Reynolds American / Lorillard
Reynolds American Inc., maker of Pall Mall and Camel cigarettes, agreed July 15 to buy Lorillard Inc. for $27.4 billion, including debt. If completed, the merger would create a powerful rival to the largest tobacco company in the United States: Altria Group Inc., the holding company of Philip Morris USA and owner of the Marlboro brand.
Reynolds American, based in Winston-Salem, is the parent company of R.J. Reynolds, the second-largest tobacco company in the country. Combined with Greensboro, N.C.-based Lorillard, it would have a market value of about $50 billion and would give Reynolds the dominant menthol cigarette brand, Lorillard’s Newport, in a tobacco industry that has been declining in the U.S. and Western Europe for years.
If the merger goes through, the two companies together would control 42 percent of the U.S. cigarette market. Altria Group is the industry juggernaut, with $85.3 billion market capitalization. Its Marlboro brand alone commands more than 40 percent of the cigarette market in the U.S., according to the company.
The boards of directors of both Reynolds and Lorillard have already approved the acquisition, the companies said. Reynolds president and chief executive officer Susan Cameron would lead the combined company, which would be headquartered in Winston-Salem. Murray Kessler, Lorillard’s chairman, president and chief executive officer would join Reynolds’ board after the closing. Reynolds said it expects the transaction to close in the first half of 2015.
Under the terms of the deal, Reynolds will pay $68.88 for each Lorillard share, a 2.5 percent premium over Lorillard’s closing price on July 14, the last trading date before the transaction was announced. Upon the deal’s completion, Lorillard shareholders will own 15 percent of the combined company. The deal calls for U.K.-based British American Tobacco plc to buy additional shares of the combined company for $4.7 billion to maintain its current 42 percent stake in Reynolds. At the same time, the combined company will sell its KOOL, Salem, Winston, Maverick and blu electronic cigarette brands and other assets to U.K.-based Imperial Tobacco Group for $7.1 billion in cash and assumed debt, potentially heading off antitrust issues Reynolds and Lorillard may face with the merger.
Reynolds turned to Jones Day on the deal, while Lorillard tapped Simpson Thacher & Bartlett. Imperial Tobacco sought legal representation from Magic Circle firm Allen & Overy. Kirkland & Ellis represented Reynolds’ financial adviser Lazard, and Sullivan & Cromwell advised Lorillard financial advisers Centerview Partners and Barclays.
Representing Reynolds from Jones Day is a team led by mergers and acquisitions partners Randi Lesnick and Jere Thomson. Also advising were antitrust partners Joe Sims and Craig Waldman, as well as employee benefits and executive compensation partner Daniel Hagen and intellectual property partner Warren Nachlis. In 2005 Jones Day counseled R.J. Reynolds on its acquisition of Brown & Williamson Tobacco Corp., a U.S. subsidiary of British American Tobacco, in a deal worth $10 billion. (Cravath, Swaine & Moore represented BAT and Brown & Williamson on that transaction.)
Simpson Thacher’s team representing Lorillard on the deal includes mergers and acquisition partners Derek Baird, Robert Spatt, Eric Swedenburg and Adam Signy; credit partners Stephen Short and Brian Steinhardt; regulatory partners Kevin Arquit and Matthew Reilly; executive compensation and employee benefits partner David Rubinsky; tax partner Gary Mandel; and IP partner Lori Lesser. In 2008 Simpson Thacher advised the independent board of directors of Loews Corp. when it spun off Lorilard in a deal worth $13 billion.
Handling British American Tobacco’s work is a Cravath team led by mergers and acquisition partners Ting Chen and Philip Gelston and including tax partner Michael Schler and antitrust partner Christine Varney. Associates on the matter include Amanda Fenster, Katherine Rocco and Wenying Zhang.
Imperial Tobacco tapped Allen & Overy, with a team led by corporate partners Jeremy Parr and Eric Shube, with assistance from antitrust partner Elaine Johnston and antitrust senior counsel David Ernst, corporate senior counsel Brian Jebb, senior associates Mark Davis and Sarah Shaw and associates Jochem Beurskens, Luisa Di Lauro, Mike Maier, Natalie Montano, Desma Polydorou, Shira Selengut and Loren Thomas.
Kirkland & Ellis represents Lazard, financial adviser to Reynolds. Kirkland lawyers on the deal were corporate partners David Feirstein and Sarkis Jebejian and associate Clement Smadja.
