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Herbert Smith Freehills (HSF) played an instrumental role in the National Grid’s £7.8bn acquisition of Western Power Distribution on 14 June 2021. The deal was the UK’s largest to date, with an enterprise value of an eye-watering £14.2bn.

“This is a hugely strategically significant transaction for one of the world’s biggest listed utilities. In combination with its disposal of its UK gas business, it shifts National Grids focus significantly towards electricity and puts National Grid at the forefront of the move towards ‘net zero’ in the UK”, explains Charles Steward, lead associate on the transaction.

Steward, alongside lead partners Caroline Rae and Robert Moore, was also tasked with getting the deal across the line prior to Competition and Markets Authority (CMA) approval. “In a sector with long term investors and not many opportunities for new entrants, this was a rare opportunity which is highly significant for the industry in the UK”, he says.

‘Hold separate’ orders were issued by the CMA upon completion, which required the Western Power Distribution business to be managed independently of National Grid. This added an extra layer of complexity, with the team having to liaise with the CMA as to how the two businesses would operate pending the CMA decision. It was critical to ensure compliance not only with the CMA’s ‘hold separate’ orders but also National Grid’s ongoing legal and regulatory obligations as a listed, regulated company.

“The standout aspect for me was working with such a big team to win this deal for our client in a highly competitive auction process”, says Steward. “We knew that as a listed strategic buyer we could have more regulatory hurdles which could put us at a disadvantage in the auction process against more nimble financial buyers, so we needed to structure our bid to be as competitive as possible whilst complying with the company’s various regulatory requirements.”

For example, he says that because of the almost £8bn value of the transaction, it was a Class 1 transaction for National Grid, requiring shareholder approval. “In a highly competitive auction process we knew that a shareholder approval condition might be an unattractive feature of our bid, so we accelerated a number of workstreams to ensure we could post the circular to shareholders within a few days of announcement and hold the general meeting within a few weeks. A large team worked across multiple workstreams to an extremely tight timetable.”

Charles Steward’s professional background

Steward joined HSF as a trainee in 2011, qualifying into the corporate division in September 2013. In the decade since, he’s worked on a mixture of public and private M&A for listed companies, private investors and financial institutions.

Charles Steward, Herbert Smith Freehills

“There are a lot of deals that I’ve enjoyed for different reasons, but the one that still really stands out to me is acting for AbbVie on their proposed $54bn takeover of Shire plc in 2014. It was the first significant deal that I’d done since qualifying. It was a real learning experience for me, technically getting to grips with the Takeover Code but also liaising with the bankers, helping with the commercial messaging, tactics – we used a ‘bear hug’ approach and eventually announced a recommended deal on the morning of the PUSU deadline”, he recalls.

“Despite being the most junior associate on a large team, James Palmer gave me real responsibility, I held the pen on the rule 2.7 announcement throughout, including flying out to New York as part of the deal team for the final negotiations – very exciting for a newly qualified lawyer! It was a fantastic experience for me, being in the room with the senior management from the clients and the most senior bankers trying to get the deal across the line with the pressure of the PUSU deadline hanging over us.”

Returning to the National Grid transaction, Steward says: “One of the more interesting technical aspects of National Grid’s bid is that we were able to proceed to close the acquisition without it being conditional on the CMA approving the transaction. Although the CMA filing regime in the UK is voluntary, it is unusual for a listed company to close a transaction while a CMA review is ongoing.”

HSF has been a member of National Grid’s panel since 2015, mainly advising on regulatory matters up until this point. This was the firm’s first significant M&A instruction for National Grid and involved more than 80 HSF lawyers from almost all practice areas in London, including corporate, regulatory, banking, tax, share incentives, employment and real estate. HSF worked closely with National Grid’s executive team, as well as the M&A, legal, treasury, investor relations and tax teams.

“This is the first significant M&A transaction that we have advised National Grid on, so we’re delighted that we’ve been able to build that relationship and that we were able to help National Grid get this transaction over the line”, Steward says.

This deal been transformational for National Grid but it has also been transformational for HSF’s relationship with National Grid. Working on such an intense, significant and complex transaction provided the firm with an opportunity to build strong relationships with National Grid. HSF lawyers from almost every practice area of the firm worked closely with the in-house teams, including group general counsel and company secretary Justine Campbell, senior legal adviser Deborah Waller and head of M&A Chris Waters.

