Could too many conflicts spoil Slaughters' client list?
10 October 2005
The dark cloud appears to have lifted from Richard Cranfield's (left) corporate team at Allen & Overy (A&O). The firm is advising Alliance UniChem on its £7bn merger with Boots (www.thelawyer.com, 3 October). This is the first M&A deal A&O has advised Alliance UniChem on and is one of the biggest public M&A deals it has handled in recent years.
A&O landed the mandate because Slaughter and May, which is retained by both Boots and Alliance UniChem, accepted the Boots mandate (see column, above). Indeed, this is the second time this year A&O has benefited from conflicts at Slaughters. In May it advised Iceland's Kaupthing Bank on its $1bn (£570m) takeover of UK bank Singer & Friedlander.
The revival of A&O's corporate practice is also reflected in Thomson Financial's latest M&A tables. It jumped from sixteenth to third in Thomson's third quarter M&A league table for announced deals, after advising on 173 deals totalling $178.39bn (£101.12bn). Meanwhile, Clifford Chance and Linklaters have taken the number one and number two spots respectively. Clifford Chance advised on 241 deals totalling $235.5bn (£133.49bn), while Linklaters acted on 168 transactions worth $214.2bn (£121.42bn).
However, A&O has slipped from sixth position to seventh according to Mergermarket's European M&A league table for announced deals for the same period. According to Mergermarket's rankings, A&O handled 150 deals totalling Ã¢Â‚Â¬73.7bn (£49.92bn).
The discrepancies highlight the perennial problem of the order of the top 20 differing quite dramatically depending on how you slice and dice law firms' involvement in the M&A market, and the tables you look at.
Either way, Cranfield is happy with the league table results. "M&A deal values in Europe during the third quarter approached levels close to those of 1999-2000 thanks to encouraging equity and debt markets," he said. "It's been a very busy period for us."
So A&O corporate partners should be satisfied with their efforts. They have secured enough deals to build on their cross-border corporate capability in Europe - something that was doubted just six months ago.
Slaughter and May's client list may be the envy of its City rivals, but is the M&A powerhouse's stranglehold over the FTSE100 backfiring?
In recent months, Slaughters' clients have been on the opposite sides of no fewer than four big ticket public M&A deals. This type of scenario is admittedly a rare occurrence - indeed, you will probably be hard pushed to recall a similar situation. Nevertheless, you might be forgiven for thinking that there can sometimes be too much of a good thing.
As reported on www.thelawyer.com (3 October), Slaughters has scooped a mandate to advise on the £7bn tie-up between FTSE100 pharmaceutical groups Boots and Alliance UniChem.
Both Boots and Alliance UniChem have historically retained Slaughters. But in this case the firm opted for the Boots instruction. Slaughters' decision to turn down the Alliance UniChem mandate gifted Allen & Overy (A&O) with the magic circle firm's first-ever M&A transaction for the company.
It is understood that Boots and Alliance UniChem agreed in advance of negotiating the deal which one of them should instruct Slaughters. One Slaughters partner claims: "[The decision] wasn't really within our control. We do what our clients want and will only act for one side if the other client consents."
It would have been relatively straightforward for Boots and Alliance UniChem to agree which one of them should instruct Slaughters, or whether they should both turn to different advisers. This is because the Boots-Alliance UniChem deal is arguably unique as it is supposed to be a 'merger of equals'.
In most takeovers however, the idea of the bidder and target company agreeing in advance which law firm should be instructed is simply ludicrous. A takeover, especially one that is contested, is meant to include an element of surprise. The bidder is unlikely to approach a potential target company's board and say: "Hey, we're planning to take you over, but before we make our bid let's decide which law firms to instruct."
Slaughters' preference when its clients are on both sides of a recommended takeover is to advise the target. Commenting on the firm's position, a Slaughters partner says: "The target is the party that has less time to prepare; so if we can act at all, advising the target is fairest to the clients."
Indeed, this policy gifted A&O, which is currently benefiting from Slaughters' conflict on the Boots-Alliance UniChem merger, a major M&A mandate earlier this year. As first reported by The Lawyer (9 May), A&O landed a mandate to advise Iceland's largest bank Kaupthing on its $1bn (£570m) recommended offer for UK bank Singer & Friedlander. A&O won the plum role because Kaupthing's regular adviser Slaughters decided to act for Singer. Sources at A&O claim that the magic circle firm would have secured the mandate even if Slaughters was not conflicted. Nevertheless, even A&O would find it difficult to deny that Slaughters' policy on accepting target side mandates provided a helping hand.
In recent months, Slaughters has been faced with the Kaupthing-Singer scenario on at least two other occasions. Last month Linklaters bagged an instruction to advise Deutsche Post on the German mailing giant's £3.6bn bid for UK logistics group Exel. Linklaters won the mandate (the first major deal the magic circle firm has advised Deutsche Post on in the UK) because - you've guessed it - Slaughters, which has historically acted for both Deutsche Post and Exel, decided to act for the target.
Meanwhile, as first reported by The Lawyer in the same month (19 September), Slaughters, which has longstanding relationships with both Spirit Group and Punch Taverns, is believed to be acting for the target in relation to a potential joint £2.5bn bid for Spirit by Mitchells & Butler and Punch.
Although Slaughters' policy is admirable, the firm appears to be in the minority. The vast majority of partners at rival firms who were interviewed by The Lawyer say their firms do not have any hard and fast rules. One partner at a top 10 City firm, however, says he would expect his firm to take Slaughters' approach. A&O and Herbert Smith partners say their firm would treat such situations on a case-by-case basis.
The most publicised example of a firm advising the bidder in connection with a potential bid for one of its clients is, of course, Philip Green's unsuccessful takeover of retailer Marks & Spencer (M&S).
On that deal, Freshfields Bruckhaus Deringer chose to act for new client Green instead of the target, M&S, which had retained the magic circle firm previously to handle certain matters. Unfortunately, Freshfields' decision to act for Green ended in tears after the magic circle firm was thrown off the deal by Slaughters because of a conflict. Slaughters' much-publicised High Court injunction to get Freshfields removed from the Green camp came about when it became clear that a key issue for Green's bid centred on the key contract with Per Una that the magic circle firm had advised on.
Commenting on Freshfields' decision to act for Green, one Slaughters partner says: "I don't think it's proper to take on a new client when your regular client is facing a potential takeover."
Meanwhile, another partner argues: "Following the M&S situation, people are going to be more likely to follow Slaughters' line."
Slaughters has brushed off the recent wave of conflicts as a coincidence. But the firm concedes that the problem has been exacerbated by its gigantic client list, which boasts 50 per cent more FTSE100 clients than its nearest competitor Linklat-ers. What's more, the firm also has several clients in the same sector. For instance, its roster of pharma clients also includes Glaxo-SmithKline (GSK) and Reckitt Benckiser, and both bid for Boots Healthcare International, which was sold off as part of the Alliance UniChem merger. And thanks to a conflict, Reckitt in-structed Freshfields while GSK turned to A&O.
Nevertheless, Slaughters is unperturbed by recent events and the risk that, over the forthcoming months, it may lose some, or indeed all, of its clients to the firms that have been instructed in its place. In the vast majority of cases, the firm advising the bidder is retained as legal adviser to the combined entity.
In spite of this, Slaughters has no plans to review its policy. Corporate partner Nigel Boardman concludes: "If you ask other firms if they wanted our client list and our problem, I'm sure they'd jump at it."