DAVID LAM, Wachtell
Deal in Brief: AbbVie Spin-off
Deal Value: $54 billion
Firm’s Role: Advised on spin-off
Deal Trivia: Number of existing contracts Wachtell reviewed in connection with the spin-off: over 21,600
In 2004 David Lam of Wachtell, Lipton, Rosen & Katz helped put together two pharmaceutical companies worth more than $50 billion apiece to make Sanofi-Aventis S.A. In 2012 he split in half another pharma company worth over $100 billion, Abbott Laboratories Inc.
The creation of AbbVie, Inc. from the hip of Abbott Labs is only the largest recent example of a crucial, but sometimes-forgotten deal type: the spin-off. Excluding AbbVie, Dealogic counted 85 spin-offs worth $109 billion in 2012, comprising 4 percent of global M&A. Wachtell alone advised 10 clients on spin-offs last year, including ConocoPhillips Company on the hiving off of Phillips 66 Company [ "Acting Amid Uncertainty," page 60]. At the ripe old age of 37, Lam has worked on eight spin-offs in his five years as partner, making him the spinmeisters’ spinmeister. “We’re at a time in the economic cycle when many companies prefer to be a pure play,” says Lam. “Spin-offs are occupying a greater portion of the overall firm’s work.”
Lam’s unique experience raises the question: Is it harder to add 50 plus 50 to make 100, or to subtract 50 from 100 to make 50? He responds without hesitation: “It’s actually much easier from a lawyer’s perspective to put two companies together than to split one apart.”
The AbbVie deal took 22 Wachtell lawyers 18 months to close, from mid-2011 to January 1, 2013. A merger of comparable scope, Lam says, might take a team less than half that size three or four months. (The Sanofi deal had its own complications and took about five months ["Frequent Flyer," April 2005].) Laura Schumacher, the general counsel of Abbott Laboratories before the spin-off and of AbbVie afterward, says it was a deal of unprecedented complexity, and Lam rose to the occasion. “This was the separation of a 125-year-old company from the pharma business that was its original business. David was distinguished by his leadership in laying out the foundation of the transaction and in meeting all the time lines.”Some of the typical risks of a merger are not present in a spin-off. You can’t have antitrust issues because you’re not decreasing competition. You can’t have hidden liabilities because there’s no one to hide them from. You can’t have conflict with your opposing counsel, because there is none. But a spin-off has its own challenges.
Lam’s first task was to disentangle a set of businesses that were fully integrated, and to define their commercial relations. The new Abbott Labs became a diversified medical products company, best known for drug-coated stents and Similac baby formula. AbbVie is a pharma pure play, best known for the arthritis drug Humira (one of the world’s best-selling drugs, with $9 billion in 2012 sales) and the AndroGel treatment for low testosterone (not a common ailment in M&A departments).
Next, Lam played a role similar to a capital markets lawyer. “The spinco is essentially a new public company that needs to be built from the ground up,” he explains, “with a securities filing that is like an IPO prospectus, a new charter, and bylaws.”
But instead of selling stock in this virtual IPO, Lam undertook a huge capital restructuring. AbbVie issued $14.7 billion in debt, in the largest investment-grade U.S. bond offering of all time. Then AbbVie paid a $10.2 billion cash dividend to Abbott; and issued to Abbott $3 billion of notes, which Abbott exchanged for commercial paper. Using some of the proceeds, Abbott made a tender offer to extinguish $7.7 billion of existing debt. Just to make things memorable, the bond offering priced a week after Hurricane Sandy hit New York. Lam’s lights at home were not yet on, but the capital markets returned with full power, and AbbVie’s historical debt offering was heavily oversubscribed.
The wrinkles were endless. Lam worked with Paul, Weiss, Rifkind, Wharton & Garrison to allocate the obligations in a $1.5 billion settlement over medical marketing ["Big Suits," July/August 2012]. He worked with Baker & McKenzie to ensure that the spin-off was tax-free and that the corporate separation was formalized in dozens of nations around the world.Fission may be more complex than fusion. But from the perspective of legal business, fission has an overriding advantage. Instead of going from one client to none, the spin-off lawyer can go from one client to two—and both may be primed for future M&A. The business press is already buzzing about AbbVie’s attractiveness as a takeover target, and Abbott’s options for spending its new cash pile overseas. Sometimes, the biggest joy for a spinmeister is being asked to reverse direction.