Counsel to Counsel - November 2008 - (Page Cover3) Big Deals With the scarcity of leverage capital, the focus of M&A activity shifts from private equity groups to large corporations. Some recent examples: • On July 13, Belgo-Brazilian brewing giant InBev agreed to buy Anheuser-Busch Companies, Inc. for $52 billion. The allcash deal combines the owner of the Budweiser, Busch and Michelob brands with that of Stella Artois and Bass, creating the largest brewer in the world. The combined companies are projected to have annual sales of more than $36 billion. Regulatory and shareholder approvals are pending. • Microsoft Corporation’s bid for Yahoo! Inc. got new life in July when Carl Icahn succeeded in getting himself and two allies appointed to the besieged dot-com’s board. Since Yahoo! fended off Microsoft’s $44.6 billion takeover bid in February, the company has been beset by shareholder suits and harsh criticism. Although the companies formally ended talks in June, the seating of Icahn averted an all-out proxy battle and rekindled hope that a deal may still get done. • As Lehman Brothers Holdings Inc. plunged toward bankruptcy on Sunday, September 14, Bank of America Corp. swooped in to buy rival investment bank Merrill Lynch & Co., Inc. At $50 billion ($29 a share), the purchase price was 70 percent higher than Merrill’s value at closing the previous Friday, but a 61 percent discount from the firm’s share price just a year earlier. The purchase creates the largest brokerage operation in the nation, and makes Bank of America comparable to Citigroup, Inc. in size. counsel can best translate the company’s needs, strategies and priorities to outside counsel. Their effectiveness in this role, however, is highly dependent on the strength of their relationships with senior management. “They really need to have a clear idea of what the business people are trying to accomplish,” Cohen says. “It’s much more than just having lunch with the CFO occasionally. They have to really be up to date—they have to become involved with transactions when they are just a twinkle in the eye. If you wait until the deal is already in motion, you’ll never be able to get up to speed and translate it.” would be considerably worse than it is right now. The key question now is whether we can surmount the current turmoil in the credit markets.” And even amid such gloom, strong companies can make critical strategic acquisitions. themselves, even if they are in relatively stable financial standing. “The general counsel needs to be in close contact with regulators,” Cohen cautions. “Times like these really stress the importance of open, frequent and clear communication with regulators.” It’s also important to align the right outside counsel with specific transactions. In a normal economy, the routing nature of deals makes outside counsel almost fungible. But tough times require specific expertise. Distressed acquisitions, for example, are highly complicated and require counsel well versed in the associated complexities and pitfalls. “In certain types of transactions, not all firms have the right background and expertise,” Cohen concludes. “The general counsel has to sit down with the legal department and seriously discuss which firm or firms have the right expertise for the specific deals you are considering.” H. Rodgin Cohen is firm chair and partner at Sullivan & Cromwell LLP The firm . comprises approximately 650 lawyers serving clients around the world through a network of 12 offices, located in leading financial centers in Asia, Australia, Europe and the United States. Cohen is Peer Review Rated and can be reached at cohenhr@sullcrom.com. Mixed outlook There is little to indicate that a more favorable deal climate is in the offing. The extreme volatility that followed the September bankruptcy of Lehman Brothers and the fire sale of Merrill Lynch only exacerbated market fears, and underlined the notion that when things do return to normal, normal will look a lot different. But there may be reason to be optimistic if we can get through the current credit crisis. “The American economy is extraordinarily resilient,” Cohen says. “If you had predicted in June 2007 that by the middle of 2008 oil would be at $140 a barrel and housing prices would have declined nationwide by 20 percent and as much as 40 percent in places like California, most experts would have said that the stock market and the economy “there are opportunities. For example, troubled bank acquisitions can be very attractive. some of the major banks in this country were built by making these acquisitions.” “There are opportunities,” Cohen says. “For example, troubled bank acquisitions can be very attractive. Some of the major banks in this country were built by making these acquisitions.” But as companies look to make moves, they must be certain that their own house is in order. It’s particularly important not to take your eye off of regulatory compliance. Companies that wind up with a serious regulatory problem—such as moneylaundering allegations—not only find their hands tied when attractive deals come along, they could become takeover targets www.martindale.com/c2c November 2008 25 http://www.martindale.com/c2c
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