This year’s deals highlight the West to East shift in the balance of economic power, says Gavriel Hollander
Planes, trains and automobiles all feature on a strong shortlist of transactions for The Lawyer Awards 2011’s Corporate Team of the Year, with the variety of both geographies and sectors represented demonstrating that, for the intrepid M&A lawyer, there are still deals to be done.
The corporate year of 2010-11 was not marked by a single blockbuster deal in the way that Kraft’s acquisition of Cadbury dominated the agenda during the previous year. Nevertheless, the constrained market conditions produced a good helping of innovation among the City’s best practices.
And if there is a trend running through the deals, it is that many of the more innovative ones tend to have an Eastern flavour. Only three of the seven nominations do not involve at least one party based east of the Bosphorous.
If any single M&A transaction of recent years were to be produced as evidence of the geographic shift of the global economy, it would be hard to find a more appropriate candidate than Chinese manufacturer Geely’s $1.8bn (£1.09bn) takeover of Volvo Cars. The deal has yielded two nominations: for Freshfields Bruckhaus Deringer acting for Zheijang Geely Holding Group and for Hogan Lovells advising on the sell side for Ford Motor Company.
The deal was the largest international acquisition by a privately owned Chinese company and, aside from the difficulties inherent in such a multijurisdictional piece of M&A, it involved labyrinthine IP issues with the brand and technology separation of Volvo from Ford. Mix in the fact that the seller is emblematic of a century of Western dominance in the corporate world, while the buyer was a novice in terms of international M&A, and the stage was set for some tricky negotiations.
“It was an extraordinary achievement to get it done and that required a lot of effort from a lot of different people,” says Freshfields corporate partner Chris Bown, who led alongside IP partner Avril Martindale.
And the historic aspects of the transaction are not lost on him. “Here was this utterly inexperienced company coming to buy one of the iconic European brands,” he says. “It felt as if this was something we’ll be looking back on in 20-30 years from now as being the first of its kind.”
Martindale, who unusually for an IP partner spent more time on this deal than any of her corporate colleagues, echoes Bown’s sentiments. “I’ve never seen a deal like it and I thought I’d seen every type of deal there was to do. It was the hardest, by a long margin, that I’ve ever been involved in,” she says.
If China is the new big beast of the corporate world, India is not far behind. One of the highest-profile deals for the Indian market in 2010-11 was the $3.7bn sale of Piramal Healthcare’s generic branded business to US drugs giant Abbott Laboratories.
Stephenson Harwood won the mandate for Piramal when corporate partner Andrew Edge, a March 2010 lateral from Ashurst, brought the client to his new firm and was pitched into the deal within days of joining.
The deal’s complexities were manifold and included the fact that individual employment offers had to be made to thousands of employees of the transferred business as there is no equivalent of a Tupe regime in India. Stephenson Harwood worked with in-house counsel and local firms on both the contract and M&A work.
The ability to ’quarterback’ deals is something that Edge says UK firms will increasingly have to be able to do as the M&A market becomes increasingly international.
“What we did isn’t unique, US firms have been doing is for years. But for the Americans it’s second nature, while we [in the UK] haven’t always been so good at it,” concedes Edge.
Closer to home, Slaughter and May’s advice to longstanding client British Airways (BA) on its merger with Spanish national carrier Iberia was an example of the type of inventive dealmaking sometimes required to pull off big-ticket transactions in the current market.
The past few years have seen a general consolidation of the airline industry, with other mergers including Air France-KLM Royal Dutch Airlines and United Airlines-Continental Airlines.
For the BA-Iberia tie-up a Slaughters team led by partner David Wittmann and featuring M&A head Steve Cooke worked its way through a maze of regulatory and commercial issues.
“One of the complexities of doing cross-border deals is that you have two sets of laws and two sets of stock exchange regulations, both of which you have to comply with equally,” explains Wittmann. “How regulators deal with things in different countries can be very different.”
The deal involved a dual Spanish and UK listing for the newly created International Consolidated Airlines Group (IAG) Spanish holding company, reflecting the previous separate listing for BA and Iberia. To allow this to happen the Slaughters team established a central security (Crest) depositary instrument structure – the first of its kind relating to a majority of the share capital of a company in the FTSE100.
There was more regulatory innovation to be found among the Herbert Smith team responsible for one of the biggest rail disposals of last year – the £2.1bn sale of the High Speed 1 (HS1) rail link by London and Continental Railways (LCR) to a consortium of Canadian pension funds.
The City firm had been LCR’s adviser since the group won the contract to build and operate the Channel Tunnel rail concession in the 1990s and continued working alongside it right through to the ultimate sale.
Global head of infrastructure Patrick Mitchell led the team on a deal where, unusually, a new regulatory regime had to be in place even before a buyer was found.
“What made this quite unusual was that, when [HS1] was set up in the early ’90s, the regime created for it was different from [the one for] the rest of the rail industry,” explains Mitchell. “We had to completely rewrite the regime.”
If any sector has managed to chart a course through the recession in relatively fine fettle it is energy, and the two highest-value deals to make The Lawyer’s shortlist both come from that sector.
For Linklaters, 2010-11 brought the realisation that its marquee relationship with BP could be under threat from cross-City rival Freshfields. However, the strength of Linklaters’ enduring relationship with the energy giant was evidenced by its mandate on the $7bn acquisition of a series of oil and gas assets from Devon Energy Corporation.
The assets in Azerbaijan, Brazil and Mexico had been slated for sale by auction before BP offered a bipartite deal that saw it sell a 50 per cent stake in its Canadian Kirby Oil Sands interest and set up a joint venture to pursue its development.
Corporate partners Stephen Griffin and Lee Taylor led the deal for the magic circle firm, with the latter having taken on some of the relationship duties from outgoing senior partner David Cheyne.
“Energy’s always been a key sector for Linklaters and it seems to be very active at the moment,” says Griffin. “This deal really spanned the globe and was one of the biggest deals of the year at the time.”
The final deal shortlisted for the award is the biggest of the lot. Clifford Chance is nominated for its role advising GDF Suez on its mammoth £17bn investment in International Power.
The uniquely structured reverse takeover created a company with a turnover of some £70bn, with GDF owning 70 per cent. Corporate partners David Pudge and Brendan Moylan led a multijurisdictional and multidisciplinary team through one of the biggest M&A deals of the nascent decade.
The range of transactions present in the shortlist suggests that activity in the M&A market has not tailed off to the extent that some commentators feared, although the obstacles they have needed to overcome speak of a landscape where completing deals is as tough as it has ever been.
“I think there’s clearly more activity now than two or three years ago,” says Linklaters’ Griffin. “But it still seems to be those deals where there are specific strategic rationales. The breadth of the M&A market isn’t back yet.”