Western Power Distribution, which was owned by US listed PPL Corporation, was offered to the market via a formal, highly competitive, auction process. Although HSF was not made aware of the identities of the other bidders, market intelligence suggested financial buyers and private equity houses were among them. This had the potential to put National Grid at a disadvantage, as listed company strategic buyers have to gain shareholder approval and are subject to CMA review, while private equity buyers are free to execute deals with fewer conditions.

In order to differentiate its bid from other financial buyers, National Grid offered to sell US assets to PPL Energy Holdings in the form of The Narragansett Electric Company (NECO), the largest electricity transmission and distribution service provider to, as well as a natural gas distribution company in, the US. The WPD Acquisition and the US sale were not inter-conditional save that it was agreed that the US sale would only proceed to completion if the WPD Acquisition completed. On completion NECO was sold for 2.7bn.

In addition, National Grid committed to obtain its shareholder approval as quickly as possible following signing of the transaction. In order to offer this commitment, National Grid and its advisers needed to prepare the class one shareholder circular on an expedited and accelerated basis prior to the final bid submissions to ensure it could hold a general meeting quickly after signing of its bid was successful.

Following the submission of final bids, National Grid was invited to the final stage of the auction and the sale process moved to a highly accelerated timetable. It was necessary to finalise the transaction documents for the WPD Acquisition and the US sale in an extremely short period of time, alongside negotiation of one of the largest warranty and indemnity policies put in place in the UK and finalisation of the Class 1 shareholder circular.

HSF led on all aspects of the WPD Acquisition, delivering strategic advice on transaction structuring and planning; performing due diligence on, and the regulatory framework applicable to, WPD; negotiating the £8.25bn acquisition facility and £1.105bn refinancing and negotiating the transaction documentation relating to the WPD Acquisition.

“With all of the simultaneous workstreams, and the sheer workload, within the firm and also the client, and Cravath on the US side, this transaction was a significant coordination and transaction management challenge which definitely tested my abilities in that area”, Steward admits. “It pushed me to be innovative and consider different techniques for deal management that I’ll take with me to transactions in the future.”

As with all the deals from this year’s awards submissions, this one was not without its extra challenges due to the pandemic. “I don’t think anything beats face-to-face communication on deals – reading the room and the energy of being in a room together is invaluable – so executing a transaction this complex without all sitting down together in person meant we really had to focus on communicating well and ensuring that everyone was on the same page”, Steward explains.

As he points out, this deal was several months into the pandemic, so there had been some time to adapt, However, he adds: “This may be an unpopular opinion, but I think video communication is much better than being on the phone the whole time. Although we didn’t meet face-to–face, there are people within the National Grid team who we probably wouldn’t have met face-to-face anyway, and I think it was much easier to build good relationships on video calls than it would have been over the phone. I think video conferencing is here to stay and I hope we make the most of it.”

There was also a benefit in not having to commute, he explains, highlighting the extra time he was able to spend with his wife and dog. “We had also just moved to Barnes in South West London as lockdown set in and being there more (rather than in the City) really helped us settle in. I think going back to a mixture of being in the office and working from home is a great solution now that we have the option – it’s something we have seen many clients doing really well for some time and I’m glad that we are catching up.”

The hybrid office / remote working ‘norms’ of post-pandemic life may have come at exactly the right time for Steward personally. “A few days before completion of the National Grid deal, my wife gave birth to twin boys much earlier than planned and so I had some time off after that”, he says. “Since I’ve been back, I’m working for a bidder in an auction process for an eastern European bank, and a possible takeover defence situation so I anticipate a busy few months ahead – at home and at the office!”

About Charles Steward

2013-present: Associate and senior associate, Herbert Smith Freehills   

2011-2013: Trainee solicitor, Herbert Smith Freehills 

Who’s Who: the HSF corporate team

Lead partners: Caroline Rae and Robert Moore

Lead senior associate: Charles Steward.

Supported by: Silke Goldberg (regulatory), Will Nevin (finance), Tim Briggs and Veronica Roberts (antitrust), Paul Ellerman (share incentives), Issac Zailer (tax) and Sarah McNally (W&I).

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