International eye: Iberia

Moray McLaren on the month in Iberia

Capital expenditure

The news that Cuatrecasas, one of Spain’s leading firms, is to open in London has once again highlighted the importance of the City as a source of business for the Iberian legal market. The office will be led by Enric Picanyol and a team of four partners.

Among the obvious attractions, of course, is the City’s status as Europe’s finance capital and the presence now of most Iberian banks and finance houses. But of growing importance is the perception of London as Europe’s legal capital, and particularly the choice of many US firms to utilise it as a hub for their European operations – a strategy that has proved a fruitful source of referral business for both Spanish and Portuguese firms, which are keen to cultivate relations with any new US arrival.

But among the lead pack of Iberian firms, only Spain’s Uría Menéndez maintains a permanent London presence, and the news of Cuatrecasas’s arrival has seen it announce plans to bolster its office. The cost of establishing a permanent foothold in the City remains prohibitive for most Iberian firms, which means that the preferred strategy for most, despite its importance, remains fly-in, fly-out.

Endesa bids turn up heat on Spanish government
The deal that has kept most of Spain’s leading transactional and litigation lawyers busy since September, Gas Natural’s hostile bid for rival energy company Endesa, may now prove to have wider ramifications for the Spanish government.

The past week saw Clifford Chance partners Ignacio Ojanguren and Jose Antonio Cainzos succeed in halting the bid for Endesa on the grounds of possible collusion by Gas Natural with energy company Iberdrola. On the same day that Gas Natural announced its E22.5bn (£15.53bn) offer, it also said it would sell Endesa assets worth up to E9bn (£6.21bn) to Iberdrola to raise cash and to avoid antitrust concerns. A Madrid court has suspended the transaction, although Endesa must now pay a E1bn (£690.4m) bond to cover any potential damages.

But Endesa is not yet safe. A E29.1bn (£20.09bn) counter offer has been launched by German energy giant E.ON, which is being advised by Vicente Conde Viñuelas and a team from Perez-Llorca. There are, however, suggestions that the Spanish government, which has overtly supported the Gas Natural bid to create a domestic giant, may try to block the new bid. Spain has enacted regulatory measures to frustrate takeovers of companies it says have a strategic importance.

Lawyers hope that any intervention will impact more on the government’s reputation than the burgeoning M&A market.

The European Commission has signalled a determination to liberalise Europe’s electricity market, despite protectionist stances by some national governments. The danger, they say, is that any attempt by Spain to stand firm against the Commission could prove damaging for the energy sector and potentially for wider investor confidence.

Takeovers spark ‘Total War’

Iberia’s elite law firms are benefiting from a wave of Portuguese merger activity in a series of deals seen by many as defensive moves against potential Spanish takeovers.

Garrigues, Gonçalves Pereira Castelo Branco, PLMJ and Vieira de Almeida & Associados have all been instructed by Portugal Telecom (PT) to defend a E14.4bn (£9.91bn) hostile bid from rival Sonae. New York’s Simpson Thacher & Bartlett and Cleary Gottlieb Steen & Hamilton are also advising.

‘Total War’ was the headline in Portuguese newspaper Diario Economico as PT announced its defence strategy, although some suggest the number of firms instructed is perhaps an attempt to tie up lawyers against the widely predicted counter bids.

Porto-based Sonae is being advised by Osório de Castro Verde Pinho Vieira Peres Lobo Xavier & Associados (recently merged with Morais Leitão Galvão Teles Soares da Silva & Associados). Skadden Arps Slate Meagher & Flom and Linklaters are also advising.
The infamous anti-takeover provisions (golden shares) held by the government in many former state monopolies, such as PT, have done little to discourage the M&A market to date, but many believe the time has come for intervention by Brussels. “These deals have opened a Pandora’s box,” says one Lisbon partner. “With the beginning of shareholder activism, and possibly revolts, it means exciting times for lawyers.”

Events are being mirrored in the banking sector, as Portugal’s biggest listed bank, Millennium BCP, launched a E4.3bn (£2.96bn) hostile bid for Banco BPI, in what it describes as a bid to create a “genuine Portuguese champion” among the top five Iberian banks.

But now it seems Spain’s main utilities are also looking over their shoulders and using mergers as a defensive strategy – albeit on the European arena. A Madrid partner suggests: “Spanish businesses have woken up to financial engineering. The aim is to buy debt-free companies, passing them the acquisition costs.”

The latest UK acquisition, Ferrovial’s bid for BAA, though, has run into potential difficulties. It seems that a £2bn bond issue by BAA might require immediate repayment in the event of a takeover, ending any plans for a debt-free acquisition.

Retiring – but not shy

The upturn in activity on both sides of the border has, however, left Iberia’s law firms pondering how to retain their best lawyers in a market where many remain dominated by their founding partners and where there is a willingness for partners to enjoy their benefits even after they stop practising.

PLMJ chairman Fernando Campos Ferreira the first to propose a pre-retirement scheme. Aimed at those aged 57 or 58, it encourages more senior partners to spend more time in management and to institutionalise client relations among a wider group of lawyers.

“PLMJ is very much ahead of the game with this initiative,” suggests a partner at the Madrid office of a magic circle firm – although it seems some people are still more equal than others. “We have a retirement policy, but depending upon the personalities involved it’s openly ignored.”

While some firms bemoan the lack of junior lawyers able to fill partners’ shoes, those with the potential to fit the bill are turning the recruitment process on its head. With more demand than supply, lawyers suggest that the attitudes of Iberia’s top law students are changing. “They research the firm in advance and it’s clear that they’re now interviewing us,” says one Madrid partner.

Firms need to able to offer them something different – perhaps a spot of golf with those pre-retirement partners?

Moray McLaren is the managing editor of Iberian Lawyer