Anatomy of a deal: Centre stage
17 October 2012 | By Christian Metcalfe
22 February 2012
31 October 2011
16 March 2009
24 June 2010
2 February 2012
Christian Metcalfe meets the lawyers and trainees on the Westfield Stratford City JV deal
In November 2010, Australian property developer Westfield Group agreed to sell a 50 per cent stake in the 1.9 million sq ft retail element of Westfield Stratford City, in what would be one of the biggest real estate deals of the year - it was high profile as the development, which had not been fully built, was to be one of the key gateways to the London Olympic Park and promised to not only be a shoppers’ paradise but to have a profound regenerative effect on East London.
Almost a year later, on 13 September 2011, Westfield Stratford City, now the largest urban shopping centre in Europe, opened its doors to the public. And while the eyes of the world were on former Pussycat Dolls’ Nicole Scherzinger and the opening day freebies, the £871.5m deal to sell to two overseas pension funds was finally completing.
SJ Berwin’s lawyers played an integral part in that deal, representing Westfield in negotiations and coordinating the complex corporate restructuring needed for the deal to complete.
Lead partner on the deal Michael Goldberg, of SJ Berwin’s corporate real estate group, explains how the deal came about. “Westfield decided to carry out the development of the centre themselves using their own money,” he says, “but wanted to bring in joint venture partners to share in the ownership of the centre once it was completed.”
The joint venture (JV) partners identified by Westfield were APG, a €250bn (£201bn) pension fund asset manager for the Dutch education, government and construction sectors, and the Canadian Pension Plan Investment Board (CPPIB), which manages the assets of the C$138.6bn (£88.5bn) Canada Pension Fund - both of which Westfield had worked with previously.
“Westfield wanted to realise some of their development profit to use in other opportunities,” Goldberg says. “Westfield likes to retain significant ownership in the centres it develops and to retain management control in the centre. The parties agreed the outline of the deal before we got involved.”
So what was SJ Berwin brought in to do? “We were advising on the corporate side - effectively we agreed the framework for the JV, a structure, and the fine detail of the JV which will govern management throughout the life and ownership of the centre,” says Goldberg. “The deal varied quite significantly and was quite complex as the centre was still in development and the agreement was that the JV partners were buying into a completed centre.
“Between exchange and completion of the centre and the JV, Westfield was to undergo an internal reorganisation of its holding interest of the centre and we had to pull together all the different strands so that all was ready in preparation for completion - that was three to four months of heavy lifting.”
To preserve tax efficiencies, big assets such as shopping centres are often held through a series of corporate layers. Accordingly, if a party wants to sell an asset it might sell an interest in the entity that holds the asset rather than the asset itself - sometimes the asset may be several corporate layers removed from the ultimate buyer.
Matthew Dickerson, now a corporate finance associate at SJ Berwin, was, in November 2010, a third-seat trainee. “In simple terms the property sits at the bottom of the structure” he explains. “The property is then owned by various layers of corporate structures (both English and foreign) sitting on top of each other. A new layer was then established and inserted into the middle of the structure for the purpose of this project. The project was codenamed ‘Project S’.
“It was this level which the JV partners would eventually purchase 50 per cent of and Westfield would own the remaining 50 per cent. In total, there are often 10 or more layers in a complicated structure such as this. As a trainee I was tasked with establishing this new layer in the middle.”
With such a complex structure and in order to ensure that the final situation reflects the deal agreed on, the parties had to agree to a strict ‘Steps Plan’.
“We broke the deal down into 14 steps that had to be done in the right order,” says Dickerson. “For example there would be a step for setting up the entities in this new layer, then a funding step, another step would be to sign a particular set of documents, and so on.
“Once we knew the steps we drew up a list of documents to reflect each step - this is a long list and is a very typical trainee task - it requires organisational ability and the trainee needs to know the structure inside out. While a trainee will not have been involved in the high-level negotiations between the JV partners and Westfield, a trainee can still understand the resulting structure.
“It is your bit of the deal, you are on top of it, you own it and you know it. It is very satisfying and it is a good feeling when your opinion is asked for - even as a trainee. My supervisor at the time was senior associate David Fitzgerald. He was very good and it felt very much like a conversation. Because you are so immersed in the structure you know the steps and can give an
insight to your supervisor as to, for example, whether a certain document needs to be signed before step 3 or before step 4. You need to ensure that if something in the structure changes there are no gaps left behind.”
Dickerson was the trainee on the deal up until exchange of contracts, at which point the parties agreed to steps 1-14 in the steps plan. But what happened in the intervening months before completion was also interesting.
Agreeing the agreement
Corporate associate Laura Byrne remembers: “It was interesting for me because the shopping centre was very much still being developed and things could still change a lot and require renegotiation. Because the shopping centre was not complete there was a lot changing and things moving all the time. It was interesting to see as it was a moving target and we had to draft to allow for that.”
For example, Byrne says: “At the time of exchange there may be X amount of costs accumulated so far, and as the development continues, the amount of costs increases too. However, everyone knew that would be the case so the drafting had to permit for this variation - the parties had to agree to agree.”
Such was the complexity of the deal, Goldberg says, that “a large team was working on pushing it through. We were working opposite Allen & Overy for the JV partnership and alongside Ashurst and Freshfields [Bruckhaus Deringer]for Westfield, but on different aspects. We were coordinating here and with other firms effectively towards a common goal. Sometimes that can be difficult depending on the individual’s take on it, but in this case it worked well, with everybody working together to achieve the same thing.”
Byrne adds: “We were regularly liaising with lots of people, there were lots of different advisers on a weekly conference call. We had tax and regulatory lawyers from Freshfields and real estate lawyers from Ashurst. We were the corporate advisers and then there was Westfield themselves.