Sullivan & Cromwell counseled Centerview Partners and Barclays, financial advisers to Lorillard. Its team includes corporate partners Francis Aquila and Brian Hamilton, as well as associate Bernd Delahaye.
—MP McQueen, with Brian Baxter
General Electric / Alstom
General Electric Company’s two-month pursuit of French engineering giant Alstom S.A.’s energy business paid off June 22, when Alstom’s board accepted a $17 billion offer from GE. The deal, which is subject to an array of shareholder and regulatory approvals, has yielded roles for nearly a dozen firms in the United States and Europe.
In May, French authorities had sought to block the acquisition but later relented. As part of the deal, Bouygues S.A., a Paris-based construction and industrial group, agreed to sell its 20 percent stake in Alstom to the French government, and Alstom also agreed to purchase Bouygues’ rail signaling operations for about $825 million.
“It started as a fairly simple transaction,” says Orrick, Herrington & Sutcliffe’s Jean-Pierre Martel, who led a team advising Alstom’s board. “But when the French government became involved, things got more complicated.” The French government wanted assurances that jobs would be preserved and its national security interests protected. Alstom, which makes turbines used in nuclear reactors, employs about 18,000 people in France.
Other lawyers on the deal from Orrick’s Paris office, which operates under the name Orrick Rambaud Martel, include M&A partner Etienne Boursican, antitrust partner Michel Roseau, energy and infrastructure partner Jean-Luc Champy, senior counsel Noël Chahid-Nouraï, corporate consultant Alain Pietrancosta and associates Quirec de Kersauson, Cécile Laboureix and Diane Lamarche.
Alstom, whose group general counsel is Keith Carr, turned to an outside legal team led by Weil, Gotshal & Manges, Hogan Lovells and Cabinet Bompoint, a small Paris firm established last year by former Sullivan & Cromwell corporate partner Dominique Bompoint.
David Aknin, a Paris-based corporate partner at Weil, is leading a team that includes corporate partner Arthur Baudry d’Asson, Paris office founder and senior M&A partner Claude Serra and associates Guillaume Bonnard, James Harvey and Alexandra Stoicescu.
Hogan Lovells is advising Alstom on regulatory matters. Its team is led by Brussels-based Jacques Derenne, head of the firm’s European antitrust and economic regulations practice.
French firm Bredin Prat and Magic Circle alliance partner Slaughter and May are lead deal counsel to GE. Slaughter and May’s team, based in London, is led by M&A partner Frances Murphy and associate Amy Hutchings, while Bredin Prat’s team is led by M&A partner Olivier Assant, tax partner Julien Gayral, finance partner Samuel Pariente, corporate counsel Florence Haas and associates Jerome Cordier and Antoine Le Bihan. Arnold & Porter and Skadden, Arps, Slate, Meagher & Flom are handling antitrust and regulatory matters for GE.
GE general counsel Brackett Denniston III, a former Goodwin Procter partner, is leading an in-house team that includes European general counsel Hendrik Bourgeois, general counsel for European transactions Benedict O’Halloran, general counsel for transportation Thomas LaFrance, general counsel for power generation Michael Gregory Jr., general counsel for energy management Tara Plimpton, senior counsel Jim Waterbury and Karan Bhatia, senior transactions counsel Kevin Randall and associate general counsel Deborah Lloyd.
The French government is being advised by Cleary Gottlieb Steen & Hamilton. Cleary’s team includes M&A partners Pierre-Yves Chabert and Fabrice Baumgartner, antitrust partner François-Charles Laprévote and associates Idris Hebbat, Guillaume Le Masson and Severine Schrameck.
Siemens and Mitsubishi Heavy both held talks with the French government before putting forth an unsuccessful joint $9.5 billion bid for Alstom in June. That led GE to sweeten its initial offer for Alstom in order to win the support of the French state. It ultimately gave its backing to GE after the American company agreed to three joint ventures involving Alstom’s renewable energy, steam turbine and nuclear units. Linklaters advised both Siemens and Mitsubishi on their joint bid.
The French government is not expected to approve the transaction until it completes its purchase of a 20 percent stake in Alstom from Bouygues, which is being advised by leading French firm Darrois Villey Maillot Brochier. The stake will give the French state the ability to block any future Alstom-related moves by GE of which it does not approve.
Martel says that he expects the deal to be signed in October, after councils of Alstom workers have evaluated the transaction and other regulatory and shareholder approvals have been obtained. The deal probably will not be finalized until early 2015.
