Pharmaceutical deals have a particular resonance in a Covid world, but how do you get one over the line during a global pandemic?
Thomas French was the lead associate on the Macfarlanes team advising global biopharmaceutical company Jazz Pharmaceuticals (Jazz), based in Dublin, on its $7.2bn acquisition of GW Pharmaceuticals, comprised of cash of $6.55bn and stock of $650m, by way of a UK scheme of arrangement.
He explains that the transaction involved almost 50 lawyers from Macfarlanes, across a multitude of practice areas, led by corporate and M&A partner Harry Coghill and senior advisor Charles Martin, recording a total of 3,500 hours of work.
“This required a huge amount of internal coordination and teamwork to ensure we were all working towards the target deadlines in a systematic and joined up manner”, French says. “Communicating across the team was key to achieving the success of the deal and was especially relevant under the constraints of the pandemic.”
Co-ordinating different firms as well as internal teams
“We had a number of different law firms involved as well as a large internal team spanning multiple specialist departments such as tax, IP, employment, pensions and so on, and were operating to tight deadlines. Thankfully it all worked smoothly but that required a good deal of internal teamwork and coordination, particularly during lockdown when everyone was physically separated.”
Jazz, which focuses on developing life-changing medicines for people with serious diseases, was looking to diversify its commercial portfolio and pipeline therapy products, leading to Macfarlanes appointment to advise on its acquisition of GW, alongside Wachtell Lipton (who introduced the client to Macfarlanes).
The Jazz Pharmaceuticals deal
GW is currently the UK’s largest cultivator and exporter of products derived from marijuana. The deal capitalises on a trend, which is seeing cannabis-based medicines becoming gradually legalised around the world, including North America and parts of Europe, making it one of the fastest-growing healthcare sectors.
The acquisition of GW was transformational for Jazz. The $7.2bn purchase price is nearly the same as its own market capitalisation of c.$9bn. It gives Jazz access to Epidiolex, a childhood epilepsy drug, which in 2018 was the first cannabis-derived medicine to receive US regulatory approval and also to become available on the NHS.
This deal is one of only around five deals that have ever been done involving this transaction structure: an acquisition of a UK plc that is listed in New York and therefore not subject to the UK’s Takeover Code. Given how few transactions of this type have been completed and the size of the transaction, it is likely to become an important precedent – particularly as more UK companies choose to list in New York rather than London.
As French explains, “this was a transformational deal for our client both in terms of size and in terms of the sector. The deal was very bespoke as a result of falling outside the UK Takeover Code, which allowed the parties to negotiate complex deal terms outside of the Code restrictions on offer-related arrangements. For example, Jazz negotiated the inclusion of a circa $70m break fee payable by GW in certain circumstances if the transaction was terminated.”
Extra complications of GW shares
On top of this, there were other unique challenge presented by the deal. “Circa 97 per cent of the shares in GW were held by just a single registered shareholder, Citigroup, as the operator of an American Depositary Share programme (with Citigroup in turn issuing American Depositary Shares representing underlying GW shares). The other 3 per cent of the GW shares were held by around 1,000 individual shareholders most of whom had very small shareholdings”, French explains.
“The deal was structured as a scheme of arrangement and so needed the requisite shareholder approval under the Companies Act 2006 (involving both 75 per cent in value and a majority in number of those voting). The issue was that even though the Citibank shareholder represented 97 per cent of the value it only counted as one vote for the purposes of the majority in number test, which could potentially have skewed the outcome and undermined deal certainty.”
However, French says this was dealt with through a range of measures. “For example, encouraging certain management shareholders to convert their ADSs into GW ordinary shares so that they could then be counted individually towards the majority in number test. The management of these strategies required close monitoring and co-operation with the lawyers acting for GW.”
Thomas French’s professional background
French joined Macfarlanes corporate and M&A team back in September 2016, having trained at Slaughter and May and worked in the corporate team there until three years PQE. “I’ve worked on a really wide range of deals during my time at Macfarlanes, including private M&A, public takeovers, private equity and joint ventures”, he says.
“The breadth of the corporate and M&A practice is one of the things I’ve enjoyed most about the firm as it means you are constantly having to learn and adapt and there is always an opportunity to try your hand at something new. I’ve found that a lot of the satisfaction and enjoyment comes from the people you deal with while working on the matter (both internally and at the client). Some of the transactions I’ve enjoyed the most have been those where the client was personally invested (for example advising a founder on the sale of a financial services business) and so very engaged and involved with the negotiations. It has also been interesting to gain exposure to a wide range of different sectors (including healthcare, industrials, agriculture, financial services and so on).”
