Kees van Ophem: FLAG Telecom Group

FLAG Telecom Group’s general counsel Kees van Ophem had his work cut out when he joined the international wholesale network transport and communications services provider in October 2001. He spent most of his first year firefighting and playing an integral role in saving the Bermuda-incorporated company from financial ruin. Then, in 2003, he was heavily involved in FLAG’s successful amalgamation, under Bermudian merger law, with Reliance Gateway, part of the Indian conglomerate Reliance Group. That deal completed in January 2004.

Reliance’s $211m (£115m) takeover of FLAG, the largest acquisition ever by an Indian company, was unexpected, as the company was not up for sale.

Nevertheless, FLAG’s shareholders voted unanimously in favour of the deal at a special shareholders’ meeting on 12 January. But that was only after Reliance increased its cash consideration from $207m (£112.8m) to $211m at the last minute.

Van Ophem says it is too early to say exactly how the takeover will impact on FLAG’s legal function, or indeed his own position. But he is not expecting any changes, because even though FLAG is now 100 per cent owned by Reliance, the intention is to keep FLAG as an independent operator. “They [Reliance] not only bought us for our revenue and assets, but also for our international, global expertise.”

FLAG, the global carriers’ carrier, which offers telecoms products and services to licensed international carriers, internet service providers and other telecoms companies, currently has no debts. But like many of its sector peers, it was hit severely by the slump in demand for undersea network capacity.

So, with mounting debts, FLAG, together with some of its subsidiaries, filed voluntary petitions for reorganisation under Chapter 11 of the US Bankruptcy Code in April 2002.

“After I joined FLAG we realised that the business wouldn’t grow fast enough to sustain the company’s debt and interest levels. So instead of waiting for the market to improve, we decided to restructure,” says van Ophem.

Three months later, the same companies filed a plan of reorganisation and announced their intention to emerge from Chapter 11 and related proceedings with their global network intact by September 2002. Under the terms of the reorganisation, FLAG obtained new shareholders, which included certain trade creditors such as Alcatel, Reach and Ciena.

“Within six months we were out of Chapter 11 and had reduced our debts from $1.4bn (£762.7m) to just $77m (£42m). And during that time we didn’t lose any assets or customers. That was a real success story and, of course, the legal team was at the heart of the reorganisation,” says van Ophem.

Despite the successful outcome of the Chapter 11 proceedings, van Ophem is not keen to go through such a process again. “I wouldn’t like to do it again because, to be honest, it’s a very destructive process for everybody. But from a learning and experience point of view, it was one of the best things that I’ve ever done,” explains van Ophem.

To add to FLAG’s financial woes, in August 2002 the Office of Fair Trading started an investigation into anticompetitive practices by cable-lending operators in the UK, including FLAG. Fortunately for Ophem, though, the investigation did not amount to anything significant and FLAG escaped a fine.

But if that were not enough, FLAG was also dragged into the Securities and Exchange Commission’s (SEC) investigation into allegedly fraudulent swap transactions by Qwest Communications and Global Crossing. Van Ophem argues that, although FLAG was on the other side of some of these deals, the company was merely a witness and was not under investigation.

He also points out that the SEC took no further action against FLAG.

Van Ophem and his eight-strong team were inevitably at the heart of FLAG’s recovery and the subsequent takeover. Indeed, van Ophem was heavily involved in the crucial negotiations throughout. But unfortunately, the small legal function suffered along with the rest of the company, which saw its employee count slashed from 400 to just 250.

“When I joined, the global headcount in the legal department was 14 and the team was positioned for growth mode. But when the telecoms market went down and the financing dried up we had to position ourselves to survival mode,” explains van Ophem.

“We’re now possibly getting back into growth mode, so we’ll have to wait and see what impact that will have on the legal team.”

Van Ophem says his team tries to handle all the day-to-day legal work. “We try to do everything that’s within the business plan,” he says. “But it’s difficult to plan for events outside the business plan, such as unexpected litigation, financing deals and acquisitions. So we only do part of that in-house.”

Nevertheless, he notes that the team always ensures that it is at the forefront of any negotiations.