Salix / Cosmo Technologies
Several Am Law 100 firms have sought to carve out a niche in corporate inversions work, but Cadwalader, Wickersham & Taft may have found a way to expand the number of U.S. companies that can use the controversial maneuver to lower their tax bills—acquiring a subsidiary in an inversion-friendly country, rather than a freestanding company.
Raleigh-based Salix Pharmaceuticals retained Cadwalader, as well as Covington & Burling and Ireland’s A&L Goodbody, to test that strategy in a $2.7 billion all-stock acquisition of patents for gastrointestinal drugs owned by Cosmo Technologies, an Irish unit of Italy’s Cosmo Pharmaceuticals. The deal was announced July 9.
In an inversion, a U.S. company merges with a foreign company in a low-tax jurisdiction, such as Ireland, and reincorporates there. If 20 percent of the stock of the merged company is owned by shareholders of the foreign entity, the merged company is subject to the lower tax rate of the foreign jurisdiction, instead of the higher U.S. rate. If Salix succeeds in using the strategy with a subsidiary, it could enlarge the pool of suitable merger targets for U.S. companies seeking inversions.
Salix says it hopes to close on the transaction, which would effectively be a merger with Cosmo Technologies, by the fourth quarter of this year. Under the terms of the agreement, Salix will become a subsidiary of Cosmo Technologies, which will take the Salix name and remain based in Ireland, with Cosmo shareholders owning a little more than 20 percent of the newly merged company.
Christopher Cox, the cochair of Cadwalader’s corporate group, is leading the firm’s team on the deal. Cox, who joined the firm in 2012 from Cahill Gordon & Reindell, was a Dealmaker of the Year this year for his role in representing Irish drugmaker Elan Corp. on its successful takeover defense against a $6.6 billion bid by Royalty Pharma ["When Blarney Fails," April]. Other Cadwalader lawyers working on the matter include corporate cochair and firm chairman-elect James Woolery, finance partners Geoffrey Levin and Ira Schacter, tax partners Linda Swartz and Adam Blakemore, and special counsel Aly El Hamamsy and Paul Dunbar.
Covington corporate partner Edward Britton, life sciences of counsel Edward Dixon and associates James Wawrzyniak and Grant Young are advising Salix on licensing and supply agreements with Cosmo. Finance partner D. Michael Lefever, capital markets partner Kerry Burke and associates Stephanie Bignon and Matthew Franker are advising Salix on arrangements relating to its current debt. Covington is a longtime legal adviser to Salix, having handled its $2.6 billion acquisition last year of Santarus Inc., as well as Salix’s $300 million acquisition of privately held urology treatment provider Oceana Technologies LLC in 2011.
Salix executives will lead the new company created by its merger with Cosmo Technologies. Thomas D’Alonzo, the independent chairman of Salix’s board of directors, is a lawyer. William Bertrand Jr. is the firm’s general counsel.
A U.S. Securities and Exchange Commission filing by Salix indicates that Cosmo Pharmacueticals is being advised by Irish firm Byrne Wallace and by Dennis Doucette, chair of the corporate and securities practice at San Diego’s Procopio, Cory, Hargreaves & Savitch. A Procopio spokeswoman did not respond to a request for the names of other lawyers from the firm working on the matter. Italian lawyer Alessandro Della Cha is executive director and CEO of Cosmo Pharmacueticals.
Barnes & Noble Inc., the nation’s largest bookstore chain, has tapped longtime counsel Cravath, Swaine & Moore to advise it on its long-anticipated spinoff of Nook Media, its struggling e-book unit. The New York-based bookseller hopes that separating Nook from its more profitable brick-and-mortar retail business will increase shareholder value.
Scott Barshay, the head of Cravath’s corporate department, and mergers and acquisitions partner Andrew Thompson are leading a team from the firm working on the matter for Barnes & Noble. The bookseller hopes to complete the spinoff, which was announced June 25, by the first quarter of next year.
Barnes & Noble tapped Cravath for counsel last year as it sought to shore up the faltering Nook unit by selling a 5 percent stake in Nook to British publishing giant Pearson for $89.5 million. That transaction came a little more than a year after Cravath advised Barnes & Noble on the $300 million sale of a 17.6 percent stake in Nook to Microsoft Corporation, which resulted in the settlement of IP litigation between both companies.