DEAL OF THE WEEK: Freshfields and A&O in ICI's £808m share issue

ICI's favoured law firms Freshfields Bruckhaus Deringer and Allen & Overy (A&O) are acting on the chemical company's discounted share issue, worth £808m, which will raise money to reduce the company's £2.9bn debt.
ICI has retained Freshfields to advise it on the issue. A&O has been instructed by established clients Goldman Sachs, UBS Warburg and Merrill Lynch, which have agreed to underwrite ICI's issue. UBS Warburg is underwriting 50 per cent, Goldman Sachs 30 per cent and Merrill Lynch 20 per cent.
ICI's other law firm, Mayer Brown Rowe & Maw (previously Rowe & Maw), is not acting in any capacity.
ICI usually instructs Freshfields on plc work and either A&O or Rowe & Maw on most company acquisition and divestment work. According to Ian Elder, ICI's relationship partner at A&O, this shareout stems from the fact that he, Paul Maher of Rowe & Maw and Freshfields partner David Cook have all worked in-house at ICI.
Linklaters used to be ICI's favoured law firm for plc work, but when relationship partner Len Berkowitz retired in December 1995 the company moved its allegiance to Freshfields to be near corporate partner Anthony Salz, who in turn has a good relationship with ICI general counsel Michael Herlihy. Berkowitz is now a consultant at Freshfields.
Freshfields got its first instruction from ICI in 1996, on an arbitration involving Huntsman Tioxide and has since acted on its £5.8bn acquisition finance deal of Unilever's speciality chemicals division and the disposal of part of its paints division, worth £425m, to PPG Industries. In the past two years the firm has not handled any significant M&A work for ICI. Linklaters still handles some share scheme work for ICI, but no longer receives plc work.
A&O has good relationships with all three of the banks it is acting for. In 1997, A&O's banking department was first instructed to act for Goldman Sachs on the acquisition finance deal by ICI plc of Unilever's speciality chemicals business. The firm has also acted for brokers Merrill Lynch and Cazenove on one of the largest rights issues in the last decade, offered by BT in June 2001 to raise £5.9bn.
With 30 per cent of ICI's share capital being held by US institutions Brandes Investments and Franklin Templeton, there is a significant US aspect to this issue. Because of this the deal is fully regulated by the Securities and Exchange Commission (SEC) and there will be two sets of documentation to draft – a UK and a US prospectus.
Sullivan & Cromwell, led by William Plapinger, is advising all three underwriters, while Davis Polk & Wardwell partner David Wells is advising ICI on the US issues. Freshfields' head of securitisation Tim Jones said: “The SEC changed its rules on how it deals with foreign issues. There was a big technical debate on how to deal with the SEC aspect.”
In-house lawyers Nimisha Carver at UBS Warburg, Richard Brown at Goldman Sachs and Vicky March at Merrill Lynch are all involved in the transaction.
An extraordinary general meeting is due to take place on 25 February and, assuming approval is given, trading in the shares will begin the following day.
This is the one of the biggest rights issues in the UK since 1998. In the early 1990s, companies favoured traditional financing methods, such as securitisation, to generate cash. Jones said: “Rights issues were always viewed as expensive methods. Now, however, the market accepts the deep discounting methods offered by companies, which also significantly reduces the underwriting costs, and institutions accept them as a way of strengthening the balance sheets.”
Mark Dighero, lead partner at A&O, believes that the ICI rights issue will set a precedent for the future. Inevitably, companies will be particularly watchful of what they are spending on professional fees, but rights issues are nevertheless a good fee-earner for lawyers.