When a consortium of Chinese investors engaged
Simpson Thacher & Bartlett
on what turned out to be the biggest-ever purchase of an American company by such a group, Hong Kong partner Kathryn Sudol knew immediately the biggest hurdle facing her clients: getting sign off from regulators.
“Obviously there’s no point in doing this if the deal’s not going to be approved,” she says.
Her clients—New China Trust Co., China Aviation Industrial Fund, and P3 Investments Ltd.—this week announced a deal worth $4.2 billion to purchase 80 percent of American International Group Inc.’s aircraft leasing company International Lease Finance Corp. But the run-up to that announcement entailed months of strategizing to ensure the transaction was ready to go before the U.S. and Chinese governments, who must still sign off on it.
Simpson Thacher got the assignment as a result of P3’s earlier work with fellow Hong Kong partner Philip Culhane, who had worked with the company on a number of fund formations. The firm, of course, is well-known as a private equity powerhouse, with close ties to major players like Kohlberg Kravis Robert, Blackstone Group and Silver Lake Partners. Sudol worked with those shops for several years in New York, where she joined Simpson Thacher out of New York University School of Law in 1998. She became a partner in 2007 and relocated to the firm’s Hong Kong office in 2010.
Sudol says Simpson Thacher’s U.S. private equity relationships have continued in Asia, but the firm has also attracted new clients like CDH Investments and Pacific Alliance Group.
Informal talks between the consortium and AIG began more than a year ago, says Sudol. Those talks were focused from the beginning on reaching a comfort level that the deal will be approved by the U.S. and Chinese governments.
Such concerns are not unfounded. Given IFLC’s role in the aviation industry, the deal will have to pass muster with the Committee on Foreign Investment in the United States, which can and will recommend the president block deals deemed detrimental to U.S. national security. Even without CFIUS review, many Chinese bids to acquire U.S. companies have withered in the face of political opposition.
“Some of this was managing expectations on the China side,” she says. “We had to convince them that the deal would go through.”
The goal, then, was to structure the deal in such a way that the U.S. government will be likely to give the go-ahead. Sudol points to two specific parts of the agreement that she thinks might win over the CFIUS and other regulators: The ILFC board will be independent, and the existing ILFC management will continue to operate and manage the business. Basically, she says, ILFC will continue to run the way it did before, only under new ownership.
AIG needed some assuaging as well, according to Sudol, as non-Chinese investors often don’t understand the regulatory approval process in China and fear interference by the country’s government. To put the company at ease, a number of meetings were coordinated with the relevant Chinese regulators to make sure that AIG—and the consortium, for that matter—understood the process and timing involved.
The end result is a deal that Sudol feels confident will be approved by both countries.
“I’m sure this will get a hard look by the regulators in the PRC and U.S.,” she says. “But we do think this transaction will be successful.”