Is the ability to manage more important than legal expertise for in-house counsel grappling with ever more complex cross-jurisdictional transactions?
This was one of the questions debated at a recent Martindale Hubbell Counsel to Counsel Forum on mergers and acquisitions, which was held in Milan.
With the increased rate and pace of global consolidation, legal directors are now being faced by increasingly complex M&A transactions – which frequently extend into several jurisdictions.
In-house advisers are often called on to structure complicated deals, which can involve any number of parties, with implications for UK, US and local law.
The participants at the forum were able to exchange the best practice examples that they had used to better manage the logistics of cross-border deals.
Planning is the key
Meticulous planning is crucial, said Jane
Stables, legal and business director at United Business Media (formerly United News & Media (UNM)).
Stables and her team of three corporate lawyers oversaw £3.25bn worth of disposals in 2000 alone.
“The logistics of managing the transactions can be as important as the legal aspects,” she said. “We do not try and act as a law firm within the company.”
A case in point is the sale of photostock library business Visual Communications Group to Getty Images for $220m (£139m).
The multi-million pound deal stretched across four jurisdictions – London, the US, France and Germany.
Stables set up a steering committee to co-ordinate the legal aspects of the deal. It was made up of Stables, an IP partner and a corporate partner from the London office of Baker & McKenzie and a US corporate partner from Carter Ledyard – a firm which had advised UNM on the acquisition of the group (see box, below left).
The US partner was brought over to Bakers’ London office for the two-week duration of the deal. One of the major reasons for doing this was the problems that can arise from time differences.
Bakers’ senior assistants were also appointed in Germany and France to liaise with the local management and act as a conduit to the steering committee on issues that arose in those jurisdictions.
Stables acted as the link between the business and the lawyers, and she said that the system worked well – particularly where it was necessary to bring the US and UK partners together in the same office.
“I certainly felt that the deal went a whole lot faster,” she said. “Initially, I thought two partners working together in one room was over the top, but in fact it worked very well.”
Kamen Zahariev, senior counsel at the European Bank of Reconstruction and Development (EBRD), agreed that the early involvement of the legal team is crucial to the effective management of a transaction.
The EBRD is a substantial entity which operates a 430-strong legal function in 27 countries and has a membership of 61 states. Consequently, the bank has to deal with an extremely wide range of financial projects in different geographical and social areas.
The challenge is the pace and development of the local law.
Zahariev said: “The fact is the countries in which we operate are not stable legal environments and the law can change every few months – it is very difficult to keep pace.”
For the EBRD, the key is to work closely with the business units. In each transaction the in-house counsel is assigned to a team of bankers and there is a strategy meeting on the project at an early stage.
“We discuss how to approach legal services,” said Zahariev. “We add value to the transaction not only with sectoral expertise, but by coming up with local law expertise and the knowledge of the local legal market.”
Working across borders
The main headaches in cross-border M&A work are jurisdictional antitrust, labour law and stock exchange requirements.
Knowledge of the local approach and the issues that are likely to arise on the ground can be one of the main problems for in-house advisers.
This is particularly the case when it comes to gaining antitrust clearance which, along with labour law and stock exchange regulation, was identified as the most tricky aspect of a cross-border transaction.
With criminal sanctions for non-compliance in some jurisdictions it was important to get it right. The commercial implications of failing to obtain compliance can be huge, with entire markets lost.
The delegates agreed that timing of applications for competition approval is critical. Multiple filings have to be co-ordinated. By applying in a more favourable jurisdiction first it is possible to influence a country known to be less flexible (see Proctor and Gamble sidebar below).
Most of the participants involved took the view that in-house teams, which are armed with an in-depth knowledge of the business priorities and which possess a feel for the countries involved, should co-ordinate the antitrust filings rather than external advisers.
And most of the senior in-house participants pointed to the business users on the ground as a hugely useful resource.
Having sophisticated business users involved in the transaction – with a knowledge of the local jurisdiction and the problems that are likely to arise on the ground – can be crucial if the legal function is over-stretched.
This is where it pays to educate the people within the business on areas that are likely to throw up legal problems. “If the business person is co-ordinating well and talking to the lawyers they will understand the issues,” one participant said.
Legal ability remains important, but what shone through during the Counsel to Counsel Forum is that management skills are becoming an equally crucial tool in the armoury of in-house lawyers who are now advising in a growing global market.
Proctor & Gamble’s clearance acquisition of Tampax
Proctor & Gamble’s (P&G’s) vice president and general counsel in Europe, Horst C Dengler, says knowledge of the jurisdictional requirements and timing of the applications is crucial.
With approximately 300 brands in more 140 countries, antitrust issues are critical to Proctor & Gamble.
As an example Horst, used the clearance of the Tampax acquisition in 1997. In 1994 the group entered the European tissue and towel market with the acquisition of German-based company VP Schickedanz, which included Camelia sanitary napkins.
At the time of the acquisition the Merger Task Force (MTF) of the European Commission concluded that sanitary towels and tampons were separate markets although P&G argued that it was one market given that the products served the same purpose and were, as such, interchangeable.
However, the decision of the MTF confirmed the concept of separate markets which, in time, opened the door for P&G to acquire the Tambrands Company (TAMPAX) in 1997.
The Tambrands case did not have a ‘Community Dimension’ and therefore did not fall within the jurisdiction of the MTF which might have been tempted to try to apply the concept of ‘portfolio power’ to this case.
It is also important to have a ‘feel’ for each country when you are assessing how to time the applications, Horst says. “For instance, in Spain we only got approval after almost three years, coupled with several conditions, while the rest of the world approved the Tambrands acquisition without any condition.”
