The American Lawyer Global Legal Awards honor the cross-border deals and disputes of 2013 that best exemplify the challenges of transnational legal practice. Below, the 10 winners in the M&A category.
Global M&A Deal of the Year: U.S.
Winner: The Verizon Wireless Deal
Honorees: Verizon Communications Inc.; Wachtell, Lipton, Rosen & Katz; Debevoise & Plimpton; Macfarlanes; Jones Day; Vodafone Group plc; Simpson Thacher & Bartlett; Slaughter and May; De Brauw Blackstone Westbroek; Hogan Lovells
“We got an offer that we thought was in the interests of our shareholders to accept—at the end of the day it’s as simple as that.” That’s what Vodafone CEO Vittorio Colao told reporters last September, when the U.K. telecom giant announced that it would be selling its 45 percent interest in Verizon Wireless (VZW) to New York’s Verizon Communications Inc.
Whatever the motive, the deal was anything but simple. The scale was enormous: The price was $130 billion, making it the third-largest merger in history. The $49 billion, eight-part bond offering that financed the acquisition was the largest corporate debt offering of all time, more than doubling the previous record. The offerings included fixed-rate debt, with maturities ranging from three to 30 years, as well as two portions of floating-rate securities. In the end Verizon and its lawyers produced both a U.K. and a U.S. prospectus that were approved by regulators in both nations. International shareholders received a special U.K. prospectus that was modified to comply with U.S. rules.
For commercial, antitrust and regulatory reasons, a significant part of the proceeds—comprising $23.9 billion in cash and all of the $60.2 billion worth of Verizon stock—was passed directly to Vodafone shareholders. In order to facilitate this transfer, Vodafone requested that the deal be structured as a U.K. “scheme of arrangement.”
One of the potential drawbacks of using a U.K. scheme is that it required approval from not only an increased majority of Vodafone shareholders—75 percent, compared with 50 percent if the deal was structured as a direct purchase—but also the U.K. courts. So Team Verizon prepared a backstop structure if the scheme failed.
That proved unnecessary, and the $10 billion breakup fee—also the largest in history—remained a purely theoretical matter.
Global M&A Deal of the Year: Canada
Winner: Acquisition of Neiman Marcus
Honorees: Ares Management; Canada Pension Plan Investment Board; Proskauer Rose; Latham & Watkins; Torys; TPG Capital; Warburg Pincus; Cleary Gottlieb Steen & Hamilton
What’s the first port of call for that must-have pair of Jimmy Choo shoes or a Valentino clutch bag? For many across the United States it would be any one of the 79 stores within the Neiman Marcus luxury retail group—famed for having its finger on the pulse of the upper echelons of fashion.
In 2005 a group of private equity investors led by Texas Pacific Group and Warburg Pincus bought Neiman Marcus for $5.1 billion. By July 2013, it was time for an exit, and the company announced that it had filed for an IPO while simultaneously running a sales process. This dual-track process added a little excitement to what otherwise might have been a simple trading event. The IPO offered the sellers a “clean exit”—they’d have their return without a tail of contingent liabilities hanging over the deal.
In the event, though, last fall NM went to the highest bidders, a coalition of two buyers, global asset management company Ares LLC and the Canada Pensions Plan Investment Board (CPPIB), for $6 billion. Ares and CPPIB are holding an equal economic interest in the retailer, and the company’s management is holding a minority stake. This was the largest cross-border M&A deal in Canada last year and proved to be an elegant conclusion that took out a potentially drawn-out exit in an uncertain IPO market.
Global M&A Deal of the Year: Europe/Ireland
Honorees: Perrigo Co.; Sullivan & Cromwell; Fried, Frank, Harris, Shriver & Jacobson; Morgan, Lewis & Bockius; Dillon Eustace; Cadwalader, Wickersham & Taft; A&L Goodbody
Before it became a poster child for U.S. tax inversions, Irish drug manufacturer Elan was just another hostile takeover target. Elan was a success story for Ireland’s developing biotech sector, and in 2012 caught the eye of Royalty Pharma—an aggressive New York investment house with a taste for buying royalty interests in late- stage and marketed pharmaceutical products. In particular, Royalty had its eye on Elan’s promising treatment for multiple sclerosis, called Tysabri.
After the board rejected Royalty’s last offer in June 2013, investors demanded an auction process. The winner was a relative unknown player: Michigan-based Perrigo, a company that manufactured private label over-the-counter pharmaceuticals in the United States. Perrigo’s brand was little known, but its drugs where everywhere, and its balance sheet was formidable. For Elan, Perrigo paid $8.6 billion.
Elan’s stable of products was part of the attraction. But so was Ireland’s low corporation tax rate (12.5 percent). The grand plan called for Perrigo to redomicile in Ireland and thus create significant savings. To that end, the deal saw the creation of New Perrigo, a holding company incorporated in Ireland, which acquired both Perrigo and Elan.
