Allen & Overy (A&O) is likely to be the biggest loser following Vivendi Environment's recent decision to dilute its stake in Southern Water and to delay the refinancing of the group's debt. The firm looks set to lose the lucrative refinancing of Southern Water's debt to Linklaters.
After continued regulatory uncertainty, Vivendi has now agreed to take just a 20 per cent stake in Southern Water. The rest will go to the Royal Bank of Scotland (RBS).
A&O was instructed by Vivendi last year to handle the refinancing of existing First Aqua and Southern Water debt. Under the terms of the original deal, the refinancing was due to be carried out at the same time as the acquisition.
But now the refinancing, which will involve the securitisation of the revenues of Southern Water through a bond issue, will take place after the corporate side of the deal is completed.
Linklaters will probably come out on top because, as adviser to RBS, which is the majority shareholder in Southern Water, it is likely to inherit Southern Water as a new client. Consequently, the firm is expected to act on the refinancing, with A&O merely advising Vivendi in a secondary role, if it has a role at all.
Simmons & Simmons, which has advised Vivendi since the deal's inception, placed partner Steven Bryan at the head of a team acting for Vivendi on the £2bn deal last year, when the company sought to buy the whole of Southern Water. But after the shock move last November by Competition Minister Melanie Johnson to block the initial acquisition, Vivendi decided to take a minority stake instead.
A source close to the parties said that Vivendi's action was driven by a number of factors, including the continued regul-atory uncertainty and the risk that refinancing might become unavailable.
The source also said that, under the terms of the revised structure, Vivendi had reduced its financial exposure because its obligation to take some preference shares in Southern Water had been eliminated.
Clifford Chance was also approached by RBS in connection with the deal, but was conflicted out because it advised the bank when it provided the finance that First Aqua used to buy Southern Water from Scottish Power in April 2002.
Nevertheless, Clifford Chance is still involved in the deal. Banking partner Michael Bates is acting for RBS in the bank's capacity as lender to First Aqua, and corporate partner Matthew Layton is advising First Aqua through a Chinese wall on the corporate aspects of the deal.