Nabarro and White & Case win coveted hedge fund roles on Northern Rock” />Nabarro and White & Case have found themselves holding key roles in the battle for Northern Rock.
The firms are advising respective hedge funds RAB Capital and SRM, the two biggest shareholders in the beleaguered mortgage lender.
RAB and SRM are increasing their stakes as it becomes increasingly likely that Northern Rock will be sold rather than restructured. SRM backs a plan by investment group Olivant to take a minority stake in the bank and bring in new management.
Nabarro’s relationship with RAB comes through corporate partner Ian Binnie, who brought the client with him from McGrigors when he joined Nabarro last year.
SRM has longstanding ties with White & Case’s commercial litigation partner John Reynolds.
The relationships have come to light as a Virgin-led consortium has been selected by Northern Rock and the tripartite authorities – the Treasury, the Bank of England (BoE) and the Financial Services Authority (FSA) – as the preferred bidder.
Allen & Overy (A&O) is in the interesting position of advising both the likely victor – in the shape of the consortium comprising insurance giant AIG, hedge fund Toscafund and Hong Kong-based First Eastern Investment Group, as well as the Virgin Group – and Northern Rock.
To be precise, A&O is banking counsel to Northern Rock, advising the stricken bank on its emergency facility from the BoE. Both the firm and Virgin Group’s general counsel Josh Bayliss maintain that the transactions are separate. Bayliss’s team of A&O advisers is led by corporate partner Andrew Ballheimer, while Freshfields Bruckhaus Deringer co-head of financial institutions Will Lawes is advising Northern Rock.
The bank called in extra legal muscle last week in the form of the vastly experienced former ABN Amro and Citigroup general counsel Laurie Adams, who joined as a non-executive director.
It is understood that US private equity house Cerberus, which until last week was a frontrunner for Northern Rock, also initially approached A&O, but three roles in the saga seemed to be an instruction too far. A&O has a historic relationship with GMAC, the former financial arm of General Motors, in which Cerberus owns a majority stake. Any Cerberus bid would have been funded, at least in part, by GMAC money. Cerberus ended up turning to Ashurst.
Freshfields was instructed by longstanding client Northern Rock when problems first emerged. But it also advised historic client the BoE until at least 17 September on its emergency facility to the lender. It maintains that this was not a conflict, as A&O was advising Northern Rock on the facility. In any case, Clifford Chance had superseded Freshfields as the BoE’s adviser by 24 September.
If Freshfields and A&O have taken a brave approach to conflicts management, the opposite philosophy is in evidence at Slaughter and May and Clifford Chance, advisers to the Treasury and the BoE respectively.
A Clifford Chance partner told The Lawyer that, once the magic circle firm had been instructed by the BoE in late September, it decided the only potential other role it could take would be as an adviser to a bank funding a bid.
Slaughters also maintains that its position advising the Treasury precludes it from any other instruction on the deal.
Linklaters‘ absence on the advisory list is because it was representing Lloyds TSB, which twice walked away from buying Northern Rock this summer.
At least eight parties were interested in the bank ahead of the shortlisting. Firms such as Simmons & Simmons, Skadden Arps Slate Meagher & Flom and Weil Gotshal & Manges were all advising bidders that are now out of the frame.
Bidders who may still be in with a chance are JC Flowers and Olivant, the latter headed by former Abbey National chief executive Luqman Arnold.
JC Flowers looked to Herbert Smith after a recommendation from Credit Suisse had landed corporate partner Anthony Macaulay with the choice instruction.
Olivant looked to Sullivan & Cromwell, which now boasts former Freshfields corporate partner Tim Emmerson, who has close ties with Lazard co-head of UK investment banking Ken Costa, financial adviser to Olivant.
If nothing else, the battle for Northern Rock proves that relationships – as tangled as some of these might be – are key.
The new Solicitors Regulation Authority (SRA) Code of Conduct is law rather than an agenda of best practice. The relevant section on conflicts is Rule 3. Particularly, Rule 3.01, which states that there is a conflict of interest when “you owe, or your firm owes, separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict”.
There are some exceptions if there is a “common interest”. Private equity auctions have seen the same firm advise more than one bidder. But firms need explicit permission from clients to do so.
Even client permission is not enough to waive advising a buyer and seller on the same transaction: the SRA states that a “related matter” involves the same asset or liability.
In addition, the Law Society clarified its position on confidentiality waivers last year. Since then, firms have been able to include a clause in their standard terms of business to clients, which allows them to advise one client despite possessing confidential information about a rival, as long as sufficient Chinese walls are in place.