Legal Intelligence

City report

City firms show their metal

The City was suffering a definite hangover in the first weeks of 2007 after the frenzied M&A commotion before Christmas. Deal activity only really started to pick up in the latter stages of January, with the largest transaction coming on the last day of the month when Indian conglomerate and Herbert Smith client Tata emerged victorious in the £6.7bn battle for Corus to forge the world’s fifth-largest steel producer.

Tata had been pitched against Brazilian mining company and Macfarlanes client Companhia Siderúrgica Nacional (CSN) since November, and the Takeover Panel finally put an end to a protracted skirmish for Corus by enforcing an auction. This was a highly unusual tool that the panel has used only twice before – on the 2004 bid for Canary Wharf and in the 2005 fight for QXL Ricardo.

The 608p-a-share in cash bid tabled by Tata trumped that of CSN’s 603p-a-share offer and exceeded expectations of what Corus could fetch. Tata had originally bid 455p a share for Slaughter and May client Corus in October.

The bids for Corus were of interest because they were both structured as preconditional schemes of arrangement.

Tax-advantageous schemes of arrangement are increasingly common. The Takeover Panel told The Lawyer (5 February) that one-third of UK-based takeovers now use them as a tool. Iberdrola’s £11bn offer for Scottish Power is tabled as a scheme, for instance, and Banco Santander Central Hispano saved itself up to £42m in stamp duty by taking over Abbey National in 2005 through a scheme.

But schemes are hardly ever found in hostile or competitive situations because they need the cooperation of the target. According to a source close to the deal, Tata announced that it would be running a scheme of arrangement last October. When CSN entered the fray a month later, it too wanted to use a scheme. The way round it was to structure CSN’s scheme with the precondition that the Tata bid fail, and vice-versa. This seemingly logical move needed bargaining with the panel.

The Lawyer revealed (5 February) that the panel said it would clarify its position on schemes of arrangement this year, most likely through a consultation paper.

Another interesting 2007 takeover was Weil Gotshal & Manges client General Electric’s (GE) £982m acquisition of Vetco Gray, a Houston-based subsidiary of Vetco International, from a private equity consortium advised by Clifford Chance (The Lawyer, 15 January). But it emerged that a precondition to GE’s offer was that a US Department of Justice (DoJ) investigation into overseas corruption at Vetco Gray had to be cleared up. Vetco Gray, advised by Clifford Chance and Cadwalader Wickersham & Taft, volunteered information about bribery in Nigeria, but received a $26m (£13.35m) fine from the DoJ anyway, the largest criminal penalty in US history under overseas bribery laws. Regardless of the deal, said Clifford Chance private equity partner Ian Bagshaw, the information would have been volunteered. The fine will be paid, the matter resolved, and the deal expected to close at the end of February. Then Bagshaw can concentrate on his move to arch-rival Linklaters.

Regulatory roundup

It has been an excellent period for competition lawyers so far this year, both in Europe and in the UK. The Directorate General for Competition (DG Comp) meted out its biggest single cartel fine, at €750m (£494m), for collusion in the heavy electrical equipment market.

German conglomerate and Gleiss Lutz client Siemens received a €396m (£261m) penalty for its role, which also made history for being the biggest fine ever handed out to one company for participation in a cartel. Notably, four members of the cartel were Japanese companies Mitsubishi, Toshiba, Hitachi and Fuji. DG Comp said there was an unwritten agreement between the Japanese companies to stay out of the European market in return for reciprocity from the European companies. Mitsubishi, advised by Baker & McKenzie, received the second-highest individual fine of €118.6m (£78m). The other Japanese companies were represented by White & Case, Allen & Overy and Slaughter and May respectively.

Back in the UK, consumer group Which? is determined to make history by bringing the first-ever class action seeking individual damages for anticompetitive behaviour. Which? has instructed Clyde & Co in the matter, which has wasted no time in encouraging to come forward consumers of replica football shirts who believe that they were victims of ovepriced shirts in 2000 and 2001. The claim turns on a 2003 Office of Fair Trading (OFT) probe into price collusion between JJB Sports, Umbro, all:sports and others over the replica shirts, which culminated in an £18.6m fine. DLA Piper represented JJB in the investigation and subsequent appeals. In 2002 Which? was given powers to bring representative claims on behalf of consumers, the only UK organisation to be able to do so. But it had to wait until all of the appeals (brought by JJB rather than the other members) had expired. But some mystery remains. At press time, Which? claimed that a pre-action letter was sent to JJB, but the retailer claimed that it had not received anything. Subsequently, DLA Piper competition partner Martin Rees was awaiting his official JJB instruction.

Lawyer of the month

Stephen Lloyd
Firm: Ashurst
Partner since
: 2003
Key clients: Apax Partners, Carlyle, Constellation Brands, Challenger

Ashurst’s close relationship with marquee private equity client Apax has much to do with corporate partner Stephen Lloyd.

Lloyd made sure Ashurst landed a coveted place on Apax’s panel in 2004, surprising longstanding advisers Clifford Chance and Travers Smith, and he has been Apax’s go-to man at the firm ever since.

