Christmas might be coming early to Cravath, Swaine & Moore.
The firm took the lead Friday for British American Tobacco plc on its announcement of a nonbinding offer to buy the remaining 57.8 percent of Reynolds American Inc. that it doesn’t already own. The proposed $47 billion cash-and-stock deal could transform the tobacco industry, and it turned out to be the first of two mega-mergers for Cravath in a 24-hour period.
Time Warner Inc. confirmed Saturday evening its $85.4 billion cash-and-stock sale to AT&T Inc., a deal whose value reaches $108.7 billion when accounting for the New York-based media conglomerate’s debt. Should the merger survive regulatory scrutiny, it will create a company for a new media age, one in which telecommunications providers have scooped up original content providers in order to compete with technology giants pushing into streaming services.
Cravath is advising Time Warner on the landmark transaction. The firm’s relationship with Time Warner and its predecessors goes back nearly a century. Former Cravath presiding partner Maurice “Tex” Moore, who died 30 years ago, took on the company as a client as a favor to his brother-in-law, future magazine magnate Henry Luce. The company would evolve over time—it now owns television channels like CNN, Cinemax and Home Box Office—but the bond with Cravath would continue.
Robert Joffe, another former Cravath presiding partner who died in 2010, helped create the current iteration of Time Warner by advising what was the Time Inc. on its $15.2 billion merger in 1989 with Warner Communications Inc. In 1996, Cravath represented Time Warner on its $7.5 billion merger with Turner Broadcasting System Inc. Four years later, Cravath clinched the big one, counseling Time Warner on its ill-fated $182 billion union with AOL Inc. Cravath famously received a $35 million success fee from Time Warner for its work on the AOL merger, which the firm ultimately helped dissolve in 2009.
The dissolution of that deal heralded a new era, one in which Cravath would advise Time Warner on a series of divestitures, such as the $537.5 million sale of its books group to France’s Lagardere SCA in 2006 and its $9.25 billion separation two years later from Time Warner Cable Inc. In 2013, Cravath handled Time Warner’s spin off of its publishing unit, and the following year the firm again took the lead for the company in rejecting an $80 billion takeover offer from Rupert Murdoch’s Twenty-First Century Fox Inc.
Faiza Saeed, who reportedly took a 2 a.m. phone call from Time Warner in January 2000 to get the firm ready to handle the AOL transaction, is leading a Cravath team advising Time Warner on its current deal with AT&T along with fellow M&A partner Eric Schiele and antitrust partner Christine Varney, a rare external hire by the firm in 2011. Earlier this year, Saeed was named Cravath’s first female presiding partner.
Former Kirkland & Ellis litigation partner Paul “Pooch” Cappuccio has served as Time Warner’s general counsel since the completion of its merger with AOL. William Barr, a former U.S. attorney general and Pillsbury Winthrop Shaw Pittman partner who briefly served as of counsel at Kirkland, is a member of Time Warner’s board of directors, along with Harvard Law School professor Robert Clark. Kenneth Novack, a retired partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, stepped down from Time Warner’s board in June. (Mintz Levin was a longtime legal adviser to AOL, which was sold last year for $4.4 billion to Verizon Communications Inc.)
Dallas-based AT&T, which a year ago this month named former Haynes and Boone partner David McAtee II as its new general counsel, has turned to Sullivan & Cromwell and Arnold & Porter to advise on its acquisition of Time Warner. Joseph Frumkin, managing partner of Sullivan & Cromwell’s M&A group, is leading a team of lawyers working on the matter that includes corporate partners Eric Krautheimer and Melissa Sawyer, tax partner Andrew Mason, executive compensation and benefits partner Matthew Friestedt, IP partner Nader Mousavi, finance partners S. Neal McKnight and Ari Blaut and litigation partners William Monahan, Adam Paris and Steven Peikin. Arnold & Porter is serving as regulatory counsel to AT&T. Federal lobbying records show that after being hired by AT&T in March, the company has paid $30,000 to the firm through the first three quarters of this year to advise on “issues related to communications and technology policy.”
Arnold & Porter and Sullivan & Cromwell stepped up to advise AT&T two years ago—along with Sidley Austin, Crowell & Moring and Washington, D.C.’s Kellogg, Huber, Hansen, Todd, Evans & Figel—on the company’s $48.5 billion buy of DirecTV. Federal regulators decided last year not to challenge the telecom giant’s acquisition of the nation’s largest satellite television provider.
Another big deal unlikely to trigger antitrust objections is BAT’s proposed purchase of Reynolds American. The two tobacco companies operate in different markets—London-based BAT is strong overseas, while Winston-Salem, North Carolina-based Reynolds is focused on the U.S.—and their union will create the world’s largest tobacco company by revenue and market value. BAT already owns a 42.2 percent stake in Reynolds, which two years ago agreed to buy rival cigarette maker Lorillard Inc. in a $27.4 billion deal.
Jones Day advised Reynolds on its purchase of Lorillard, which saw BAT make a $4.7 billion investment in the acquirer, although Reynolds has not yet formally retained outside counsel on the latest offer by BAT. Martin Holton and McDara Folan III serve as general counsel and deputy general counsel for Reynolds, respectively, while BAT general counsel Jerome Abelman is a member of Reynolds’ board of directors. Retired Cravath partner Ronald Rolfe also serves as an independent member of the board at Reynolds, a company known for tobacco brands like Camel and Newport.
