Deals & Suits, December 2012
Morgan Stanley struck a deal with Citigroup Inc. on September 11 to take full control of Morgan Stanley Smith Barney by June 1, 2015. The agreement places a value of $13.5 billion on the joint venture that the two banks formed in January 2009, when Morgan Stanley paid $2.7 billion for a 51 percent stake in the entity. The two companies sparred over the division's value, with Morgan Stanley claiming the unit was worth a little more than $9 billion, while Citi assessed its value at $22 billion. But Perella Weinberg Partners came up with an appraisal of less than $13.5 billion that helped bring the two sides to a resolution.
Unwinding the joint venture will help Citigroup strengthen its capital base and further Morgan Stanley CEO James Gorman's desire to expand his company's presence in retail brokerage, a business he ran both at Morgan Stanley and at Merrill Lynch & Co. Inc., his previous employer.
Morgan Stanley paid $1.89 billion for an additional 14 percent of Morgan Stanley Smith Barney on September 18, and by the end of the month the buyer had rebranded it as Morgan Stanley Wealth Management. The name change marked the demise of the Smith Barney name, which dated to a 1938 merger between two brokerage houses. Sanford Weill, then the CEO of Primerica Corporation, acquired Smith Barney in the 1980s and held on to the company as he made a series of acquisitions that ended with the 1998 merger that created Citigroup.
For acquiror Morgan Stanley (New York)
Chief legal officer Eric Grossman and managing director Steven Brown.
Wachtell, Lipton, Rosen & Katz:
Corporate: Karessa Cain, Richard Kim, Steven Rosenblum, and associate Scott Golenbock. Tax: T. Eiko Stange and associate Vincent Kalafat. (All are in New York.) Wachtell advised Morgan Stanley on the formation of Morgan Stanley Smith Barney in 2009.
For seller Citigroup Inc. (New York)
General counsel and head of M&A legal Joseph Tedeschi and associate general counsel Jeffrey Wool.
Davis Polk & Wardwell:
M&A: John Bick and counsel Ajay Lele. Tax: Neil Barr and Avishai Shachar. (All are in New York.) Davis Polk has done a significant amount of work for Citi in recent years and represented the bank on the formation of Morgan Stanley Smith Barney. Citi's lead banker on the sale of the unit, Edward Kelly III, is a former Davis Polk partner.
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A $3.9 billion merger between two commercial banks would once have been of only mild interest, but M&T Bank Corporation's agreement to buy Hudson City Bancorp Inc. for that sum is the largest such tie-up since PNC Financial Services Group Inc. struck a $5.2 billion deal to acquire National City Corporation in October 2008, according to Dealogic. That deal came at the height of the financial crisis, which along with subsequent regulatory and legal reform has put a stop to the large-scale consolidation of the U.S. banking sector.
Consolidation has gone on at a modest level since 2008, and M&T Bank has been an active participant in the process, buying Provident Bankshares Corporation for $401 million in 2009 and Wilmington Trust Corporation for $351 million two years later. M&T will pay $3.9 billion in cash and stock for Hudson City, whose shareholders will receive consideration worth $7.22 a share, a 12 percent premium over the target's closing price on August 24, the last trading day before the deal's announcement on August 27. The deal will allow M&T to expand its branch network in New Jersey, New York, and Connecticut. Hudson City was forced to seek a sale because of the negative effect of falling interest rates on the bank.
M&T and Hudson City hope to close the deal in the second quarter of 2013 pending approvals from regulators and approvals by both sets of shareholders.
For acquiror M&T Bank Corporation (Buffalo)
General counsel Drew Pfirrman and deputy general counsel Brian Yoshida.
Wachtell, Lipton, Rosen & Katz:
Corporate: Edward Herlihy, Richard Kim, Lawrence Makow, counsel David Adlerstein, and associates Justin Rosenberg and Octavian Timaru. Executive compensation and benefits: Jeannemarie O'Brien and associate Adam Kaminsky. Tax: Joshua Holmes. (All are in New York.) Wachtell represented Allfirst Financial Inc. when Allied Irish Banks p.l.c. sold it to M&T in 2002 and advised M&T on the Provident Bankshares and Wilmington Trust deals. The firm also advised PNC on the National City deal.
