Questions still to be answered in the wake of Canary Wharf

Helen Power asks what the City’s thoughts are about the Canary Wharf bidders and the Songbird win

There’s a big hole in the life of City lawyers this month as the curtain has finally come down on the Canary Wharf battle, with the prize going to the Slaughter and May and Morgan Stanley-led Songbird consortium. So, this column is designed for all those still on a Canary Wharf comedown. The battle may be be over, but there are still plenty of unanswered questions.

Were any of the clients people one would want to spend time with if they didn’t pay you through the nose for your company?

Brascan’s Canadian lot have been described as “dour”. Former chief executive of Canary Wharf Paul Reichmann is supposedly a “bit of a laugh”, but that takes some imagination. But Slaughters won’t care because it’s laughing all the way to the bank (of which more later).

For fun factor, my money is on the target, Canary Wharf Group.
Clifford Chance worked with Canary Wharf general counsel Michael Ashley-Brown, a man renowned for appearing at a charity concert dressed in a gold lame dress and singing Stand by Your Man. Beat that one.

On a more serious note, what do lawyers think of the Takeover Panel’s new auction process?

The four most representative opinions I canvassed were “it was brutal”, “it was bloody”, “it was farcical” and “it was bloody farcical”.

Why did Songbird leave the switch from a scheme of arrangement to a straight 50 per cent takeover offer until the eleventh hour?

There is no doubt that the move was the ultimate turning point for a consortium that was once dead in the water.

When British Land joined the party in March it breathed life and money into Songbird, but the problem Morgan Stanley et al always had was scraping together the money to do the deal. It was much easier to arrange finance on a scheme of arrangement than on a straight bid – perhaps the bankers only stumped up at the very last minute.

What about Simon Glick’s role under the final takeover offer?

Brascan was miffed when key Canary Wharf shareholder Simon Glick hooked up with Morgan Stanley last year. It appealed to the Takeover Panel, claiming that Glick’s deal offered him preferential status over other Canary Wharf shareholders.

Dismissing Brascan’s concerns, the panel said that Songbird’s offer “is proposed to be implemented by means of a scheme of arrangement…”. It continued: “As a member of the consortium, Mr Glick’s shareholding would not be eligible to vote upon the proposed Scheme of Arrangement.” This is true, but Songbird’s final bid was not by way of scheme of arrangement. Did that not make a difference?

Did Brascan irritate the Takeover Panel?

Major shareholder HRH Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud kept swapping sides in the deal, but when he switched to Songbird in April, he didn’t tell the market or Canary Wharf Group about it within the time specified by the Takeover Code. Brascan appealed on this basis, but the panel said the remedy Brascan asked for – a reopening of the auction – was too drastic.

Brascan, although represented by the Takeover Panel’s own lawyers Freshfields, seemed to wind the panel up throughout the process. Perhaps the panel thought the Brascan consortium was a bunch of chancers intent on spoiling Songbird’s bid, without offering something better themselves, or perhaps it just has something against Canadian accents.

Canary Wharf has generated a lot of fees, but just how much lolly will the City’s finest take home?

The biggest cheques will surely go to Freshfields, Slaughters and Weil Gotshal & Manges.

When Morgan Stanley negotiated break fees with Canary Wharf Group, it had legal fees in mind. Lawyers are still the most resistant of all professional advisers to 100 per cent contingency deals.
Morgan Stanley negotiated two tranches of break fees – £8m for starters, then a further £8m when the £1.1bn Royal Bank of Scotland property sell-off went through.

Slaughters is not averse to the odd 100 per cent contingency deal (just look at PizzaExpress) but it wouldn’t take a deal such as Canary Wharf on such an arrangement. The contingency element on Canary Wharf was closer to 50 per cent, but you can bet that Songbird won’t get much change back from £10m when it pays Slaughters.

Even as the loser, Freshfields should still get a good return, because it has charged on a time billed basis, and Clifford Chance, which ran two bid teams on behalf of Canary Wharf, should take home at least £3m-£4m. Weil Gotshal, which represented Glick, will also be quids in.

One firm that won’t get a penny is Nabarro Nathanson, because it wasn’t on the deal in any form. How could one of the City’s main property firms not get an instruction, not even to help out with the due diligence?

Who will get the follow-on work?

Songbird has promised that its plan for Canary Wharf is not a break-up strategy. This is only partly true: there will be some disposals, and with property developing a host of new asset classes, and real estate investment trusts (REITs) just around the corner, there is plenty of scope for a complicated legal restructuring of the company.

Actually, this will be much more lucrative for lawyers than a simple garage sale of the buildings. And who is favourite to get this work? Slaughters is unbeatable for M&A, but only a nutter would give it a finance-based project this vast. My money is on Canary Wharf’s own lawyers Clifford Chance, which already knows the company inside out and is just the sort of firm you would want on board.

So is property the new private equity?

REITs makes even non-property lawyers so excited that they gush for hours, and Canary Wharf was a terribly sexy property-based deal. The world is changing. Answers by email please.
helen.power@thelawyer.com