is to shore up the Kingdom's balance sheets. Owning 90% of a company whose shares are valued in the hundreds of millions of dollars will surely help, right? Not necessarily. As Prince Walid bin Talal discovered, Forbes magazine (and the aforementioned footnote readers at Goldman Sachs) failed to value thinly-traded Kingdom Holdings stock as highly as he would have liked. The same will apply to the value of thinly-traded shares of   the newly-privatized Saudi Aramco. The effect on the Kingdom's balance sheets won't be as dramatic as some would advise.


The enormous amount of money and advisory fees to be made will blind most to the consequences of the Saudi Aramco IPO. Consider this note a preview. 

[Note: Khalid Al-Falih, chairman of the board of Saudi Aramco, reports that the company's oil reserves will not be included in any IPO. This means that investors won't get much for their money.]

The opinions and screed expressed above are those only of the author and may not be attributable to any law firm or institution in Saudi Arabia or any other country, virtual state or functional equivalent. This article is released under a Creative Commons license and may be copied freely. A credit would be nice. Photograph of Arabian American Oil Company internal currency from http://www.coinbooks.org/

2018 Update: The Wall Street Journal stalked me for weeks trying to get me to speak on the record rather than linking to or citing this article. I declined. Bastards.