For target Hudson City Bancorp Inc. (Paramus, New Jersey)
Sullivan & Cromwell:
Corporate: H. Rodgin Cohen, C. Andrew Gerlach, and associates Jonathan Avidor, Michael Baxter, Michael Gorenstein, Benjamin Hutten, Michael Lewis, Steven Mungovan, Abigail Yevnin, and Daniel Zharkovsky. Tax: David Spitzer and associate Kevin Salinger. Executive compensation and benefits: Matthew Friestedt, special counsel Lawrence Pasini and Henrik Patel, and associates Michael Applebaum and Allison Macdonald. Environmental: special counsel Matthew Brennan. Intellectual property: special counsel Spencer Simon. (All are in New York except for Palo Altobased Simon.) The deal was S&C's first assignment for Hudson City. The firm represented National City on the PNC deal and Provident in its sale to M&T.
Arnold & Porter:
Corporate: Robert Azarow and associates Christian Cheslak, Amy Fallone, and Eleni Zanias. Financial services regulatory: Brian McCormally. Executive compensation and benefits: W. Edward Bright and associate Gregory Hughes. Tax: Cynthia Mann. (All are in New York except for Washington, D.C.based McCormally.) Azarow and Bright began representing Hudson City in 1998 when both men were partners at Thacher Proffitt & Wood. Omer "Jack" Williams, a former managing partner at the now-defunct law firm, forged a relationship with former Hudson City CEO Leonard Gudleski and his successor Ronald Hermance Jr., the current chairman and CEO. Thacher was Hudson's primary outside counsel until the firm failed at the end of 2008. Azarow and Bright took the client with them when they moved to SNR Denton at the start of 2009 and then to Arnold & Porter the next year.
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American Realty Capital
Realty Income Corporation agreed to pay $2.95 billion in stock and debt for rival commercial real estate company American Realty Capital Trust Inc. on September 6. Realty Income would gain 501 properties in the deal, bringing its total to more than 3,250.
The target's stockholders will receive 0.2874 of a Realty Income share per American Realty share, consideration worth about $12.21 the day the deal was announced, a 2 percent premium over the target's closing price the previous day. In addition to paying a total of $1.9 billion in stock, Realty Income will also assume $526 million of American Realty's debt and pay off another $574 million. The parties hope to close the deal in the fourth quarter of 2012 or early 2013 pending approvals from regulators and both sets of shareholders. ??
For acquiror Realty Income Corporation (Escondido, California)
General counsel Michael Pfeiffer.
Latham & Watkins:
Corporate: William Cernius, Julian Kleindorfer, Paul Tosetti, and associates Mathew Davis-Ratner, Jeffrey Holgate, Chase Leavitt, John Raney, Libby Stockstill, David Wheeler, and Michael Young. Finance and real estate: David Meckler and associates Shannon Jensen and Nathan Logan. Environmental: Christopher Norton and associate Charles Anthony III. Employee benefits and compensation: David Taub and associate Michelle Carpenter. Tax: Michael Brody, Ana O'Brien, and associate Mimi Chao. Litigation: Michele Johnson, Miles Ruthberg, and associate Andrew Gray. (All are in Costa Mesa, California, except for the following: Kleindorfer, Tosetti, Wheeler, Taub, Carpenter, Brody, O'Brien, and Chao are in Los Angeles. Jensen is in San Diego; Logan is in Chicago; Ruthberg is in New York.) Latham has done work for Realty Income since 1993, and company chairman Michael McKee is a former Latham partner. He left the firm in 1994 to become the chief legal officer of The Irvine Company, a real estate investment firm where he became CEO in 2007. He retired from Irvine in 2008 and joined Realty Income as chairman earlier this year.
Corporate: Charles Moran and associates J. Thomas Bashore II and Lauren Ziegler. M&A litigation: Charles Hirsch. (They are all in Baltimore.)
For target American Realty Capital Trust Inc. (Jenkintown, Pennsylvania)
General counsel Jesse Galloway, chief securities counsel and deputy general counsel James Tanaka, and assistant general counsel Joshua Levit, Lauren Smythe, and Ryan Tooley.