The degree of co-operation between the various law firms involved was what stood out most for French on this deal. “Wachtell led the transaction from a New York law perspective, with Macfarlanes advising on English aspects and Arthur Cox on Irish aspects, and all three firms worked seamlessly as one team to deliver an excellent client service”, he says. “It also stood out because of a whole host of bespoke features, including the fact that the Takeover Code did not apply and the complicated capital structure and share register of GW Pharmaceuticals plc (GW) (due to the existence of an ADR programmed operated by Citibank), all of which gave rise to complicated but interesting structuring considerations.”
However, he says working under the constraints of the pandemic did provide valuable lessons for the future. “Working remotely certainly added an extra challenge, however it also enabled a more seamless international working structure, as each firm had already adapted to the new working environment and methods of communication”, he says. “In my opinion, the best outcome for the future will be to merge the two ways of working (remote and in person) to make sure they are properly balanced, and everyone gets the upsides of both.”
Although the team had been working on the deal for nearly a year, most of that work was done in less than a month at the start of 2021, so it required careful project management to ensure that it progressed smoothly to signing.
The firm had worked on another (aborted) $1bn-plus transaction that involved the same – very unusual – fundamental structure at the very end of 2020. As a result, it was familiar with the limited number of precedent deals and able to advise the client in detail about the areas in which it could achieve more favourable outcomes (in critically important areas of the transaction documentation) than if this had been a typical transaction governed by the UK Takeover Code.
With the addition of Epidiolex, a third high-growth commercial franchise, which in 2020 exceeded £500m in annual net sales, Jazz has already initiated a relaunch of the solution in Europe under the trade name Epidyolex. Jazz also expects the deal will deliver substantial shareholder value, with an expectation of accelerated double-digit top-line revenue growth, accretive in the first full calendar year following the merger.
The deal has generated significant interest from other businesses active in the sector, including on social media, and Macfarlanes has undertaken considerable post-completion work for Jazz, across the corporate, financing and tax structuring teams.
“This transaction was a great learning experience, particularly in co-ordinating a large number of internal and external parties to a tight deadline. It also threw up a large number of interesting points of law and practice that will be useful for future transactions”, French says. “Without the visibility that comes with working together in an office, being clear and transparent on progress and having the confidence to reach out to colleagues for their support when capacity was tight was paramount. You have to work harder to achieve the buzz and sense of team spirit which helps motivate everyone to perform to their best and get the deal across the line.”
Since this deal completed, French has worked on a range of transactions, including various private M&A transactions, such as the acquisition of a large UK farming business and the acquisition of a UK bank, as well as a corporate joint venture in respect of an international shipping business.
Reflecting on the range of work he’s done at the firm, French says: “We have a tight-knit team and the breadth of the practice means I’ve had the opportunity to work with most of the partners and across a wide range of different transaction types and sectors.”
These have included advising Smith & Williamson on its merger with Tilney Group, creating the UK’s leading integrated wealth manager group, alongside corporate and M&A partner Tom Rose and advising the management team of UK data centre and cloud company Pulsant on its sale by Oak Hill Capital and Scottish Equity Partners to Antin Infrastructure Partners, working with corporate and M&A partner Jessica Adam, who heads up the firm’s management team advisory practice.
Macfarlanes prides itself on its ability to leverage an impressive partner:associate ratio of just 2:1. As a result of this approach, the firms says the team builds and maintains strong bonds with clients, resulting in longstanding relationships with several major companies, including JC Flowers, Greenergy, Hayfin, Caledonia, Exponent, Air Liquide, Legal & General, Goldman, JD Wetherspoons, Smith & Williamson, Puma Energy.
About Thomas French
2016- Solicitor, Macfarlanes
2013-2016: Associate, Slaughter and May
2011-2013: Trainee, Slaughter and May
Who’s Who: the Macfarlanes corporate team
Leading: Partner Harry Coghill and senior advisor Charles Martin, with senior solicitor Thomas French and solicitor Jon Webb.
Tax advice: Partner Ashley Greenbank and senior solicitor Laura Foley.
Advice on share incentive arrangements: Partner Rob Collard and senior counsel Rasmus Berglund.
Competition advice: Partner Malcolm Walton and solicitor Jonathan Morgan.
Advice on financing aspects: Partner Kirstie Hutchinson and senior solicitor Christopher Page.
Employment law advice: Partner Hayley Robinson and senior lawyer Chris Boyle.