This deal helped bring the trend of tax-motivated deals into the public eye. Permitted by law, they were nonetheless controversial matters that both pundits and politicians attacked. New Perrigo may be safe; the future of the strategy is up for debate.
Global M&A Deal of the Year: Europe/Germany
Winner: Acquisition of Grohe A.G.
Honorees: LIXIL Corp.; Development Bank of Japan; Linklaters; Weil, Gotshal & Manges; Clifford Chance; Mori Hamada & Matsumoto; TPG Capital; Credit Suisse Private Equity
Not heard of Grohe? Chances are that the brand has been present as you’ve attended to ablutions in homes and hotels around the world. Grohe is (as it likes to describe itself) “Europe’s largest manufacturer of sanitary fittings, including kitchen and bathroom faucets/taps, and shower systems,” operating nine factories in Europe, Asia and Canada—and also possessing a controlling stake in Joyou, the Chinese bathroom fixture maker.
Last year it added a few more superlatives when it was acquired for 3 billion euros by LIXIL, Japan’s largest housing material manufacturer, and the Development Bank of Japan, a state-owned bank charged with supporting the country’s efforts to become more international. In the process it became the largest acquisition by a Japanese company in Europe in 2013, the largest ever investment by a Japanese corporate in Germany and the second-largest Japanese outbound deal of the year. It was also, through Joyou, a backdoor for Japan into the China market.
The acquisition of Grohe triggered a “change of control” under Frankfurt listing rules, requiring LIXIL and DBJ to place voluntary tender offers, all of which needed to be embroidered into the deal timetable. And there were some complex antitrust issues to be cleared. Previously Grohe had been subject to fines from the EU regulatory authorities for cartel and anticompetitive behavior.
As was the fashion again last year, Grohe was put on the market in a dual-track auction. Even as it took bids, Grohe’s private equity fund owners prepared for an IPO. In the end that possibility proved to be only a feint.
Global M&A Deal of the Year: Europe/Finland
Honorees: Microsoft Corp.; Simpson Thacher & Bartlett; Covington & Burling; Hannes Snellman; Linklaters; Nokia Oyj; Skadden, Arps, Slate, Meagher & Flom; Roschier; Cooley
Last September, Microsoft revived the fortunes of ailing Finnish telecom company Nokia by acquiring almost all its devices and services business and the license of its patents, for 5.44 billion euros. Nokia holds more than 30,000 patents related to the 2G and 3G wireless standards. The enormous cash infusion will allow the company, which had been trailing Samsung and Apple in the smartphone derby, to focus on its networking equipment, navigation business and technology patents.
Under the transaction’s terms, Microsoft agreed to pay 3.79 billion euros ($5 billion) for the Nokia units, which include smartphone operations, and another 1.65 billion euros ($2.2 billion) to license related patents—using overseas cash reserves to cover its purchase. The company also retained its patents, licensing them to Microsoft for 10 years for an additional $2.2 billion, thereby allowing Nokia to maintain its extensive and extraordinarily valuable patent portfolio.
Competition issues were a potential sticking point: while U.S. and EU reviews went smoothly, China’s Ministry of Commerce delayed completion. Approval was granted subject to Microsoft’s agreeing to licensing conditions, including patent protection for Android phone manufacturers (many of whom are Chinese). Nokia received no requests for changes to its licensing program or royalty terms from any of the reviewing authorities.
Along with the antitrust reviews, the deal had to clear massive tax, employment, and other regulatory issues. In the end, Nokia had a new focus and Microsoft had a path back into the mobile wars.
Global M&A Deal of the Year: Africa
Honorees: ONGC Videsh Ltd. (OVL); Amarchand & Mangaldas & Suresh A. Shroff & Co; Simmons & Simmons; SCAN Advogados e Consultores; Maples and Calder; Appleby; Harneys; PLMJ Sociedade de Advogados; Gabinete Legal Moçambique Advogados; Conyers Dill & Pearman
It’s a close question. Which was more complex: discovering a 100 tcf (trillion cubic feet) of natural gas off the coast of Mozambique 12,000 feet below the surface of the Indian Ocean or selling a portion of the natural resources bounty under the laws of five different jurisdictions?
In this deal ONGC Videsh and Oil India bought a stake in the new gas field known as Rovuma 1 from the subsidiary of another giant Indian industrial conglomerate, Videocon. For $2.4 billion, the investors purchased a 10 percent interest. In the process they became junior partners to Anadarko, the drilling giant, and ENH, the national oil company of Mozambique, and a few other resource companies.
The transaction turned on developing a joint operating agreement, sorting out exploration and production concessions, and guaranteeing compliance with a variety of local regulations. While English law governed the transaction, the provisions nodded to rules in India, the Cayman Islands and Mauritius. The gas may be local, but the laws involved span continents.
