If hell is the torture of endless repetition, then consider poor Christoph Jäckle at Hengeler Mueller. He has spent the last year, if not in the ninth circle of the inferno itself, then at least in the purgatory of German deal-making.
A year ago US private equity investor Liberty agreed to acquire Deutsche Telekom's last six regional cable networks for e5.5bn (£3.7bn), with Hengeler advising key client Deutsche Telekom. Jäckle led on the deal, facing Thomas Tsch-entscher, a telecoms expert at Freshfields Bruckhaus Deringer in Frankfurt.
But it was not to be. Non-participating antitrust lawyers had for some time been pointing out that Liberty's plan to provide content through the network would not please the competition authorities, even if it was the option that made the deal economically sensible. By way of warning, the largest cable network in Nordrhein-Westfalen (also Germany's largest state) had had to go through bankruptcy procedures after being purchased by another US private equity house, Callahan Associates. But objections flooded in that Liberty's acquisition would combine 60 per cent of Germany's cable network with a content provider, which would restrict competition to an unbearable degree.
So Jäckle and his Hengeler team had to start all over again, faced with going through the whole auction process a second time – hardly the stuff that M&A dreams are made of, even if the firm would earn a mint. This time it was an Apax Partners-led consortium that won the day, supported also by Goldman Sachs Capital Partners and Providence Equity Partners. With a strategic cable approach ruled out, it turned into a relatively straightforward private equity deal. It was therefore no surprise that the consortium turned to private equity guru Peter Nussbaum to run the deal.
But just a minute. The Peter Nussbaum, from the Munich office of Freshfields? The very one. And who were the other bidders towards the end of the process? Apollo, the US private equity house with a specialism in distressed engagements, advised by the Hamburg office of… well… Freshfields, and once again Liberty, which this time was advised by, er… the Frankfurt office of Freshfields. (Later, Apollo and Liberty banded together in a consortium with Blackstone).
Freshfields was the first firm to advise parallel bidders in M&A auctions some years ago, and it has led the way in building a firewall system, the integrity of which is based on a privilege not accorded to UK firms. Teams are normally drawn from different offices, thus, it is argued, assuring confidentiality. Allen & Overy (A&O) might have to worry about lawyers for KPMG and the banks bumping into each other in the cafeteria, but the Freshfields partners only have to fear chance meetings in the Lufthansa business lounge.
Most firms with a private equity practice have followed suit. Few German lawyers agree on whether the bar regulations actually allow such parallel instructions, which explains why the firms in question have spent a small fortune on legal opinions from the venerable sages of the university community in order to prove their point. Not surprisingly, they all got the answer they wanted, even if such opinions have turned out to be completely contradictory. CMS Hasche Sigle, for example, which has, along with Freshfields, the largest private equity practice in Germany, has a strict policy of not advising parallel bidders, and the firm found an academic to justify this stance.
Admittedly, Hasche's high-volume buyout work is not of the same scale as Freshfields' (it does a ton of mid-size deals, notably for 3i, and in better days had a vigorous venture capital practice), but it does stick to BC Partners like glue. Considering that the latter will be involved with just about every deal in Germany, that is no small beer. And you could argue that, had it been less pernickety about parallel bidders, it might have been able to rival Freshfields on the buyout front.
Nowadays, Hasche is a lone conservative. Even Hengeler began to push the boundaries back just a little on last year's giga-deal, the Siemens spin-off of six subsidiaries to KKR. Clifford Chance Pünder and Baker & McKenzie have long since seen the need to succumb to the inevitable, even if differing perspectives on the worst case scenario exist: what happens when two clients of the same firm reach the final round? Clearly, Freshfields takes a liberal view, as does Clifford Chance Pünder. As one partner puts it baldly: “If you're not prepared to take it right to the end, then you shouldn't accept parallel bidders in the first place.”
Sources at Deutsche Telekom expressed more than just a mite of grumbling about Freshfields' behaviour, but most outsiders think that the firm was not really in a position to do much about it. The deal had to be done, albeit with a painful groan.
This time round, the consortium only offered a more sobering e1.725bn (£1.17bn), which might go up to e2bn (£1.35bn), depending on how the cable business develops over the next few years. The extra is in any case only payable on the exit of the private equity consortium.
Otherwise, the transaction threw up less surprises. Providence had support from its house firm Debevoise & Plimpton, which used both London and Frankfurt lawyers (Debevoise opened in Frankfurt some two years ago with partners from Linklaters Oppenhoff & Rädler and Nörr Stiefenhofer Lutz). And the financing banks Goldman Sachs and Morgan Stanley were advised by – who else – A&O. The rule in German acquisition finance is: if it is not Neil Weiand, it is Peter Stenz; and indeed, it was the latter who led the London-Frankfurt team.
But hold your apocalyptic horses. The competition authorities have to clear this one as well. Jäckle and colleagues will be hoping that this time they are on the side of the angels.
Aled Griffiths is editor of JuVe Rechtsmarkt
aled.griffiths@juve.de