Real estate capital markets: Peter Fass. Corporate: Andrew Bettwy, Daniel Ganitsky, Steven Lichtenfeld, and associates Rajesh Bandla, Van Ann D. Bui, Michael Ellis, Julie Kim, Simon Sharpe, Diana Silva, and Leon Volchyok. Tax: Leslie Loffman, special tax counsel Timothy Donovan, and associate Daniel Berger. Employee benefits and executive compensation: Ira Bogner and associate Stephen Brecher. Real estate: D. Eric Remensperger and associate Melody Chen. Litigation: Jonathan Richman. Environmental: senior counsel Gail Port and associate Yelena Simonyuk. Intellectual property: associate Derek Heuzey. (All are in New York except for Los Angelesbased Remensperger and Chen.) The company's cofounder William Kahane was a real estate lawyer at Proskauer after graduating from law school in the 1970s.
Corporate: Sharon Kroupa, Christopher Pate, and associate Brian Field. Labor and employment: Ronald Taylor. (All are in Baltimore.) Kroupa and Pate are Maryland counsel to all of American Realty Capital's nontraded REITs.
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U.S. v. Apple et al.
On September 5, U.S. District Judge Denise Cote in Manhattan approved a price-fixing settlement between the U.S. Department of Justice and three publishers of e-books. Cote signed off on the deal with Hachette Book Group, Simon & Schuster Inc., and HarperCollins Publishers Ltd. over the objections of a fourth defendant, Apple Inc., which has been accused by both prosecutors and class action lawyers of conspiring with five leading publishers to jack up e-book prices. At press time the other defendantsApple, Macmillan Holdings LLC, and Penguin Group (USA) Inc.had opted to fight on.
The Justice Department sued Apple and the five publishers in April, alleging that in 2010 they violated the Sherman Act when they switched from a so-called wholesale model for e-books (in which retailers sold books at whatever price they wanted) to an agency model (in which retailers agree to sell for a fixed price set by publishers in exchange for a fixed cut of the profits). Since that shift, e-book prices have jumped dramatically.
Under the terms of the deal, the three publishers will terminate their agreements with Apple and refrain from entering any contracts that restrict a retailer's ability to set e-book prices for the next two years. The same three publishers also struck a separate $69 million settlement with a coalition of state attorneys general. At press time all five publishers and Apple still faced a proposed consumer antitrust class action before Judge Cote.
Apple filed a motion on August 15 urging Cote to reject the settlementor at least to defer her decision until after a scheduled June 2013 trial. The deal, which forces publishers to tear up contracts with Apple, constitutes an "unprecedented" violation of due process rights, they argued. Many booksellers have also voiced opposition to the settlement, insisting that reverting to a wholesale model will allow Amazon.com Inc. to drive competitors out of business.
While Cote didn't consider the merits of the price-fixing allegations in approving the settlement, she rejected an argument Apple raised in its defense: that the switch to an agency model was procompetitive because it broke up Amazon's e-book stranglehold.
For plaintiff the United States of America
At the U.S. Department of Justice: director of litigation Mark Ryan and trial attorneys Lawrence Buterman, Laura Collins, and Stephanie Fleming.
For defendant Hachette Book Group (New York)
General counsel Carol Ross.
Walter Stuart, Paul Yde, and associates Hiram Andrews, Bryan Bloom, Samuel Rubin, and Richard Snyder. (Stuart and Rubin are in New York; the rest are in Washington, D.C.)
For defendant HarperCollins Publishers Ltd. (London)
Skadden, Arps, Slate, Meagher & Flom: Clifford Aronson, Paul Eckles, and Shepard Goldfein. (They are in New York.) Skadden has long represented HarperCollins's parent company, News Corporation, including advising on its plan to split the media business into two companies, according to the firm's website. The firm did not comment.
For defendant Simon & Schuster Inc. (New York)
Executive vice president and general counsel David Hillman.
Weil, Gotshal & Manges:
Yehudah Buchweitz, James Quinn, and associates Joseph Adamson, Jeff White, and Eric Wolfish. (White is in Washington, D.C.; the rest are in New York.)
