Buoyant M&A activity keeps law firms busy

Newsroom 20/11/2007 | 16:44

“Approximately 16 lawyers from both the Bucharest and Vienna offices of Wolf Theiss were involved in this transaction. Our work included conducting due diligence investigations and advising the client (KazMunayGaz) on matters of relevant Romanian law. The biggest challenge in this transaction was the volume of work that we had to handle in such a short period of time and certain technical limitations that we faced in accessing relevant information about the company and its assets,” Ancuta Leach, Partner with Wolf Theiss, one of the main law firms involved in the Rompetrol-KazMunayGaz deal, remembers. In August this year KazMunayGas (KMG) signed a binding share purchase agreement to acquire from Rompetrol Holding SA (Switzerland) a 75 percent equity interest in Netherlands-based The Rompetrol Group NV (TRG), assessed at an enterprise value of USD 3.6 billion. Rompetrol Holding will continue to hold the remaining 25 percent equity in TRG. The sale was the culmination of a 7 month private auction process conducted by Morgan Stanley's London-based Energy Group. After more than two months form the sale, media reports announced that KMG tries to find the necessary sum to pay for this deal. The law firm says that there is a legal procedure in case those buyers from any deal do not make the payments. “We were not involved in the negotiation of the transaction documents for the buyer. This was handled by the Norton Rose law firm in London and Amsterdam. However, one can assume that the failure by the buyer to pay the amounts required under the contract(s) will result in the shares not being transferred to them,” said Ancuta Leach. Besides Wolf Theiss, other consultants and law firms were involved in this deal. KMG's advisors included ABN Amro Bank, PriceWaterhouseCoopers, the law firms of Norton Rose (for Dutch and French law) and Wolff Theiss (for Romanian law), technical consultants 2 Purvin & Gertz and environmental consultants ERM. TRG's advisors included Morgan Stanley, AKD Prinsen Van Wijmen (for Dutch law) and Salans (for French and Romanian law). Even if the contract was signed in August the deal has to pass one more obstacle: the approval of the European Commission. “Based on the official press release that was issued by the parties following the signing of this transaction, they anticipate that their agreement will be approved as they are ‘confident that it meets all the regulatory requirements and that the company will significantly contribute to the security of European energy supplies',” said the Wolf Theiss representative. The law firm also advised Nybron Flooring International Group, the leading European wood flooring company, on the acquisition of two Romanian companies – their first acquisition in CEE, Digital Cable Systems S.A. (DCS), a Romanian provider of video re-transmission services, on the sale of a 40 percent company stake through a share capital increase for EUR 45 million to AIG Capital Partners Inc., a member of the US-headquartered investor AIG Global Investment Group. This transaction was signed in May 2007 and recently closed. Wolf Theiss also advised UniCredito Italiano on the completion of the merger by absorption of HVB Tiriac Bank into Unicredit Romania.

Enel-Electrica Muntenia Sud
The closing of acquisition of Electrica Muntenia Sud by the Italian energy producer Enel for EUR 820 million is considered by analysts the most important transaction of this year for a Romanian company after the BCR and Petrom privatizations. Law firm Musat &Associates represented Enel and the lawyers from Radu Taracila Padurari Retevoescu (RTPR) defended the interests of the Romanian state in this deal. “We had a team of 20 lawyers with experience in privatizations, energy, public acquisitions, competition involved in this deal. The transaction entailed lot of hard research work round the clock, considering the dimension and the problems of the targeted company. The negotiation process was carried on over several months. In this period there were several negotiation stages until the final improved offer,” remembers Miruna Suciu, Musat & Associates partner. Also the legal representatives of the state remember the hard days work at this project. “The implication of RTPR coincided with the start on works for the privatization contract, document which was to be transmitted to potential investors. The task involved lots of work to reflect the market changes compared to the previous privatizations, but also because of the natural intention is to obtain for the ‘crown pearl' from the energy distribution the best price,” said Costin Taracila, partner with RTPR.
Although, the lawyers on both sides talk about the ‘deal of the year', the privatization took a long time to be completed. “One of the reasons that led to delays was the reorganization of the Economy Ministry, and the transfer of OPSPI into AVAS's portfolio. This led to the establishment of a new commission to deal with this privatization to revise the documents and a new internal procedure. Also, shortly before the documents for the transaction were finalized, Fondul Proprietatea acquired 12 percent of Electrica Muntenia Sud, which led to an adjusting of the contract,” says Miruna Suciu. On the other hand, the lawyers of the state consider that the delays were due to the bureaucracy and to the European Commission procedures to approve the deal.
“In general, the transaction involving the state takes a larger period of time to be finalized compared to transactions between private companies. This aspect is due to an excessive bureaucracy in taking a decision or, in other cases, is determined by the inconsistency of authorities regarding the medium term strategy for certain sectors. In Electrica Muntenia Sud case the finalization of the transaction also depended on the authorities from Brussels,” said Costin Taracila. The RTPR law firm is assisting at the moment Transgaz in the IPO and listing of the company shares n the Bucharest Stock Exchange.

