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U.S. Firms Leading in Eurodeals - Globalization - Global Policy Forum U.S. Firms Leading in Eurodeals
By Anna Snider
New York Law Journal
November 19, 1999
U.S. law firms have long anticipated that a mergers-and-acquisitions boom would remake Europe, but they may not have imagined that when it happened, they would play such an influential role.
In sleepier eras, American law firms practicing in Europe were often relegated to deals where one party was American or where a European firm was listed on a U.S stock exchange. But in Europe's current and largest-ever wave of deals, as European companies embrace U.S.-style M&A tactics, American law firms are sometimes the lead firms on both sides of purely European deals.
For instance, earlier this year, when Olivetti, an Italian telecommunications company, launched a $58 billion hostile bid for the much larger Telecom Italia, it hired Sullivan & Cromwell. Telecom Italia retained Davis Polk & Wardwell. And in September, Jones, Day, Reavis & Pogue faced off against Cleary, Gottlieb, Steen & Hamilton and Sullivan & Cromwell in the $54 billion oil merger of TotalFina and Elf Aquitaine.
Lawyers in Charge
American law firms owe their prominence in high-profile deals to the fact that U.S. investment banks have done so well in colonizing Europe, two lawyers said.
"The American-style approach has taken over the deal process," said Robert Profusek, who leads the M&A department at Jones Day. "That puts American law firms at an advantage."
"We're used to very rapid, results-oriented transactions in which the deal process is organized and run by lawyers," he continued. "In foreign countries, lawyers haven't played that role."
James Morphy, the chairman of Sullivan & Cromwell's M&A department, agreed. "The culture and the way we practice grew up with American-style investment bankers," said Mr. Morphy. "That's been helpful. The skills we learned here are now being used over there." And perhaps more so than smaller Continental European firms, U.S. firms are believed to have the scale and experience that give them a comparative advantage in cross-border and hostile deals, two types of transactions that are increasingly common in this economic climate.
"We do have a huge know-how advantage for certain types of transactions, such as hostile deals, which are now more prevalent in Europe than in the U.S.," Mr. Profusek said.
With takeover bids on the rise, target companies have also been calling on U.S. firms to explore mechanisms, such as the poison pill, to defeat them, said John "Jack" McCarthy, a London-based partner who is co-head of Davis Polk's international practice group. While U.S. firms may be securing their place on the scene, they are still contending with competitive pressure from U.K. firms, which have been well-established in European M&A for years. "Nobody is going to knock away Slaughter and May and Freshfields," Mr. Profusek said.
Deals Deals Deals
What is also making it a busy year for law firms overseas is the sheer number of transactions occurring as a single European market becomes a reality. The value of European M&A deals for the year to date is approaching $1.3 trillion, four times that of five years ago, according to J.P. Morgan & Co.
In the third quarter, Europe generated $368 million in M&A deals, more than the $322 billion created by the U.S., according to Thomson Financial Securities Data. Virtually every sector, from banking to telecommunications to energy, is restructuring to gain Europe-wide scale.
"The European Union is really setting up policies to encourage a single market," said Steven Davis, an M&A partner at LeBoeuf, Lamb, Greene & MacRae. "That's driving a lot of consolidation." "There is also an emerging global market," Mr. Davis said, "and the big European companies are feeling they have to have a footprint in the U.S." Davis Polk's Mr. McCarthy noted the accelerating pace of consolidation, but also said, "There is a whole separate current of deregulation occurring across lots of industries, including industries that are consolidating like telecom, causing markets to look to do M&A."
Law Firms Gearing Up
U.S. law firms, after spending millions to build up in Europe, are in better position than ever to take advantage of the boom, and their preparation is paying off.
Shearman & Sterling, for example, has handled 46 deals so far this year involving at least one European company and whose value is $150 million or more, making it currently the lead U.S. firm advising on European M&A transactions, according to a survey by the Law Journal.
When The American Lawyer, in its April 1997 "Corporate Scorecard," tracked European M&A in 1996, Shearman & Sterling worked on just four European deals. Simpson Thacher & Bartlett, the second most active U.S. firm, already has handled 34 European transactions this year, up from five deals in all of 1996. For some firms, such as Jones Day, almost half of all the M&A deals they have done this year involved at least one European company.
The firms seem already to be staking out their own niches. Shearman & Sterling has developed a specialty in M&A in Germany, where it handled at least 12 major deals this year, including the $14 billion Veba AG-VIAG AG merger, Germany's largest domestic merger ever. And Davis Polk locked up the Spanish bank deal market, having worked on both the $36 billion merger of Banco de Credito Hispanoamerica and Banco Santander and the $11.5 billion merger of Banco Bilbao Vizcaya and Argentaria Caja Postal & Banco Hipotecario.
Mr. McCarthy said the representations stem from two sources. "We had the wonderful good fortune in the Spanish market to be involved in the privatization process. That gave us quite a bit of exposure to companies, to investment bankers and to local law firms," he said.
"Separately, we made a decision 15 years ago to locate people here who are a part of our FIG Group [Financial Institutions Group], so we had a large contingent focusing on that work," Mr. McCarthy said.
Foreign Offices
While many firms have European M&A teams in place, often comprising well-connected, Europe-born lawyers, the increased activity is fueling a new wave of growth in foreign offices.
Shearman & Sterling, in its largest ever acquisition, added a 14-lawyer cross-border M&A team from the Paris firm Simeon & Associes. The firm also hired Adrian Knight in London from the investment banking team of the U.K. firm Ashurst Morris Crisp. White & Case is staffing up in practices that support M&A, such as intellectual property and tax, said London-based partner Peter Finlay, who coordinates the firm's Europe, Middle East and Africa practices. The firm has also transferred litigation department chairman Raymer Hamilton to Paris, in part to handle an increase in arbitrations arising from cross-border deals.
U.S. firms, to further their influence, have been eyeing lateral candidates from some of the top European M&A boutiques such as the Paris firms Gide Loyrette Nouel and Bredin Prat, one lawyer said.
"We want them, just as everyone else does," he said.
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