He recently beat fellow Apax panelist Freshfields Bruckhaus Deringer in a beauty parade to secure an instruction on Apax’s sale of Swedish company Mölnlycke Health Care for €2.85bn (£1.91bn).

Ashurst head of corporate Adrian Clark says Lloyd “can turn his hand to all different types of corporate work and deal with them in a top-quality way”.

As such, most of Lloyd’s practice is taken up by Apax matters, although he does act on occasional corporate files, such as Constellation’s 2005 bid for Allied Domecq.

M&A highlights (any European involvement)
December 2006-January 2007

Target name: Essent
Bidder: Nuon
Legal adviser(s):
Essent – Freshfields Bruckhaus Deringer (Steven Perrick,
Winfred Knibbeler).
Nuon – Allen & Overy (Jan Louis Burggraaf, Paul Glazener).
Description:Essent and Nuon, the two biggest power utilities, agreed to a merger – the
largest in the Netherlands to date. Essent will own 55 per cent in the combined
company, which is to be named EssentNuonBV, and Nuon will have 45 per cent.
Value(€): 24.04bn
Value(£): 16bn
Target name:ScottishPower
Bidder: Iberdola
Legal adviser(s):
Scottish Power – Linklaters (David Cheyne, Dominic Welham);
Sullivan & Cromwell; Shepherd and Wedderburn.
Iberdrola – Allen & Overy (Richard Brown); Latham & Watkins;
CMS Albiñana & Suares.
ScottishPower, one of the UK’s biggest energy suppliers, agreed to an £11.6bn
bid by Spain’s Iberdola to create Europe’s third-largest utility company and a
world leader in renewable energy.
Value(€): 17.43bn
Value(£): 11.66bn
Target name: Gallaher Group
Bidder: Japan Tobacco
Legal adviser(s):
Gallaher – Slaughter and May (Martin Whelton); Fried Frank Harris
Shriver & Jacobson (Tim Peterson, Robert Mollen).
Japan Tobacco – Freshfields Bruckhaus Deringer
(Martin Nelson-Jones, Peter Hall, Onno Brouwer, Thomas Janssens,
Sarah Murphy, Naoki Kinami).
Japan Tobacco, maker of Mild Seven cigarettes, paid more than $19.1bn
(£9.81bn) for UK-owned Gallaher Group in the largest-ever foreign takeover by
a Japanese company.
Value(€): 11.27bn
Value(£): 7.5bn
Target name: Portugal Telecom
Bidder: Sonae
Legal adviser(s):
Portugal Telecom – Vieira de Almeida & Associados; PLMJ; Garrigues;
Sonae – Morais Leitão Galvão Teles Soares da Silva & Associados.
The industrial group that owns Portugal’s number-three mobile carrier
made an unsolicited bid to buy Portugal Telecom, the nation’s biggest phone
company, in a bid to gain control one of Europe’s most saturated mobile phone
Value(€): 10.8bn
Value(£): 7.19bn
Target name: Corus
Bidder: Tata
Legal adviser(s):
Corus – Slaughter and May (Anthony Newhouse , Andrew Balfour);
De Brauw Blackstone Westbroek.
Tata – Herbert Smith (David Paterson and Malcolm Lombers); Stibbe.
Tata was the eventual victor in the hard-fought auction for Anglo-Dutch
steelmaker Corus, which pitched Tata against Brazilian miner Companhia
Siderúrgica Nacional (CSN).
Value(€): 10.07bn
Value(£): 6.7bn
Target name: Wilson Bowden
Bidder: Barratt Developments
Legal adviser(s):
Wilson Bowden – Freshfields Bruckhaus Deringer
(Gareth Stephenson).
Barratt Developments – Slaughter and May (Kathryn Davis).
Barratt’s takeover of Wilson Bowden restored the company’s status as the UK’s
leading housebuilder after beating rival Wimpey and a consortium consisting
of Scottish entrepreneur Sir Tom Hunter and HBOS.
Value(€): 3.16bn
Value(£): 2.1bn
Target name: Mölnlycke Health Care
Bidder: Investment AB and Morgan Stanley Principal Investment
Legal adviser(s):
Apax – Ashurst (Stephen Lloyd).
Investment AB/Morgan Stanley – Freshfields Bruckhaus Deringer
(Julian Long); Cederquist; Baker & McKenzie.
Mölnlycke management committee – Barlow Lyde & Gilbert
(Keith Sneddon); Ashurst (Anthony Clare, Daniel Bushner).
Two teams from Ashurst advised on the ‘twin-track’ exit of Mölnlycke Health
Care from Apax, a process that concluded in the sale of Mölnlycke to Investor
AB and Morgan Stanley for €2.85bn (£1.9bn). It also marked Ashurst’s first
major Swedish deal since merging with Stockholm boutique AJB Bergh last
Value(€): 2.85bn
Value(£): 1.9bn
Target name: Eastman Kodak Company Health Group
Bidder:Onex Healthcare Holdings
Legal adviser(s):
Eastman Kodak Company – Freshfields Bruckhaus Deringer
(Julian Long, Vanessa Turner, Kathleen Healy); Sullivan & Cromwell.
Onex Healthcare Holdings – Kaye Scholer.
Eastman Kodak Company Health Group disposed of its health group to Onex
Healthcare Holdings for £1.3bn.
Value(£): 1.3bn
Target name: Vetco Gray
Bidder: General Electric
Legal adviser(s):
Candover/3i/JPMorgan Partners – Clifford Chance (Adam Signy,
Ian Bagshaw).
General Electric – Weil Gotshal & Manges (Thomas Roberts, Jay Tabor).
Vetco management – Travers Smith (David Innes).
General Electric jumped into the oil services business when it agreed to buy
Vetco Gray from a consortium of private investors, which included Candover, for
$1.9bn (£975.73m) in cash. The sale ended years of speculation that the giant
conglomerate intended to enter the sector.
Value(€): 1.45bn
Value(£): 967.67m
Target name: Secondary Market
Infrastructure Fund (SMIF)
Bidder: Land Securities Trillium
Legal adviser(s):SMIF – Norton Rose (David Baylis); Lovells (Phillip Brown,
Kevin Ashman).
Land Securities Trillium – Berwin Leighton Paisner (Frank Pena).
Star and co-investors HBOS and AMP Capital disposed of SMIF to Land
Securities Trillium for £927m. SMIF is one of Europe’s largest investment
and management groups, with around £4bn worth of gross assets under
Value(€): 1.39bn
Value(£): 927m
Deals volume

