European M&A Deals Take a Dive, but Big Firms Still Racking Up Big Deals

Richard Lloyd

The American Lawyer

02-12-2008

Oh, for a part in BHP Billiton's battle for mining rival Rio Tinto Group. While the two Anglo-Australian mining giants keep a long line of legal advisers billing late into the night, stats on European M&A in January show just how gruesome a start the 2008 deals market is off to. According to data provider mergermarket, European M&A deals announced in January were worth 36.5 billion euros ($52.9 billion), down from 77.3 billion euros ($112.1 billion) last year. The number of deals announced was also dramatically down, from 655 in January of last year to 331 for the first month of 2008.

The collapse is hardly surprising, given continued malaise among banks in Europe and the United States and the general uncertainty in the world economy, but it goes to underline the bounty that a role on the $174 billion BHP bid promises. In the box seat in London are Slaughter and May for BHP Billiton and Linklaters advising Rio Tinto, each a long-standing corporate adviser to its client.

The Feb. 1 acquisition of a 12 percent stake in Rio Tinto by Aluminium Corp. of China (Chinalco) and Alcoa Inc. has delivered additional prime roles for Chinalco's counsel -- Clifford Chance and Simpson Thacher & Bartlett -- and Alcoa's: Macfarlanes; Cleary Gottlieb Steen & Hamilton; and Wachtell, Lipton, Rosen & Katz. (For Clifford Chance, the Chinalco assignment is one example of the firm's global network paying off, with lawyers from the firm's China practice directing the company to the firm's M&A partners in London to lead the deal.) Sullivan & Cromwell has also snared a crucial role for Rio Tinto on U.S. issues and antitrust matters.

The sheer size of BHP's bid always meant that it would dominate the financial headlines. If successful, the acquisition will be the second-largest deal of all time after Vodafone Group plc's 1999 $180 billion takeover of German telecom rival Mannesmann AG. But there's also plenty of uncharted territory on this one. It would be the first tie-up between two dual-listed companies, since Rio Tinto and BHP are both listed on the London and Sydney stock exchanges. And now there's the added element of the Chinese buying a stake.

For Slaughter, the firm's work for BHP Billiton has helped delay the impact of the downturn in the market. Nigel Boardman, the Magic Circle firm's lead partner on the deal, says: "I've just been trying to place a job with [some of our associates here], but I couldn't find anyone. If you had been here last night and seen the number of people working at 9 p.m., you wouldn't think that the market has slowed."

While the Slaughter rainmaker predicts further market turbulence in 2008, he is not convinced that it will bring a slowdown in activity for the major law firms. Others aren't as sure -- but a clear pattern in the current deals market is emerging. Apart from the BHP deal, the megabid is obviously off the agenda. The middle market, with deals worth up to about 1 billion pounds ($2 billion), is still active, but deal documents are covenant-heavy, reflecting most parties' risk-averse attitude. Deals are also more prone to collapse, thanks largely to ongoing turbulence in share prices.

"The best-case scenario is that this lasts for about a year," says one particularly gloomy London managing partner. "The worst case is we find ourselves in a Japan-style situation." Unsurprisingly, his firm is yet to land a role on the BHP Billiton/Rio deal.