Cravath is working with London-based legal giant Herbert Smith Freehills in counseling BAT on its bid for Reynolds, according to sibling publication Legal Week. Cravath corporate partners Philip Gelston, David Perkins and Ting Chen are leading a team of lawyers from the firm working on the matter for BAT, owner of brands like Dunhill, Kent, Lucky Strike and Pall Mall.
Herbert Smith Freehills chair and senior partner James Palmer in London is working with financial institutions head Alex Kay, tax head Isaac Zailer and corporate partner Gillian Fairfield in advising BAT, which is fielding an in-house team led by head of legal M&A Craig Harris and director Robert Casey. Davis Polk & Wardwell corporate partners Will Pearce—hired by the firm from Herbert Smith Freehills in late 2012—and Phillip Mills are providing U.K. and U.S. legal advice to BAT’s financial advisers on the proposed transaction.
Michael Aiello, chairman of the corporate group at Weil, Gotshal & Manges, is leading a team of lawyers from his firm counseling JPMorgan Chase & Co. and Perella Weinberg Partners Group LP as financial advisers to AT&T on its acquisition of Time Warner. Simpson Thacher & Bartlett partner William Sheehan is advising JPMorgan and Bank of America Corp. in their role as lead arrangers for a $40 billion bridge term loan facility for AT&T.
In other M&A news …
AustraliaSuper Pty. Ltd./IFM Investors Pty. Ltd./Government of New South Wales
Two months after it rejected substantially higher foreign bids, the government of Australia’s southeastern state of New South Wales announced on Oct. 20 the $12.5 billion sale of a 50.4 percent stake in the country’s largest electricity grid to two local investors. AustraliaSuper, the country’s largest pension fund, and IFM Investors, the largest manager of infrastructure assets in Oz, emerged as the winning bidders for Ausgrid. The move comes after Australia’s federal treasurer cited national security concerns in scuttling an August sale of Ausgrid to Chinese and Hong Kong-based bidders. The unsolicited “all-Australian” offer for a 99-year lease of the grid, which includes substantial debt forgiveness, is expected to close before year’s end.
Legal Advisers: Ashurst and Herbert Smith Freehills for AustraliaSuper and IFM Investors; Clayton Utz for financiers; Allens for New South Wales
Tabcorp Holdings Ltd./Tatts Group Ltd.
In another big deal Down Under, two Australian non-casino gaming companies have a plan to fend off competition from popular online betting agencies and offshore rivals. In a deal announced on Oct. 19, Melbourne-based Tabcorp, Australia’s largest gambling company, said it had agreed to a $4.9 billion buy of Brisbane-based Tatts, a name synonymous with lotteries in certain parts of Australia. The merger, expected to close in mid-2017, will create a gaming industry giant worth some $8.7 billion, according to news reports.
Legal Advisers: Herbert Smith Freehills for Tabcorp; Clayton Utz for Tatts
Ocean Management Holdings Ltd./Qunar Ltd.
In a deal worth $4.4 billion, Chinese digital travel services giant Qunar agreed on Oct. 19 to be taken private by hotel and travel services operator Ocean Management. The deal, expected to close in the first half of 2017, marks the second major Nasdaq-listed Chinese online company targeted for privatization this year. Ocean Management is an investment vehicle owned by Nanyan “Alex” Zheng, a Chinese hospitality tycoon who owns the 7 Days Inn hotel chain and co-founded Qunar travel booking rival Ctrip.com International Ltd.
Legal Advisers: Skadden, Arps, Slate, Meagher & Flom for Ocean Management; Kirkland & Ellis for Qunar
Permira Advisers LLP/Mid Europa Partners LLP/Cinven Group Ltd./Allegro Group Sp. z oo
Cape Town-based Naspers Ltd., Africa’s largest company, is poised to sell Poland’s largest online marketplace to a consortium of three London-based private equity firms. Permira, Mid Europa and Cinven have agreed to pay $3.25 billion for the Poznań, Poland-based Allegro Group, an online auction business in the country with more than 20 million registered users that competes with industry giants like eBay Inc. Naspers bought Allegro for $1.5 billion in 2008. The current deal, announced Oct. 14, is expected to close before the end of fiscal 2017.
Legal Advisers: Clifford Chance for Cinven, Mid Europa and Permina; Allen & Overy for Naspers
SM Energy Co./Oasis Petroleum/QStar LLC
After divesting its assets in North Dakota’s Williston Basin to Houston-based Oasis Petroleum in a $785 million deal, Denver-based SM Energy agreed to purchase assets in West Texas’ Howard and Martin counties from EnCap Investments LP-backed QStar in another $1.6 billion in cash-and-stock deal, according to sibling publication Texas Lawyer. The two transactions, announced Oct. 18, are expected to close by December. SM Energy is funding its QStar acquisition with proceeds from its sale to Oasis.
Legal Advisers: in-house counsel for SM Energy; DLA Piper for Oasis; Vinson & Elkins for QStar