International Roundup: Europe

David Middleton on the month in Europe

Blaze of activity sparks a telecoms war in CEE

It may be smack bang in the middle of one of the coldest winters on record, but that hasn’t stopped the lawyers using all sorts of warming language to describe activity in Central and Eastern Europe (CEE). From “on fire” to “raging” to plain old “hot”, lawyers, particularly those from the US firms, seemed to have a supply of superlatives that is as inexhaustible as the region’s natural gas.

From the traditional hot spots of oil and gas to emerging corporate and finance markets in the former Soviet bloc, there are plenty of deals around and firms are cashing in.

One sector that is getting lawyers particularly hot under the collar is telecommunications. Most of the work has centred around mobile telecoms company VimpelCom, with US firms picking up the majority of the work.

VimpelCom operates in Kazakhstan, Russia, the Ukraine and Uzbekistan and in 1996 it became the first Russian company to list its shares on the New York Stock Exchange.

LeBoeuf Lamb Greene and MacRae, with a team headed by Russian practice partner Brian Zimbler, scored work from VimpelCom on two Uzbekistan acquisitions. VimpelCom bought Unitel and Bakrie Uzbekistan Telecom and merged the two firms in a $260m (£148.6m) deal. Uzbekistan was the fourth country outside Russia into which the company had entered in recent times.

But that deal was a walk in the park compared with the controversy that surrounds VimpelCom’s plans to expand in the Ukraine. The company’s two major shareholders, Norwegian telecommunications company Telenor and Russian investment consortium Alfa Group, have found themselves in dispute over the expansion plans.

VimpelCom made a $5bn (£2.86bn) offer to take over Ukrainian communications company Kyivstar, creating a monster telecoms company in the Ukraine. The complication, and evidence of how serious the telecoms market in this part of the world has become, comes from both Telenor and Alfa sharing a 100 per cent shareholding in Kyivstar, owning 56.5 per cent and 43.5 per cent respectively.

The dispute has certainly benefited the law firms, although Akin Gump Strauss Hauer & Feld has, for the time being, been left waiting patiently on the sidelines for the dispute to resolve. Akin Gump, a long-time corporate adviser to VimpelCom, has the mandate on the proposed deal, but work has been put on hold until the shareholders resolve their dispute in the Russian Arbitration Court. London-based Akin Gump partner Dan Walsh says: “There’s not much to do at this stage, the offer hasn’t been withdrawn or accepted. But if it does go through, it will be huge.”

It is understood Telenor has instructed Orrick Herrington & Sutcliffe for proceedings in the Russian courts, which is a boost for the Russia practice the US firm recently inherited from Coudert Brothers. Alfa is understood to be using Herbert Smith in conjunction with local counsel.

Firms put faith in market forces over politics

Political uncertainty continues to be a to be a concern in CEE, but many investors are riding the risks.

According to one US partner: “It’s not affecting business yet, but there is constant background noise about the Russian government and whether or not it’s rolling back the democratic liberties Russia currently enjoys. There’s lots of speculation about what that might mean for business. There was lots of controversy over Yukos, but as long as the price of oil remains high, the money is rolling.” And with oil prices hovering around the $60 (£34) to $65 (£37) per barrel mark, expect plenty to keep on rolling.

Rich pickings as Russian firms plan UK flotations
One area that UK firms are targeting for longer-term work is the rumoured list of companies lining up for a tilt at the London Stock Exchange, either on the main board or on the AIM.

One Moscow-based partner says: “I think they’re all a bit spooked by the Sarbanes-Oxley measures in the US. There are some mega-equity offerings coming, and plenty lining up for more on the main exchange, AIM or as Regulation S offerings.”

Another partner says: “The rumour mill predicts more than 30 companies interested in going public in the next 12 to 24 months. It’s something that all the English firms with a decent presence here are heavily involved in.”

The stringent accounting and disclosure measures brought in by the Sarbanes-Oxley Act in 2002 have seen several companies withdraw their listings from the New York Stock Exchange or Nasdaq, while others interested in listing are increasingly looking towards Europe, and invariably London is the main beneficiary.

But while the UK magic circle will make the most of the Russian flotations, it will not have it all its own way, with US firms such as Cleary Gottlieb Steen & Hamilton and Latham & Watkins also well placed to take a piece of the action.

Latham managing partner Anya Goldin told The Lawyer: “The market is very hot and a lot of companies are preparing. London is generally faster and smoother from an issuer’s point of view, with fewer hurdles, and therefore less expensive.”

Latham advised Sistema on its $1.56bn (£890m) float in 2005, and Comstar on its $1.17bn (£670m) IPO, Russia’s two largest offerings to date.

Linklaters scored roles for the underwriters on both flotations.

Oil, gas and energy fuel a flurry of M&A activity

While the economies continue to mature in CEE, firms are riding an increasing amount of M&A work, particularly in the energy, oil and gas sectors, which are Russia’s largest.

LeBoeuf Lamb Greene & MacRae Moscow head Brian Zimbler says work in that sector was the firm’s staple diet for its CEE offices. “In Kazakhstan especially, there is a lot of oil money floating about. The government has liberalised the legislation and there are lots of deals going down in that country,” he said.

LeBoeuf represented the China National Petroleum Company in its $4.18bn (£2.39bn) acquisition of PetroKazakhstan in August last year. Beijing partner Ingrid Wenying Zhu-Clark and Zimbler led the deal.

Beiten advises Raiffeisen on two Ukraine buyouts

Beiten Burkhardt, the German-based best friend of Berwin Leighton Paisner, has also been active in CEE recently, following German bank Raiffeisen International into the Ukraine for two acquisitions.

Raiffeisen, a subsidiary of the RZB Group, made a $1bn (£570m) acquisition of a majority stake in the country’s second largest bank Joint Stock Post Pension Bank Aval. Raiffeisen now owns a 93.5 per cent stake in the business.

The purchase is the second largest transaction to date in the Ukraine, second only to the Mittal Group’s $4.84bn (£2.77bn) takeover of Ukranian steel producer Kryvorizhstal in October 2005.

The bank also took over the Ukrainian Processing Centre, a transaction processing company, for an undisclosed sum.

Beiten led the transaction out of its Kyiv office, with office head Felix Rackwitz leading the deal, backed by a multi-disciplinary team of associates.