Global M&A Deal of the Year: Japan (inbound)
Winner: Applied Materials/Tokyo Electron
Honorees: Applied Materials Inc.; Weil, Gotshal & Manges; Mori, Hamada & Matsumoto; De Brauw Blackstone Westbroek; Tokyo Electron Ltd.; Jones Day; Nishimura & Asahi
The business of manufacturing computer chips has consolidated over the last decade. According to analyst reports, three global giants now control half the market. It’s little wonder that the companies that make the equipment that the chipmakers use have opted to join forces. Last year two of the biggest players, Applied Materials and Tokyo Electron, announced a $29 billion merger. If regulators in the U.S. and China ultimately approve the deal, the new company, dubbed Eteris (a neologism), will control one-quarter of the equipment market.
From the start it was billed as a merger of equals. Japan’s Tokyo Electron and U.S.-based Applied Materials are both manufacturers of semiconductors, automation software and other high-tech products. Last September the companies announced their nuptials: that they were to create “a global innovator in semiconductor and display manufacturing technology via an all-stock combination which values the new combined company at approximately ¥2.8 trillion.”
In the event the deal involved three jurisdictions, with the newly merged company to be incorporated in the Netherlands, but with joint headquarters remaining in Santa Clara, Ca., and in Tokyo. The company plans to list on Nasdaq and the Tokyo Stock Exchange.
Global M&A Deal of the Year: Japan (outbound)
Honorees: Suntory Holdings Ltd.; Cleary Gottlieb Steen & Hamilton; Jim Beam Inc.; Sidley Austin
Foreign companies have a thirst for American beer and spirits brands. Over the last decade, such industry icons as Budweiser, Miller, Wild Turkey and George Dickel have all been folded into giant multinational beverage operations. This year it was Jim Beam’s turn to get swallowed. In January, Suntory, the Japanese liquor giant announced that it was acquiring Jim Beam for $16 billion to create a new drinks giant, the world’s number three ‘premium spirits’ player, with annual sales of $4.3 billion. It was the largest overseas acquisition by a Japanese company in the last year.
Until recently, Suntory concentrated on its home market even as global competitors such as Diageo and Pernod Ricard build networks of famous liquor brands. But it saw an opportunity with Jim Beam, with whom it had been cultivating a relationship for several years. Under pressure from activist investors, in 2011 Fortune Brands had spun off Jim Beam into a freestanding company. Along with its eponymous bourbon, the Beam company included a handful of other classic brands, including Maker’s Mark, Courvoisier, Canadian Club and Laphroaig.
Suntory began distributing Beam’s products in Japan, while Beam distributed Suntory products elsewhere in the world. In November 2013, Suntory approached Beam with an unsolicited offer. After three months of negotiation, Beam agreed to sell. Reportedly Suntory paid handsomely for the privilege: Its tab was estimated at more than 20 times EBITDA.
Global M&A Deal of the Year: China (outbound)
Honorees: Shuanghui International Holdings Ltd.; Paul Hastings; Troutman Sanders; Smithfield Foods Inc.; Simpson Thacher & Bartlett; McGuireWoods; Fangda Partners
In China, pork isn’t the other white meat. Representing three-quarters of the Chinese meat market, pork is the meat of choice. But keeping pace with the appetite of a rising middle class has proven challenging for China’s food merchants. So last year Shuanghai International, China’s largest food processor, went shopping and came home with Smithfield Foods, the largest pork producer in the United States. This was significant for Chinese cooks but also, at $7.1 billion, it was the largest takeover yet of a U.S. public company by Chinese interests.
The deal was dramatic in both its private and public aspects. Shuanghui was eager to buy Smithfield but it wanted to avoid a drawn-out bidding fight. So when Smithfield sought a two-week delay to talk with other bidders, Shuanghui countered with an ultimatum: Sign off in four days or we abandon our offer.
Then came the public skirmish, or the potential of one. In the past, proposed Chinese investments in the U.S. had run afoul of congressional and public hostility. The purchase of Smithfield had to be approved by the Committee on Foreign Investment in the United States (CFIUS). This would be the first reported food company deal to undergo an investment review, and it came at a time when there were public concerns that Chinese ownership might somehow affect food safety in the U.S. So lawyers and lobbyists for both parties undertook extensive outreach to support the deal. In the end CFIUS approved the merger, and Smithfield became part of a global food company.
Global M&A Deal of the Year: China private equity
Winner: Focus Media Buyout
Honorees: Fried, Frank, Harris, Shriver & Jacobson; Sullivan & Cromwell; Zhong Lun Law Firm; Conyers Dill & Pearman; Ropes & Gray; Skadden, Arps, Slate, Meagher & Flom; Simpson Thacher & Bartlett; Kirkland & Ellis, Maples & Calder; Fangda Partners; Morrison & Foerster,; Jason Nanchun; Carlyle Group; CITIC; CDH Investments; China Everbright; FountainVest; Focus Media Holding Ltd.
