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During the heady days of stock market mania, lawyers could stitch together a merger between companies without much fuss. These days, it’s like performing delicate surgery. Buyers are doing so-called “asset sales,” which enable companies to harvest the plum products or technology from strapped sellers without taking on many of the targeted company’s liabilities. The upside for the buyer is obvious — they get the benefits without the problems. For sellers, it’s a way to raise cash when they might not make it otherwise. “It’s a less forgiving market, and you want to be focused on your core strengths,” said Kenton King, a Palo Alto, Calif., partner at Skadden, Arps, Slate, Meagher & Flom. “There’s a tendency to dispose of those business units that don’t always make sense to the long-term strategy.” The deals also may signal a long-term shift in mergers and acquisitions as companies increasingly partner with others through licensing deals or joint ventures. Such deals involve fewer brick-and-mortar assets and more intellectual property, which can be more difficult to extract cleanly from a company. Two types of deals are common: One features a company trying to streamline its product lines and selling off some; the other is a company on the road to bankruptcy that needs to raise capital to pay off creditors. Both kinds of deals are happening with greater frequency, King says. He’s done four so far this year. He didn’t do any last year. Given the lousy economy, lawyers are happy to get a steady stream of corporate work. But asset sales aren’t as sexy as the big-ticket mergers they’ve done in recent years. “They usually happen in circumstances where the sellers aren’t thrilled about it. It’s a structural alignment instead of a big stock-for-stock strategic merger where everybody’s happy,” King said. The deals are more complicated technically than traditional mergers or sales of a self-contained subsidiary that does its own manufacturing, accounting and sales. Most tech companies don’t have such clear divisions, which means it’s rare when a limb can be cleanly severed. One overlooked license, for example, can create a mess later on if the buyer doesn’t own the asset outright. And product lines are sometimes sold off, but not all departments that help sell and maintain them are necessarily part of the deal. In one deal, Pillsbury Winthrop partner Allison Leopold Tilley had to negotiate which company — the buyer or the seller — was going to handle customer returns. And consider the difficulties of carving out assets when a tech company grows quickly. Last month, Fenwick & West handled a deal involving Micron Electronics Inc.’s sale of its PC business to Gores Technology Group. Micron’s PC business wasn’t a separate subsidiary, so the lawyers had to extract bits and pieces relating to the making of the PCs from the overall company. “There were assets at the parent and at the subsidiary level,” said Fenwick partner Robert Friedman, who represented Micron. The parent company simply created subsidiaries as they were needed, a typical practice for growing tech companies. Micron, for example, created a division to handle PC sales to the government because of the idiosyncrasies involved in dealing with bureaucracy, Friedman said. Over a two-month period, the lawyers picked through and identified assets for the sale, including the manufacturing facilities, equipment, inventory accounts receivable and thousands of contracts. “Getting a handle on how to transfer all of those contracts from one company to the other was logistically a massive project,” Friedman said. And that’s commonplace. In a recent deal handled by Brobeck, Phleger & Harrison, LSI Logic Inc. purchased the storage software business of American Megatrends Corp. The deal took teams of lawyers — from IP to real estate to corporate — months to negotiate. “When you’re buying a whole company, you buy the box and everything in the box,” said Brobeck partner Rodrigo Howard, who represented LSI Logic. With asset sales, he said, you say yes to some things and no to others. “In contrast to many of the fast-lane, express-lane transactions last year, this was a hard deal to get signed,” Howard said. For Proskauer Rose partner Martin Zohn in Los Angeles, the deals are simply a sign of the times. Companies aren’t set up the way they used to be — when there was more reliance on brick-and-mortar assets. “[Companies] aren’t as glued together as they were in the 1950s,” said Zohn, who has done 20 such deals in the last year. “The economy is changing so fast. And it’s disruptive, but assets are moving more quickly to meet needs.”

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