Helene Jaffe and counsel Alan Kusinitz. (They are in New York.)
For defendant Apple Inc. (Cupertino, California)
O'Melveny & Myers:
Andrew Frackman and counsel Edward Moss. (They are in New York.) The firm, which has represented Apple for years, was cocounsel.
Gibson, Dunn & Crutcher:
Daniel Floyd, Daniel Swanson, counsel Jay Srinivasan, and associate Hane Kim. (Swanson is in Brussels and Los Angeles; Kim is in New York; and the others are in Los Angeles.)
For defendant Holtzbrinck Publishers LLC d/b/a/ Macmillan Holdings LLC (New York)
John Lavelle, Joel Mitnick, and associate Alexandra Shear. (They are in New York.)
For defendant Penguin Group (USA) Inc. (New York)
Senior vice presidentlegal affairs and corporate counsel Alex Gigante.
Akin Gump Strauss Hauer & Feld:
Daniel McInnis, Patricia Millett, Reginald Steer, Larry Tanenbaum, counsel David Donohoe, Allison Sheedy, and associates Gregory Granitto, Hyland Hunt, and James Tysse. (Steer is in San Francisco; Hunt is in Dallas; and the rest are in Washington, D.C.)
Jan Wolfe, with Tom Coster
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Lawrence v. Philip Morris et al.
On August 21 New Hampshire's highest court threw out a rare class certification in a consumer claim on behalf of state residents who bought Marlboro Lights.
A unanimous three-judge panel of the New Hampshire Supreme Court held that a class could not be certified because common issues didn't predominate.
Lead named plaintiff Karen Lawrence sued the tobacco company in 2002, alleging that Philip Morris USA Inc. violated the New Hampshire Consumer Protection Act by falsely representing that Marlboro Lights would deliver less tar and nicotine than other cigarettes. Lawrence asserted that the light cigarette was worth less than the product Philip Morris promised, and sought damages for this difference in value.
In 2010 the trial court certified a class. In an interlocutory appeal, Philip Morris detailed all the information about light cigarettes available to consumers from 1976 to 1995.
In the court's decision, Chief Judge Linda Dalianis noted that a variety of information was available during the period that indicated that light cigarettes were as harmful as regular cigarettes. As a result, she found, the court couldn't assume that all people who bought the light cigarettes shared the same understanding of the risk.
For plaintiffs Karen Lawrence et al.
Max Gibbons and Stephen Tillery. (Gibbons is in Chicago; Tillery is in St. Louis.) On August 21 the firm filed a motion to reinstate a $10.1 billion class action verdict against Philip Morris in the Third Judicial Circuit Court in Madison County, Illinois.
Douglas, Leonard & Garvey:
Charles Douglas III, Jason Major, and C. Kevin Leonard. (They are in Concord, New Hampshire.) The firm was local counsel.
For defendant Philip Morris USA Inc. (Richmond)
Arnold & Porter:
Judith Bernstein-Gaeta, Philip Curtis, John Massaro, and associate Michael Tye. (Curtis is in New York; the rest are in Washington, D.C.)
McLane, Graf, Raulerson & Middleton:
Wilbur Glahn III. (He is in Manchester, New Hampshire.) The firm was local counsel.
Susan Beck, with T.C.
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Wilson et al. v. 7-Eleven et al.
The Kansas City Star triggered a wave of class actions across the country in 2006 when it estimated that expanding gas volumes in hot weather were costing consumers billions in hidden costs at the pump. On September 24 jurors in Kansas City, Kansas, delivered the first verdict in the resulting federal litigation, absolving three retailers at the center of the "hot fuel" mess.
The jury found that the three retailer defendantsQuickTrip Corporation, 7-Eleven Inc., and Kum & Go L.C.did not violate the Kansas Consumer Protection Act by failing to disclose the effects of temperature on the gas they sell.
Triggered by the media report, plaintiffs lawyers brought 52 putative class actions in 28 states and territories. The actions alleged that 80 retailers and oil refiners violated state laws by selling gas at temperatures well above the industry standard of 60 degrees Fahrenheitwithout explaining to consumers that "hot fuel" contains less energy per gallon.