Focus Media Holding likes to operate as a trendsetter. Its core business symbolizes 21st-century media. It runs what it calls the largest “out-of-home” advertising network in China. Their tens of thousands of digital screens can be found in office lobbies, shops and elevators. As it developed, its corporate structure became a kind of trendsetter too. Formed in 2003, it was listed on Nasdaq in 2005, part of the wave of Chinese companies that sought admission to U.S. markets as a badge of economic arrival. But by late 2012, its stock battered by short-sellers crying fraud and with private equity investors looking for another path into the Chinese market, Focus Media caught another trend, becoming the largest Chinese company to “go private” and in the process delist from a U.S. exchange.
A formal deal was announced at the end of 2012, with investors led by the Carlyle Group, CITIC Capital partners and Focus Media’s own CEO agreeing to a transaction valued at roughly $3.7 billion. By the time the deal cleared all regulatory hurdles, Focus Media had become the largest delisting of a Chinese company from Nasdaq, and the largest ever Chinese leveraged buyout.
Nine banks financed the deal, which apart from the finance agreements had formidable legal complexities. They included navigating U.S. securities laws, Cayman merger issues (Focus was incorporated as a Cayman company) and a variety of litigation and antitrust clearances.
Global M&A Deal of the Year: Asia/Thailand
Winner: Acquisition of Siam Makro
Honorees: CP All PC; Baker & McKenzie; Allen & Overy; SHV Netherland BV; Clifford Chance; Hunton & Williams
In Thailand, CP All, a company owned by billionaire Dhanin Chearavanont, already dominates the convenience store market, controlling more than 7,000 7-Eleven stores.
Last year, CP ALL moved down the retail supply chain, buying a majority stake in a company called Siam Makro, which, with 62 cash-and-carry stores, is Thailand’s leading wholesale chain. Priced at $6.6 billion, it was the largest acquisition in Thai history.
This is Chearavanont’s second round with Siam Makro, having cofounded the company in 1988 with SHV Nederland B.V., the Dutch trading giant. He got out of the business after the Asian financial crisis in 1997. Now, with the Thai economy growing, CP All doubled down on its domestic investment. The company also has plans to open 7-Eleven and Siam Makro outlets across the South East Asian market, home to 600 million people.
Global M&A Deal of the Year: Latin America/Mexico
Winner: Eutelsat/Satelites Mexicanos
Honorees: Eutelsat Communications; Debevoise & Plimpton; Mijares, Angoitia, Cortes y Fuentes; Ropes & Gray; Greenberg Traurig; Cervantes Sainz
There doesn’t appear to be a ceiling on the expansion of the satellite industry. Currently Latin America is enjoying a growth spurt and, in the process, has continued to attract serious foreign direct investment.
An exemplar of that trend was last year’s acquisition of Satelites Mexicanos by French-based satellite operator Eutelstat. For $1.15 billion, Eutelstat made its first move into the Western Hemisphere. Satmex operates three orbiting satellites, with plans to launch two more that will allow the newly merged company to serve the growing digital market in Latin America.
The deal had French, Mexican and U.S. law components. It was one of the first transactions to take advantage of a recent change to the Mexican constitution that permitted foreign ownership of a majority of a Mexican company. Also changes to Mexican corporate tax law added last-minute hurdles. Meanwhile, the deal had to conform to aspects of U.S. securities law, because Satmex had issued $365 million in high-yield notes after emerging from bankruptcy in 2011.
Global M&A Deal of the Year: Latin America/Peru
Winner: The Las Bambas Copper Deal
Honorees: China Minmetals Corp.; White & Case; Dentons; Rodrigo Elias & Medrano; Glencore plc; Grau Abogados; Linklaters
A year ago, Glencore’s gargantuan $34 billion purchase of mining giant Xstrata received one of The American Lawyer’s Global M&A Deal of the Year honors. Deals that size often have fallout. One aftershock came last April, when the new company announced the sale of its massive Las Bambas copper mine in Peru for $7 billion to a Chinese consortium led by China’s MMG Limited, a subsidiary of Minmetals, a state- owned enterprise.
Selling Las Bambas was the price Glencore paid to win final approval of its Xstrata deal from the Chinese Ministry of Commerce. Mofcom, as the ministry is known, conducts antitrust reviews on potential mergers. As a condition of approving the Glencore-Xstrata deal, Mofcom set a September 2014 deadline for the sale of Las Bambas.
China already ranks as the second-largest copper producer in the world. It has made no secret of its appetite for access to precious minerals and ores. Closing the deal involved a host of diligence, regulatory and mining issues on four continents, allowing the global law firms working on the matter to expertly use their far-flung networks.