Acquisition finance update

The run-up to 2007 proved a busy time for acquisition finance lawyers, and it was no exception for those in the magic circle firms.

Linklaters made a strong start to 2007 as the firm bagged a lead role on the high-profile £470m acquisition of the UK’s most successful football club Liverpool FC. Finance partner Jeremy Stokeld led the team advising Royal Bank of Scotland on the financing of the bid for the football club. The structure of the deal saw Kop Football, the bid vehicle of US sports tycoons George Gillett and Tom Hicks, pay £5,000 per share, valuing Liverpool FC at some £174m. Kop Football also assumed £44.8m in debt.

Allen & Overy, meanwhile, advised HSBC, SE-Banken and Morgan Stanley on the debt finance for Morgan Stanley’s and AB Investor’s €2.85bn (£1.91bn) acquisition of Swedish medical products company Mölnlycke Health Care Group from Apax Partners. A&O banking partner David Campbell led the team.

Elsewhere, Herbert Smith and alliance firm Stibbe bagged a new instruction for the former firm’s burgeoning acquisition finance team. London-based partner Malcolm Hitching advised regular client Société Générale and new acquisition finance client BNP Paribas as the lead arrangers on the financing for private equity company 3i’s €320m (£214.83m) buyout of VNU Business Media Europe.

Top international deals

United States
This month saw the biggest takeover deal ever, after Blackstone successfully launched a $38.9bn (£19.98bn) bid to acquire Equity Office Properties (EOP). Simpson Thacher & Bartlett scooped the main role advising Blackstone, while Sidley Austin handled the deal for EOP, the US’s largest commercial property group. The deal also created work for Sullivan & Cromwell and Wachtell Lipton Rosen & Katz, which advised Vornado Realty Trust and Starwood Capital respectively on their rival bids.

United States
The Bank of New York’s $18bn (£9.24bn) takeover of Mellon Financial Corporation also featured Wall Street’s top law firms. Simpson Thacher has put forward a five-partner M&A team to advise Mellon along with Reed Smith. Sullivan & Cromwell bagged the lead role for the Bank of New York, with firm chair Rodgin Cohen and corporate star Mitchell Eitel managing the team jointly.

South Africa
At the start of February Kirkland & Ellis managed to scoop the lead role on Africa’s largest-ever leveraged buyout. The firm advised Bain Capital on its $3.5bn (£1.8bn) acquisition of African retailer Edgars Consolidated Stores. London-based corporate partners James Learner and Christopher Field are working with finance partners StephenGillespie and Neel Sachdev and tax partner Ian Taplin on the deal. Johannesburg firm Webber Wentzel Bowens is advising Edgars.

Cleary Gottlieb Steen & Hamilton has bagged a plum role advising a consortium on the A$11.1bn (£4.41bn) offer to acquire Qantas Airways. The consortium includes Texas Pacific Group, Canadian private equity group Onex Corporation, Australian infrastructure fund Allco Finance and Macquarie Bank. Mallesons Stephen Jaques provided the consortium with Australian advice. Qantas Airways has instructed Australian firm Allens Arthur Robinson on corporate issues. The Cleary team is being led by finance partners Andrew Shutter and Simon Ovenden.

United States
Allen & Overy (A&O) represented longstanding client Imperial Tobacco on its first US acquisition, the $1.9bn (£975.73m) cash offer for Commonwealth Brands. Competition partner Michael Jahnke and special counsel Mike Gilligan comprised A&O’s New York team, working alongside London-based partner Jeremy Parr, the relationship partner for Imperial Tobacco. Commonwealth instructed local Kentucky firm Wyatt Tarrant & Combs, with corporate partner Franklin Jelsma leading the team.