Secrecy in the aisles

Tom O'Sullivan investigates the secret discussions, the transatlantic flights and the hidden identities behind the Asda and Wal-Mart deal.

The Americans who landed at Leeds-Bradford airport on 9 June were not sightseers coming to explore the city dubbed the “Barcelona of the north”.

Instead they were a group of bankers and businessmen who, despite having arrived on a private Learjet from Arkansas, were apparently trying to remain inconspicuous and keep their visit secret.

Their mission was to see if they should launch one of the most audacious takeover bids – and, at #6.7bn, the largest cash deal – in UK corporate history. The closest they came to sampling cosmopolitan Leeds was the deli counter in one of the many barn-like supermarkets they toured.

Officially they were US investors. In reality they were the advance party of, on some estimates, the world's largest retailer, Wal-Mart, and the supermarket aisles they were scouring belonged to Asda and some of its competitors in Yorkshire.

At the time Asda was the subject of an agreed #17bn merger deal with the Kingfisher group – a deal which was scheduled to be rubber-stamped by Asda shareholders on 18 June, the first closing date for their acceptance of the bid.

The clock was ticking.

There were no lawyers in the party which included Wal-Mart chief executive David Glass and its head of international finance Charles Holley. All but three members of Wal-Mart's in-house legal team had remained at its US headquarters in Bentonville, Arkansas.

However, just 200 miles from the freezer cabinets of west Yorkshire the legal side of the secret bid had been in full flow for more than two days.

Simmons & Simmons had been hired on 7 June to advise on the bid. The timetable was already set for a 14 June announcement, although no formal offer had been made to Asda at this stage. Asda was still promoting the Kingfisher deal to anybody who would listen, although it had been made aware of Wal-Mart's interest in the previous week.

Simmons was hired after a presentation to Alicia Swire, Wal-Mart's director of international mergers and acquisitions, and Joseph Boyle, the supermarket chain's international legal counsel.

Three weeks earlier Simmons' head of corporate finance Stuart Evans had been approached by Wal-Mart's investment bank Wasserstein Perella for advice on “some code issues” involved in any possible deal.

Evans then went on holiday only to be telephoned on 3 June and told that there would be a presentation to Wal-Mart on 7 June at 11am. It was decided that only Evans, Charles Banks, an anti-trust specialist, and corporate partner Damon Le Maitre-George would take part in the pitch.

By 2.30pm on 7 June, Simmons had been appointed. It immediately set up two separate operating centres: one at the Burlington Gardens headquarters of Wasserstein Perella to plan the execution of the deal and a second at its own offices in London to handle due diligence plus any other legal issues, from employment to environmental and intellectual property matters.

Phil Pesek, a Wal-Mart international legal counsel, was in charge of the due diligence at Simmons' office but took advice on the legal differences between the US and the UK and the workings of the Stock Exchange and Takeover Panel. Four of the Simmons staffers worked 400 hours between them that week on the due diligence alone.

Also at this stage Evans spoke to Nigel Boardman, commercial partner at Asda's law firm Slaughter and May. The discussion was about information on Asda included in the offer document for the Kingfisher deal; it is not known whether Boardman knew that Wal-Mart was the bidder at this stage. Simmons and Slaughters did not formally meet face-to face until the Sunday before the deal was revealed to agree and complete the press and Stock Exchange announcements.

“The big thing was to make sure that nothing leaked,” says Evans. “It was all done on a need-to-know basis and we kept a list of who knew the real identities [of bidder and target] and at what stage they were told.”

Secrecy was vital. Wal-Mart became “Wishbone” and Asda “Apple” to disguise their true identities while the deal was planned and then finalised. There were up to 25 people working on the deal at Simmons, plus a team at Wasserstein Perella, so there was potential for a leak. But the outstanding Kingfisher bid would have made any leak catastrophic.

Having toured a number of sites, the Wal-Mart executives made their intentions known to Asda chief executive Alan Leighton and then returned to the US. Wasserstein Perella had alerted Asda the previous week to a possible counter-bid by Wal-Mart.

But Asda needed to be sure that this was a serious offer. The worst-case scenario would have been for news of the Wal-Mart approach to leak causing Kingfisher to withdraw its merger bid and then find that Wal-Mart had gone cold on any deal. The Wal-Mart party reassured Leighton and Asda chairman, the Tory MP, Archie Norman.

It was at this stage that Asda's Denise Jagger, who glories in the very American-sounding job title of company secretary and corporate counsel, became involved.

