Corporate law: lawyers in the limelight

The minutiae of takeovers or regulatory frameworks are hardly subjects that usually capture the public’s imagination, but often the most innovative corporate legal work is done on deals that barely register outside the sectors involved.

However, in the past year, some of the most groundbreaking work was seen in the deals that received the widest attention. That has meant lawyers working not only under intense client pressure but also under the somewhat unfamiliar glare of public scrutiny.

“If you screw up, people are going to notice,” says David Wittmann, partner at Slaughter and May, which represented British Airways, the UK flag carrier, in its merger with Iberia, its Spanish counterpart. That deal, which also featured work by Spain’s Garrigues, was one such transaction.

“This was a deal that broke out of the business pages into the general public interest,” Mr Wittmann says. “Because it was a genuine merger of two pretty iconic businesses in each of their markets with lots of history, there were cultural sensitivities that needed to be dealt with.”

The challenge for the lawyers was to create a new parent company while allowing the combined business to remain both British and Spanish. The teams from Garrigues and Slaughters used Spanish domestic merger legislation and moved Iberia’s operating business into a new subsidiary, a practice common in Spain. A new holding company was created on top of BA, which is common in the UK but not in Spain, thus providing two “clean” companies without creditors that could be merged.

But there were other complications. The merged business has a Spanish holding company, but had to remain listed in the UK. Airline regulations also meant that BA had to remain a UK airline in order to fly out of Britain to certain destinations, while Iberia had to remain a Spanish-owned company.

Mr Wittmann says the lawyers had to create a structure that would “allow BA to be controlled by a UK board and Iberia to be controlled by a Spanish board, while still having a common management team for the group”.

The deal offers a template for future consolidation in the industry, as the lawyers say the structure would allow the company to plug acquisitions of airlines based in other countries into the existing structure.

Another deal in which legal wrangling left the confines of the business pages, was the contentious £300m (€351m) takeover of Liverpool Football Club by New England Sports Ventures, which owns the Boston Red Sox, the US baseball team. John Henry, principal owner of NESV, defeated Tom Hicks and George Gillett, the existing owners, in their battle to stop the takeover.

Creighton Condon, mergers and acquisitions partner at Shearman & Sterling, the English and New York counsel to NESV, says: “The deal was exceptional for its legal complexity, the tactics employed, the astonishing court dramas, the colourful characters, the media circus and the passionate fan base.” The firm was aware that keeping the approval of the iconic club’s fans was an important factor in the transaction.

The deal was unusual as the owners did not want to sell to NESV but to Royal Bank of Scotland. The bank had lent £2.137bn to the club’s owners and had put in place corporate governance arrangements stipulating that Mr Hicks and Mr Gillett had to abide by the decisions of an independent board.

The pair challenged that, and sought to change the board. Not knowing if the arrangements would hold up, the Shearman lawyers put together an unusual bid that enabled LFC board members to take decisive action in the face of opposition from the controlling shareholders in light of their duties to the senior creditors.

The High Court backed the RBS arrangement, but a Dallas court then gave Mr Hicks and Mr Gillett a restraining order to block the sale. Shearman lawyers overturned that in a 7am hearing on October 15, the very day the RBS loan ran out. “I have done a number of sports deals and they tend to be the most memorable, given the characters involved,” Mr Condon says. “But this one was the most testing.”

Of course, such high-profile and politically sensitive deals can come unstuck or be derailed by external events. Just ask the Allen & Overy team that worked on the bid by News Corporation, the international media group, to buy out the 60.86 per cent of shares in BSkyB, the UK satellite broadcaster, that it did not already own.

In a contentious bid that many thought should have been referred to the UK Competition Commission, A&O’s team took on the vexing question of media plurality, which is largely uncharted legal territory. The UK government was provisionally set to accept remedies from News Corporation in lieu of referring the deal to the competition authority, but the arguments were not tested, as the phone hacking scandal engulfed the company and derailed the bid.

Some other deals involving regulatory regimes went more smoothly, including two connected with the UK government’s sell-off of High Speed 1, the Channel Tunnel rail link.

A team from CMS Cameron McKenna devised a new regulatory regime for the high-speed rail route to make it fit for sale to private investors. On the same sale, Herbert Smith acted for London and Continental Railways, the government-owned company that ran the link, repackaging the asset, amending legislation and changing underlying contracts so that it could be brought to market. The resulting £2.1bn sale price paid by two Canadian pension funds was above expectations.

There was no precedent for such a framework, but the lawyers point out that, had it not proved successful, the chances of the High Speed 2 link from London to the Midlands and northern England getting off the drawing board would have been greatly reduced.

Such deals were not limited to the UK. In the face of considerable resistance from competitors, Freshfields Bruckhaus Deringer pushed through an audacious strategy for the purchase of Karstadt, Germany’s largest department-store chain, by US/German investor Nicolas Berggruen.

In one of the biggest insolvency proceedings in German history, the investor overcame Highstreet Consortium, Karstadt’s biggest lessor and the natural company to take over the troubled chain, which had been in administration. The successful ploy was a mixture of legal tactics and a press and political campaign.

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Winds of change

When VimpelCom pulled off its merger with Wind Telecom in April, the deal catapulted the Russian telecoms group from the 43rd largest in the world to the sixth. In a transaction fraught with difficulty, the lawyers were forced to change the structure a number of times over the course of 14 months of negotiations.

But what made it even more remarkable, was that negotiations with Naguib Sawiris, the Egyptian billionaire and controller of Wind Telecom, happened against the backdrop of the Arab Spring, when many countries in the Middle East and North Africa were in turmoil.

The deal faced specific legal difficulties in Egypt and Algeria, and VimpelCom’s lawyers from Akin Gump Strauss Hauer & Feld found themselves negotiating with regulators during an Egyptian revolution.

After the deal, the combined group had operations in 20 countries, serving 181m mobile subscribers. But to pull it off, the lawyers had to bridge a gap between what the purchaser wanted to pay and the seller’s price.

Dan Walsh, who led the Akin Gump team, says: “There were a number of points where the deal nearly broke down, and one of those was certainly the value gap, which we were able to overcome with a pretty complex spin-off.”

The uncertain political climate and tensions between Algeria and Egypt meant that the risk of operating Wind Telecom’s Algerian subsidiary was considered particularly high by VimpelCom. To tackle that, the legal team created a value-sharing agreement, under which Mr Sawiris’s company would assume most of the downside risk of operating in Algeria, but would also take most of any upside profits.