FLAG does not have a formal legal panel and instructs law firms on a case-by-case basis, while for large assignments van Ophem will typically invite firms to take part in beauty parades.

The company instructed New York-based Gibson Dunn & Crutcher partner Conor Reilly to help with the Chapter 11 proceedings and Van Ophem, given the result, was very pleased with the firm’s contribution. “It was a very complex procedure and I’d say Gibson Dunn did a very good job,” he says.

However, FLAG appointed Akin Gump Strauss Hauer & Feld to advise on the Reliance deal. Van Ophem explains that this decision was driven by the company’s creditors, which were represented by Akin Gump during the Chapter 11 proceedings and which subsequently became shareholders.

Van Ophem also has relationships with a number of other US and City firms. He instructs Allen & Overy, Denton Wilde Sapte and Freshfields Bruckhaus Deringer on telecoms licensing work, employment law and litigation matters respectively. Meanwhile, Charles Russell and Simmons & Simmons handle general commercial law issues.

Jones Day’s and Morrison & Foerster’s Brussels and London offices are retained to advise FLAG on EU and competition law. Both of these relationships span several years and date back to van Ophem’s time in private practice at De Brauw Blackstone Westbroek in the Netherlands, when he specialised in this area of law.

Bermudian legacy firm Appleby Spurling & Kemp (now Appleby Spurling Hunter) also advises FLAG and acted for the company in both the Chapter 11 proceedings and the Reliance takeover. Van Ophem also uses several local firms, although he claims that there are far too many to mention each by name.

Van Ophem, originally a corporate and competition lawyer, has spent much of his legal career working for telecoms companies and has seen the sector go through various incarnations. Before joining FLAG, he was co-founder and executive vice-president of corporate services and general counsel for the Zurich-based start-up Carrier1 for three years. Prior to that he was a management team member and general counsel for Unisource Carrier Services, also in Zurich.

Van Ophem also spent two years as an in-house lawyer at Dutch telecoms company KPN.

Van Ophem is cautiously optimistic about FLAG’s future and argues that the company is slowly entering into growth mode. “We’re certainly less optimistic than the days before I joined, but I don’t expect any further decline and I think this will possibly be more of a growth year,” he concludes.

FLAG Telecom Group’s corporate history

  • October 2001: Kees van Ophem joins FLAG from Zurich-based telecoms start-up Zurich.
    2000: FLAG listed on Nasdaq and the London Stock Exchange (LSE).
  • April 2002: FLAG and some of its subsidiaries file voluntary petitions for reorganisation under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York.
  • July 2002: FLAG and the subsidiaries that made the Chapter 11 filing in April file a plan of reorganisation in the US Bankruptcy Court for the Southern District of New York.
  • August 2002: FLAG delists from Nasdaq and the LSE.
  • October 2002: FLAG successfully restructures $14bn (£7.63bn) of debt and deleverages its balance sheet by reducing debt to $77m (£42m). It also reduces its operating cost base by 35 per cent. The reorganised company has new shareholders.
  • October 2003: FLAG announces an amalgamation with India’s Reliance Gateway.
  • December 2003: FLAG announces an increased consideration from Reliance from around $207m (£112.8m) to $211m (£115m).
  • 12 January 2004: FLAG shareholders vote unanimously in favour of amalgamation with Reliance.
  • 28 January: FLAG redeems outstanding debt of $27.9m (£15.2m), leaving the company debt free.

Kees van Ophem
General counsel
FLAG Telecom

Statistics
Organisation FLAG Telecom Group
Sector Telecoms
Revenue $200m (£109m) for 2002
Annual legal spend $1m (£544.8m)
Employees 250
Legal capability Eight
General counsel Kees van Ophem
Reporting to Chief executive officer Patrick Gallagher
Main law firms Allen & Overy, Akin Gump Strauss Hauer & Feld, Appleby Spurling Hunter, Charles Russell, Denton Wilde Sapte, Gibson Dunn & Crutcher, Freshfields Bruckhaus Deringer, Jones Day, Morrison & Foerster and Simmons & Simmons