The cases were consolidated into multidistrict litigation before U.S. District Judge Kathryn Vratil in Kansas City. Lawyers for the putative consumer class voluntarily dismissed 21 of the 52 cases, and the MDL got whittled down even further in June, when 10 refiners and retailers, including Texaco Inc. and Exxon Mobil Corporation, reached a proposed settlement valued at $21 million. (That settlement, which at press time had not yet been approved, calls for some retailers, including Sam's West Inc. and Casey's General Stores Inc., to convert their pumps to automatically modify prices to reflect temperature changes.)
In 2010 Vratil certified a class of Kansas gas purchasers for purposes of determining liability after the plaintiffs voluntarily dismissed their claims for unjust enrichment. The trial kicked off on September 5; the jury took just one day to find for the retailers.
For plaintiff consumer class
Horn Aylward & Bandy:
Robert Horn, K. Christopher Jayaram, and Joseph Kronawitter. (They are in Kansas City, Missouri.)
Girardi & Keese:
Christopher Aumais, Thomas Girardi, Graham LippSmith, and Howard Miller. (They are In Los Angeles.) The firm was also appointed colead plaintiffs class counsel.
Walters Bender Strohbehn & Vaughan: Thomas Bender, J. Brett Milbourn, Kip Richards, counsel Amii Castle, and associate Garrett Hodes. (They are in Kansas City, Missouri.) The firm was appointed liaison counsel.
For defendants QuickTrip Corporation (Tulsa) et al.
At QuickTrip: general counsel and chief financial officer Stuart Sullivan. At 7-Eleven: senior counselcomplex litigation Shawn Shearer. At Kum & Go: general counsel Charley Campbell.
Shook, Hardy & Bacon:
A. Bradley Bodamer, Amy Crouch, Tristan Duncan, and James Muehlberger. (They are in Kansas City, Missouri.)
J.W., with T.C.
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WesternGeco v. ION Geophysical
A federal district court jury in Houston returned a verdict on August 16 that a marine seismic surveying company, Ion Geophysical Corporation, willfully infringed four patents relating to geological analysis owned by a rival, a unit of oil field services company Schlumberger Limited. Jurors awarded Schlumberger's WesternGeco LLC $93.4 million in lost profits and $12.5 million in reasonable royalties. An Ion customer named in the suit, Fugro N.V., settled with WesternGeco for a confidential amount during the trial.
The case arose out of the lucrative business of providing underwater geological maps to oil and gas companies. In 2009 WesternGeco brought an infringement complaint against ION, which manufactures equipment for companies that perform seismic surveys. The dispute involved an ION product that keeps seismic imaging machines in place as they are towed across the ocean floor by exploration vessels. WesternGeco claimed that the product copied its patented steering technology.
ION's lawyers moved for summary judgment in March, arguing that there was no evidence that the company or its customers used WesternGeco's patented technology in U.S. territory. U.S. District Judge Keith Ellison in Houston wasn't convinced, setting the stage for a four-week jury trial that kicked off July 23.
For plaintiff WesternGeco LLC (Houston)
At Schlumberger: Deputy general counsel government affairs and litigation Dianne Ralston, managing counselIP enforcement Jaime Castaño, and counselIP enforcement Mitchell Blakely. At WesternGeco: managing counselintellectual property Kevin McEnaney.
Kirkland & Ellis:
William Burgess, Timothy Gilman, Gregg LoCascio, John O'Quinn, Sarah Tsou, and associates Ryan Kane, Simeon Papacostas, Lauren Sabol, Leslie Schmidt, and Joyce Tam. (Burgess, LoCascio, and O'Quinn are in D.C.; the rest are in New York.)
Smyser Kaplan & Veselka:
Lee Kaplan. (He is in Houston.)
For defendant ION Geophysical Corporation (Houston)
David Burgert, Jonathan Pierce, and Ray Torgerson. (They are in Houston.) The firm did not comment.
J.W., with T.C.
David Marcus is senior writer for TheDeal.com. Email: firstname.lastname@example.org.