Wachtell suffers crash backlash
28 September 2009 | By Julia Berris
7 August 2014
28 August 2014
29 September 2014
29 September 2014
19 September 2014
Does the elite firm need to soften its aggressive tactics? asks Julia Berris
Wachtell Lipton Rosen & Katz is widely considered to be one of the best M&A firms in the US.
Yet in recent weeks the firm has come under fire regarding its involvement in Bank of America’s (BoA) rescue acquisition of Merrill Lynch last September. Wachtell partners Nicholas Demmo and Ed Herlihy led a team that advised BoA on the $50bn (£30.46bn) deal opposite Shearman & Sterling partner John Madden, who acted for Merrill.
A year on and a decision by US District Judge Jed Rakoff in a dispute over bonuses paid to Merrill executives has turned the spotlight on Wachtell.
A bit of background: the SEC had accused BoA of lying to its shareholders about $5.8bn of bonuses being paid to Merrill executives. The regulator had agreed with BoA that the bank would pay a $33m fine to settle the allegations and asked the court to administer the matter.
But Rakoff refused to do so, telling the parties they would face a trial at the beginning of next year to settle the matter.
So where does Wachtell fit into this? Well, it seems the bonuses were not disclosed in the documentation at the time of the rescue deal, with BoA now claiming that it and Merrill were simply acting on advice provided by Wachtell and Shearman.
Wachtell is renowned for being aggressive in its advice - that is part of its appeal to clients, and indeed its success. But its aggression is also controversial. In October last year the firm was singled out for criticism by Delaware judge Stephen Lamb over advice it gave in relation to an aborted merger between chemicals companies Hexion and Huntsman.
More recently the firm was replaced by Jones Day as counsel to Indian software company Satyam Computer Services on an investor lawsuit in the US. The reason for the switch has not been made clear.
But do BoA’s accusations represent another in a line of blows for Wachtell, or are these issues simply par for the course given the type of work the firm is instructed on?
One Manhattan-based partner thinks the latter is the case. “This is not so much anti-Wachtell as anti-Wall Street,” says the partner. “There’s a lot of ill-feeling towards anything to do with the crash, from bank bonuses to Lehman [Brothers’] bankruptcy. If you’re involved in these deals you’re very much in the limelight.”
A New York recruiter agrees. “It’s not good for the firm’s reputation,” the recruiter says. “If the BoA deal changes hands it will not look good for Wachtell, but I doubt it will cause long-term problems.”
Yet the firm’s aggressive stance is an issue, and one it will have to focus on as part of its succession planning. Chairman Marty Lipton is nearing retirement and the question of who will succeed him is looming larger.
Herlihy and Dan Neff, both of whom are well known for fitting the Wachtell bill of being aggressive M&A partners, have been tipped as possible replacements.
“Succession is a big issue at Wachtell,” says one New York partner. “Both these guys represent the tough side of Wachtell and both are very influential in the partnership.”
But in these tough economic times should the firm be looking to soften its stance, particularly if it is being replaced on mandates?
It is unlikely, but, as a partner at a rival firm says: “These are the guys that are well known for being hard lawyers. It’s not surprising that they’ve been thrown off some deals and I think this could be the start of some difficult times for the firm and whoever the future leaders turn out to be.”