“Westfield instructs different law firms, but it worked very well and we had a good relationship. It doesn’t really make things harder, the only difficulty is that instead of walking up the stairs or up the hall to discuss an issue you have to pick up the telephone or go to a different law firm.”
But working closely with other firms was not the only positive outcome from the work. Goldberg says: “With an important strategic deal like this over such a long period it was an opportunity for more members of the team to get to know Westfield better - we even had a trainee seconded to Westfield for six months during the deal - although that trainee was not involved in this transaction when they were there, but rather helped to deal with the other workload of Westfield’s team.”
That trainee was Dickerson, who spent six months as a trainee with Westfield and then one month post-qualification. He is particularly glowing about the experience. “When I went in-house during my secondment I already knew my supervisor Georgina McManus as we had spoken on the phone when drawing up the documents list and steps plan,” he says. “It was a really good trainee experience. Going in-house at Westfield helped me get to know the client better and I would definitely recommend spending a seat during the training contract on secondment, particularly if you are confident about taking on something outside of your comfort zone.”
At completion the legal documents needing the signatures of the parties will be in step-plan order and a trainee has to walk signatories around the completion room to sign the correct documents. To keep track, the trainee will have assembled a 10-20 page ‘signing matrix’ in which all the documents that have to be signed have been inputted. The matrix will tell the trainee which document will have to be signed by which director.
The preparation of the matrix “requires the trainee to have super organisational skills” says Dickerson, “but once the trainee has filled it out they sit down with a junior or mid-level associate and work through it. However, it is very important to remember that it is more an aid to the trainee when going round the completion table during signing. The trainee has to know how it works and it has got to be user-friendly and drafted the way they want. Doing the signing matrix is a perfect way for a trainee to understand the deal in its entirety as they have to go through every document to assemble it.”
While Dickerson was at Westfield the task fell to trainee Richard Davies, who came into the transaction at completion stage.
“My role at completion was managing the process,” says Davies, “getting all the documents signed - everything like that. It was a big job because of the complexity of the structure. There were 450 documents on completion and when setting up the completion rooms you have to know that everyone who is signing one of the 450 documents is the right person and it is the right version of the document.
“There is a big logistical pressure but by the time of completion everyone knows what they are doing. On this deal we had a dry run of completion a couple of days beforehand. Even so it was a big challenge, particularly because there were also some foreign entities that needed to sign so we needed to know in advance where they would be.”
Despite, or perhaps because of, such challenges, working on deals as large as this are a highlight of a training contract. “I was on this deal right from the start right through to exchange,” enthuses Dickerson, “and when I came back as an associate I did some of the post-completion steps - I helped out on step 12, for example. So really, except for completion, I saw the deal the whole way through. Sometimes the hours are long and things get tough, but it is good to be so involved in such a deal. You aren’t just proofreading documents without understanding them.”
That is a view echoed by Byrne. “This was an exciting deal as the centre had not been built and was integral to the legacy of the Olympics,” she says. “Just weeks before the centre opened we had an organised site visit. Living in the East End myself it was really interesting to see the development. It was huge and really striking but it was really still being built, and there was a lot going on with the Olympic committee - a lot of ‘do this’ or ‘don’t do that’.
“That definitely added to the deal for me - to be able to see the tangible ‘thing’ you are working on. Until I went there I didn’t realise just how enormous it was, how much time and money had gone into it and how long it had taken.”
A year on, with the London Olympics and Paralympics a resounding success, the centre receives an average 800,000 visitors a week and achieved £500m of sales in the first six months. And SJ Berwin’s relationship with Westfield continues to grow.
Sponsor’s comment: Matthew Dickerson, associate, SJ Berwin
A trainee in the corporate department will experience a broad range of work over the course of a six-month seat, and the tasks carried out by the trainees during the Westfield Stratford City transaction are typical of those you can expect to encounter.
Drafting the documents list is a key trainee role. The full list of documents required for completion needs to be set out in an easy-to-read, tabular format. The list is usually agreed in advance of completion with the other side to make sure that no document is missed off, and the documents list is always used as a basis for drafting the completion day signing matrix.
The signing matrix is another key corporate trainee task. This document sets out which companies (and therefore which directors) will need to sign each document. This task shouldn’t be underestimated - in a deal as large as this, with 450 documents to be signed by various corporate entities and often with a foreign element, having a clear and accurate signing matrix will help no end in ensuring that completion day runs smoothly.
Trainees are also tasked with reviewing a broad range of documents - this is not just typical of work in a corproate seat, but also during the training contract generally. From picking up typos to highlighting major structural points, using knowledge of the deal, the trainee can really add value by assisting the associate and the matter partner with turning the various preliminary drafts of each document.
As in the Westfield transaction, where the deal requires the establishment of new entities in the structure, the trainee will be responsible for liaising with the client to request the proposed company details and instructing a company incorporation agent to file the necessary documents at Companies House. Also, the sale/purchase document includes details of the corporate entities which are being sold/purchased, so another typical trainee task is to verify the details of the entities by using the public records held online at Companies House.
One of the pivotal moments in a trainee’s six-month stay in corporate is the ‘completion day’ - often the culmination of months of hard work and preparation on a particular deal. Using the signing matrix and knowledge of the transaction, the trainee is tasked with walking the directors around the completion table so that each director can sign all of the required completion documents. On a deal as large as Westfield Stratford City, four rooms were used in order to have space to lay out the documents sufficiently! Accordingly, the trainee’s job here is very important in ensuring that no documents are executed incorrectly.
Finally, a trainee will often conclude the transaction by producing the completion bible - a file (or CD) of fully signed and dated documents. As before, this requires a huge amount of organisational skill to ensure that no documents are left out of the bible. The trainee may also draft and file any post-completion documents at Companies House.