Leading firms join P&O negotiations
7 January 2002
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30 June 2003
Freshfields Bruckhaus Deringer, Slaughter and May and Herbert Smith are all advising on the proposed P&O-Royal Caribbean merger and the subsequent hostile takeover bid for P&O by Carnival.
Freshfields and Slaughters were called in by P&O and Royal Caribbean late last summer. Freshfields worked on the demerger of P&O Princess from the parent company in late 2000, a deal that fortuitously created two corporate clients where there had previously been just one.
P&O is using Sullivan & Cromwell for the US aspects of the deal, but Freshfields was an automatic choice for the UK work. Freshfields corporate partner Mark Rawlinson led P&O's UK team, with Rachel Brandenburger and Allen Ryan on the regulatory side.
Royal Caribbean instructed Davis Polk in the US, who fed the UK work to best friend Slaughters, which bagged a new client. Corporate partner Kathy Hughes led the Slaughters team, with head of competition Malcolm Nicholson and tax partner Steve Edge also involved.
On 20 November last year, P&O and Royal Caribbean announced a merger with a UK-US dual-listed company (DLC) structure. Although this is the first time a DLC has been used for a trans-Atlantic merger, the lawyers involved felt it was the best way to avoid share flowback, inevitable if the company was listed in just one jurisdiction. As Royal Caribbean is an offshore rather than a US company, the tax hitches inherent in DLC structures were easier to avoid.
As it happens, the decision to use a DLC had crucial UK regulatory implications. The world's largest cruise operator Carnival became nervous when the P&O-Royal Caribbean deal was announced, and in December 2001 launched a hostile takeover bid for P&O.
Advised by Herbert Smith corporate partner Anthony Macauly, Carnival has also asked the Takeover Panel to investigate the Royal Caribbean merger.
The crux of Carnival's complaint is that, as a DLC, the merger is not covered by the City Code, while the Carnival hostile bid falls under that jurisdiction. There is a break fee of $62.5m (£43.3m) in the merger contract, which is higher than would be allowed under the City Code, although the amount of money involved is pretty small in the context of a £3.2bn hostile bid.
There is also the small matter of a telephone conversation between Carnival and P&O on 24 September. Under the City Code, a board's merger options are limited if it believes a takeover bid might be imminent. Carnival contends that the call indicated serious intent, while P&O maintains that it was merely a friendly chat.
According to sources on the P&O-Royal Caribbean side, the companies may well be shielded from Takeover Panel action because there have been discussions with the panel at every stage of the deal.
However, if Carnival is determined to scupper the merger, Herbert Smith could go for the jugular and take any Takeover Panel decision to appeal. But this is unlikely before a Valentine's Day P&O vote on the merger, which will indicate which way the shareholders want to jump.
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