Johnson Matthey has just completed its largest acquisition, the £260m purchase of Synetix, ICI’s catalyst business. It was M&A that brought head of legal Simon Farrant to Johnson Matthey, and this has been the recurring theme of his time at the UK chemicals company.
Farrant started at Johnson Matthey as a secondee from Taylor Joynson Garrett (now Taylor Wessing) in 1993. He was hired to work on two M&A deals: the disposal of Johnson Matthey’s jewellery business to the Cookson Group and a joint venture in Japan with Mitsubishi involving its electronic materials division.
Farrant has watched the Cookson deal come through a full business cycle. The jewellery deal culminated in a joint venture with Cookson with the formation of Cookson Matthey Ceramics. The cycle ended with Johnson Matthey buying the joint venture for £65m in 1998.
Farrant has also watched the company build up its electronics business through purchases in 1995 and 1996 – and then sell it. The first acquisition was that of Advance Circuits for £106m, which was financed by a rights issue. In August 1999, Johnson Matthey sold the electronic materials division to Allied Signal, which is now Honeywell, for £655m.
Farrant joined full time in May 1994 as the company’s senior legal adviser. He took on the additional responsibilities of company secretary in May 1999. He has a department of three in the UK, there are four attorneys in Philadelphia who Farrant is in touch with on an almost daily basis, and the firm also has a small team of patent attorneys in Reading.
Farrant’s head office team comprises two other lawyers. Annabel Spanner, who has an M&A background, joined from Clarks in Reading, and Liz Moore joined recently from Allen & Overy with a competition background.
“One of the main reasons for taking on a competition lawyer was to sharpen the focus on competition. On a day-to-day basis, this is becoming an increasing priority to get right,” says Farrant.
The company has struggled with some EU regulation. Precious metals were once classified as waste and so were subject to the appropriate EU restrictions. But with help from the UK’s Department of Trade and Industry, Johnson Matthey has won the right to transport precious metals around the globe.
The company’s European focus is reflected in Farrant’s choice of outside counsel. He has used Herbert Smith for many of the recent M&A deals. Johnson Matthey’s lead partner at the firm is worldwide practice partner and competition specialist Richard Fleck. Farrant says he uses Brussels head Stephen Kinsella, who “doesn’t take much teasing” about his recent OBE, more on a day-to-day basis. Kinsella wins praise for using his insight to cut to the chase, for keeping bills down and for focusing on the main objective.
The company also uses Herbert Smith for some property work as well as on some litigation and intellectual property (IP) matters. It uses Taylor Wessing across the board and has done so since 1891, when Taylor Humbert sat in on Johnson Matthey’s very first board meeting.
At Taylor Wessing, Farrant’s main contacts are still those partners that he used to work for. Farrant says he has “enormous respect” for the firm’s former managing partner Tim Eyles and Declan Tarpey, a project finance specialist.
Farrant outsources some local employment work to Nick Sayer at Hewitson Becke + Shaw. More recently, the company has used Andrew Ingliss at Olswang on some IP and IT matters, including the establishment of a new website for the fuel cell market.
On the corporate side, Stephen Wilkinson is Farrant’s key contact partner at Herbert Smith. Farrant was particularly pleased with the firm’s work on the Synetix deal. “ICI is very professional but not the easiest company to deal with,” says Farrant. “Herbert Smith, together with my small team, acquitted themselves very well.”
Despite the flurry of acquisitions, Farrant says: “The history is about organic growth. The acquisitions, certainly over the last four or five years, have been very specifically related to the core competence of Johnson Matthey.” The core competence is catalyst technology, precious metals and fine chemicals.
In June 2001, the company bought Meconic, a pharmaceuticals materials business based in Edinburgh, for £147m. The firm once again used Herbert Smith for that transaction.
But Farrant does not rely on outside counsel for M&A transactions. He has built up a fair amount of in-house M&A expertise, evidenced by the January 2002 acquisition of Avocado Research Chemicals, which was completed solely with the advice of his in-house team. The initial purchase price of £25m could rise to £34m, based on Avocado’s future performance.
Farrant is confident that his team can cope with most UK-specific deals. The need for more manpower comes on the larger deals, but more specifically on the multijurisdictional deals.
There has been a fair amount of international work. Of the firm’s 7,500 employees, only 1,500 are based in the UK, with another 800 to come from the Synetix deal. The company has bought a biomedical business in Canada and established an autocatalyst business in Argentina. “A very difficult operating environment,” Farrant says of Argentina, but nevertheless a successful one for the company. Farrant recruited local firm Estudio Beccar Varela to assist, which was recommended to him by a contact at DaimlerChrysler.
Other than M&A, the legal department is kept busy in a number of ways. “Certain areas, such as precious metal refining, are very specific legal areas,” says Farrant.
Indeed, there are certainly very few outside advisers that could add to the in-house team’s expertise in that area.
The trading of precious metals is heavily regulated and there are certain financial services regulations that the team has to bear in mind, but regulation is not the team’s main concern. The company has been relatively free of litigation except in the US and also in Korea, where the company has successfully sued another company, although the case is currently being appealed in the Korean Supreme Court.
Farrant is in daily contact with the US team, which has more litigation to deal with – mainly commercial disputes and the occasional discrimination claim. In New York and Washington DC, the firm uses Sidley & Austin Brown & Wood for M&A and litigation and Duane Morris & Heckscher in Philadelphia. Farrant has had to deal with so much US law that in July 1999, after much study, he became dual-qualified in UK and US law in the state of New York.
Head of Legal and Company Secretary
|Annual legal spend||£2-£4m|
|Head of legal and company secretary||Simon Farrant|
|Reporting to||Executive director David Morgan|
|Main law firms||Herbert Smith, Hewitson Becke & Shaw, Olswang and Taylor Wessing|