Cleary Gottlieb Steen & Hamilton is advising managers Goldman Sachs and Morgan Stanley Dean Witter on Dixons’ indirect issue of exchangeable bonds only a month after investing in French internet company Wanadoo.
Under the terms of the deal, the bondholder has the right to trade bonds in return for shares in internet service provider Wanadoo. But the transaction is unusual because the offer was launched almost immediately after Dixons acquired its shares in Wanadoo.
In most exchangeable bond issues, the bond issuer knows the share issuer well. But Dixons has no relationship with Wanadoo, except for an earlier deal through internet service provider Freeserve.
Dixons floated approximately 20 per cent of Freeserve on the London Stock Exchange and Nasdaq in 1999. It then sold its remaining shareholding to Wanadoo in February this year.
Cleary Gottlieb finance partner Andrew Bernstein, who led the Paris team, says the lack of knowledge about Wanadoo had a significant impact on the deal. He says: “Dixons don’t have any privileged access to information regarding Wanadoo, so they’re unable to verify the accuracy and completeness of public information on Wanadoo.”
For UK tax reasons, Dixons will set up a special purpose company to issue the bonds. This will allow the exchangeable bonds to be split into straight bonds with principal and interest and warrants, which requires Dixons to deliver the Wanadoo shares.
There have been very few UK bond issues exchangeable for French shares, and the deal therefore requires close cooperation between Cleary Gottlieb’s London and Paris offices. Along with Bernstein in Paris, partner Manley Hudson led the London team.
The terms and conditions for exchangeable shares differ in France and the UK. The team therefore had to decide which model to use.
“Although UK documentation is used throughout Europe, in the end we decided to use the French model because of its success in the exchangeable bond issue between France Télécom and Orange,” says Bernstein.
Goldman Sachs and Morgan Stanley are long-term clients of Cleary Gottlieb. Linklaters & Alliance, which acted for Dixons on the Freeserve initial public offering, is advising the retail giant.