DEAL OF THE WEEK - INDIGO CAPITAL

Weil Gotshal & Manges client Indigo Capital has been censored by the Takeover Panel over its share acquisitions in office management company Regus.

A series of unorthodox acquisitions by Indigo in the struggling Regus prompted both the ruling from the panel and a market abuse investigation, launched on 29 January by the Financial Services Authority (FSA).

A week earlier, Indigo's target Regus, advised by Slaughter and May, made history itself by becoming the first UK-listed company to file for Chapter 11 in the US.

Indigo began to build up a stake in Regus last December using a form of a derivative known as a 'contract for difference' (CFDs). In this case, Indigo effectively gambled with its broker Cantor Fitzgerald that the price in Regus would rise and Cantor Fitzgerald bought stock in Regus to hedge the risk. Although Indigo had an economic exposure, it had no right to acquire the stock until mid-January.

The use of CFDs is fairly common in the City and some analysts say they now account for up to 30 per cent of all trades on the London Stock Exchange. However, in early January, Indigo told Regus that it had an interest in 15 per cent of its shares, but in reality, it actually owned just 0.12 per cent and the rest were CFDs hedged by Cantor Fitzgerald.

It was misleading statements from Indigo that convinced the FSA to open a formal market abuse inquiry. The investigation is only the third under the Financial Services and Markets Act, introduced in December 2001, and the limits of the offence have still to be tested.

The Takeover Panel has already made up its mind and has publicly censured both Indigo and its managing partner Robert Bonnier for breach of the Takeover Code. Weil Gotshal was instructed on 7 January, a day after Indigo had released its most misleading statement to Regus. However, in seven separate instances between 7 January and 14 January, Indigo breached the Code. The regulator has not criticised Weil Gotshal and has reported that Bonnier says he acted without legal advice.

At the time of going to press, Weil Gotshal was still acting for Indigo and the saga raises very serious questions about how long a firm should act for an out of control client. Bonnier has a controversial reputation and almost as soon as Weil Gotshal lead partner Mike Francies was brought in, it became apparent that Bonnier was a loose cannon. However, the Law Society has very strict guidelines about when a law firm can ditch its client.

Meanwhile, a 58 per cent stake in Regus's UK interests was sold last December in a deal led by Slaughters partner Andy Ryde and Macfarlanes partner Charles Martin, who acted for the buyer Alchemy.

In mid-January, the UK, US and Dutch subsidiaries were all put into Chapter 11 in the US, allowing the company to effectively renegotiate the terms of its stateside leases with US landlords. The UK and Dutch companies were included because they guaranteed the US leases.