Davis Polk leads a raft of firms on $50bn Citi recap

Government-backed recapitalization of Citigroup in the latest of a string of deals to refinance struggling banking giants.The complex deal agreed with the Treasury Department will increase the Government's stake in Citi to as much as 36%. The deal sees up to $27.5bn (£19bn) in preference shares converted into common stock, which the Government, which owns $45bn (£31.25bn) in Citi preference shares, will match up to $25bn (£17.3bn) of conversions.Davis Polk is advising Citi and negotiating with the private investors, a group that includes Capital Research Global Investors and Capital World Investors, the Government of Singapore Investment Corp (Singapore's sovereign wealth fund) and the Saudi prince Alwaleed bin Talal. The Kuwait Investment Authority also plans to participate in the exchange, according to several lawyers involved in the talks.The Davis Polk team consists of Randall Guynn, M&A partners Gar Bason, Louis Goldberg and Michael Davis and tax partners Avishai Shachar and Neil Barr.Cleary Gottlieb Steen & Hamilton advised Citi on drafting the various securities agreements, a complicated task considering there are all sorts of contingency agreements should Citi shareholders vote down the exchange plan.Simpson Thacher & Barlett is advising the Treasury.Investor's counsel include Hogan & Hartson for bin Talal, a loyal Hogan client since before the first Persian Gulf War, according to Hogan partner Bruce Gilchrist. The prince's holdings illustrate the complications of the deal. He holds both preferred and common shares, meaning the exchange he agreed to may end up diluting the value of common stock he already owns, lawyers say.Several sources say Gibson Dunn & Crutcher advised the Kuwaiti authority, but Steven Guynn, who advised the authority in its initial $3bn (£2.1bn) investment in Citi preferred stock last year, declined comment.Sidley Austin reprised its role advising Singapore's sovereign wealth fund. Sidley has been representing the fund in various investments for more than 15 years.The Capital Group relied on in-house counsel, says Andrew Felner, the deputy GC for Citi who handled much of the internal work on the exchange plan.Citi's shares dropped about 40% upon the deal's announcement, mostly over fears that the exchange will dilute the value of common shares. Citi, which lost about $28bn (£19.4bn) last year, also agreed to eliminate the dividend on preferred stock and re-jig its board of directors so that a majority of directors are new and independent.Cleary will also be handling Citi's disclosure work and filings with federal regulators. Partners David Lopez, Neil Whoriskey and Jeff Karpf are leading the firm's team.

March 02, 2009 at 04:57 AM

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