Jagger refuses to say when she became aware of the Wal-Mart approach, but she had been handling all the legal issues regarding the Kingfisher merger and it would be surprising if she had not been made aware of the possible counter bid, on or around 3 June.

Jagger was part of a small five-member team with Leighton plus Asda's finance, investor and public relations directors.

But it seems that Asda did nothing until a formal offer was made on 10 June. Among Jagger's priorities was to ensure the talks – midway through an agreed merger – were not breaching any company law. There was also the question of explaining to Asda's 68,000 employees – the bulk of whom have share options – why having originally told them the Kingfisher deal was the right one, the management was now changing horses mid-race.

Slaughters was advising Asda as it has done for more than 15 years. Commercial partners Nigel Boardman, who had already spoken to Simmons' Evans earlier in the week, and Nilufer von Bismarck then set to work with Jagger on the Stock Exchange announcement, investigating the terms of the agreement and due diligence.

There was a series of meetings between Jagger and the two law firms. Several were done via satellite with the Asda team in Leeds, Slaughters in London, and the Wal-Mart people in both London and Arkansas.

“We were very positive about the Kingfisher deal,” says Jagger, “but the directors had a fiduciary duty to act in the best interests of the [Asda] shareholders. They had to look at it but we were in effect prepared for another deal. We had to make it clear to Wal-Mart that this could not be a long drawn out deal. It was obviously very late and we had to pull out all the stops.”

The Kingfisher merger had been agreed – the closing date for the first offer document and shareholder acceptance was 18 June.

Freshfields had a 10-strong team advising Kingfisher on the deal, headed by corporate partner Edward Braham along with competition, tax and employment specialists.

Although the bulk of the work had been done – the offer document and the filing of competition documents with the European Union authorities – they were still working on the deal as the Wal-Mart team stepped from their Learjet. In fact they would continue to work on it until 14 June when the lawyers discovered that Asda had been pinched from under Kingfisher's nose.

Braham refuses to comment, but it would not be too difficult to guess his feelings on the morning of 14 June. Kingfisher's assistant company secretary Martin Stokes, who pulled together the offer document for the merger, is cautious about what he says, because technically the Kingfisher offer is still on the table (it has not been withdrawn), although it now has no chance of success.

“A good description of the atmosphere here that morning was very subdued,” says Stokes, in what must be one of the year's understatements. “It was a major surprise that your merger partner only makes you aware of a competing, and indeed a preferred, bid just before telling the whole of the world – it is something that takes some getting used to.”

Ironically it was the Kingfisher deal which prompted Wal-Mart to act. Asda had released its annual results showing increased profits early, as part of the offer document to shareholders advising acceptance of the Kingfisher merger.

Wal-Mart, despite an internal wrangle over overseas expansion and prompted by Wasserstein Perella, became interested. Archie Norman, Alan Leighton and other Asda bosses were well-known to Wal-Mart – in some respects the Asda management had used Wal-Mart as a blueprint for what they wanted to create in the UK and had been regular visitors to Bentonville.

But the platonic relationship going back seven years became something much more meaningful in the space of just 10 days.

“There were no hysterics, no one fell down on the job, there was good communication with both Asda and Slaughter and May,” says Evans. “It would have been difficult to do the job if there had not been a will to do it and a will to do it quickly.”

Timetable of a Merger

19 April: Kingfisher and Asda announce agreed #17bn merger deal.

13 May: All work complete on offer documents. First closing date – shareholder acceptance – set for 18 June

17 May: Simmons & Simmons receives phone call from Howard Covington at investment bank Wasserstein Perella (acting for Wal-Mart) seeking legal advice on a possible Wal-Mart/Asda deal.

3 June: Simmons & Simmons put on alert for presentation to Wal-Mart scheduled for four days' time. At same time it is understood that the first contact was made with Asda by Wasserstein Perella.

7 June: Simmons & Simmons hired after two-way pitch with Linklaters. Immediately sets up two separate operation rooms in London for takeover by “Wishbone” (Wal-Mart) of “Apple” (Asda). Timetable for deal already in place although no offer had been made.

9 June: Senior Wal-Mart bosses arrive in Leeds.

10 June: Wal-Mart makes official offer to Asda.

13 June: First face-to-face meeting between Simmons & Simmons and Slaughter and May, acting for Asda.

14 June: Announcement of deal. Kingfisher finds out that it is no longer the preferred bidder.

29 June: Offer documents posted to shareholders.

9 July: Last offer day for Kingfisher bid.

26 July: First offer deadline for Wal-Mart/Asda deal for shareholders to respond and accept. European Union decision on takeover expected at same time.