Immoeast makes bulk of deals
The most active buyer on the Romanian real estate market, Austrian investment fund Immoeast, made several important transaction this year, expanding even more its portfolio in Romania.
The fund bought S-Park office building from its developer, Primavera, with EUR 101.5 million.
The acquisition of S-Park is the most recent in an entire series of large-scale investments made by Immoeast in Romania in 2007.
This year shopping centers Polus Center Constanta, Euromall in Pitesti, Gold Plaza in Baia Mare, and a project in Craiova have been acquired.
There is also the construction of the Pantelimon logistics park with 400,000 to 500,000 sqm total usable space and the acquisition of the Victoria Park office property in Bucharest. Altogether Immoeast already has 114 properties totaling 3.9 million sqm of usable space in Romania.
Florian Nitu, partner with Popovici, Nitu si Asociatii, has been heading the lawyers team for most of Immoeast's acquisitions in Romania. The firm has been advising Immoeast since 2004, in acquisition totaling EUR 1 billion in Romania. Nitu's team advised the fund in the Polus Center Cluj Sale to TriGranit for EUR 210 million.
However, Immoeast is not working with only one law firm in Romania. Austrian firm WolfTheiss has advised the Austrian fund in several transactions in their home country, and the collaboration expanded to Romania. Wolf Theiss has advised the fund for its capital increase this year, following which several billion euros were allotted to Romania for future investments. Wolf Theiss also advised Immoeast for the purchase of shares in an Israeli developer active locally.

America House goes from one sophisticated investor to another
America House's sale was one of the most-awaited deals on the local real estate market. The seller, developer GTC, used to say the company's won't sell an asset which brought good revenues. But in the middle of this year, the seller met the buyer – French AEW. It took the deal three to four months to be signed, says Francis Peli, who coordinates the real estate department of law firm NNDKP, which assisted GTC in the sale. Four meetings between GTC, AEW and their lawyers were enough to finalize the due diligence process.
It was a deal with sophisticated investors, each understood what the other wanted and tried to solve the problems even before they were raised, explains Peli. The seller's purpose in the deal was simple and predictable: getting the best price in a simple deal. “I believe GTC has fulfilled this objective” says Peli. As in any real estate deal, the sensitive part was that of the property title over the asset on sale. “In this case it wasn't a delicate, complicate or problematic issue, but it was treated carefully and we had to give timely explanations where the case,” remembers Peli.
The buyers wanted transparency and the normal guarantees for the project.
The value of the deal doesn't reflect the size of the difficulties for that deal. America House was sold for EUR 120 million. It was a complex deal, which required a lot of attention, but it wasn't a deal difficult to sign, says Peli about the America House sale. NNDKP had three lawyers in this deal, and so did the law firm representing AEW Europe. Overall, NNDKP had 8 to 10 lawyers dedicated to GTC.
“We had EUR 5 million worth of transactions which lasted longer and brought along more problems to solve,” explains the NNDKP real estate lawyer. “Selling a real estate project is the tip of an iceberg. The difficulties and the bulk of work stay in the development phase. But these are outside the view of the public. If treated with attention and professionalism, the sale is a natural result, with no disproportionate efforts,” Peli explains. NNDKP assisted GTC all the way in the process, from organizing its data room and the due diligence to the actual signing of the contract.
GTC is not the only real estate client for NNDKP. The team headed by Francis Peli advised Cefin real Estate in selling its EUR 240 million project to investment fund Europolis, and investment fund Bluehouse Capital in buying a EUR 72 million plot.
Portuguese Sonae Sierra is also NNDKP's client, with two transactions this year. GTC was also advised by Cliffors Chance's Warsaw-based office.

Complex office transaction marks fund exit and fund entry
While America House's sale was somehow expected on the market, the sale of three office buildings which used to belong to ECPC – European Convergence Property, an investment fund managed by Charlemagne Capital, was not predictable. The sale marked the first exit of an investment fund from the local real estate market, while analysts predicted this could have happened next year. It has also market the market entry for another investment fund, DEGI, which bought for EUR 110 million PGV Tower, Construdava and Millenium Business Center.
“This was quite a complex and challenging transaction. On average we had between three and six lawyers involved in this project, depending on the stage of the transaction. At a certain point we also had to involve on certain aspects of the transaction German-qualified lawyers and English lawyers as well,” says Nadia Badea, partner with Badea Clifford Chance law firm. The team she has led represented the sellers.
“This was a portfolio transaction involving three different properties each of them having its own particularities and legal background. At the same time, both the seller and the buyer are regulated investment funds and of course this had to be taken into consideration during the entire process,” Badea explained.
It took six months for the deal to finalize and it was not a simple one, says Bryan Jardine, managing partner with the local office of Wolf Theiss, the law firm having represented DEGI. “Certain risk factors that we identified during the course of our due diligence on the target companies and their assets had to be addressed and ultimately resolved in order for the transaction to happen. These were handled through the perseverance, creativity and desire of all parties and advisors on the deal,” explains Claudiu Pop, senior associate with Wolf Theiss. The final signature came at the end of October this year. Wolf Theiss has three lawyers working on the deal: Jardine, Claudiu Pop, senior associate and Flaviu Nanu, associate. Also, approximately 14 other lawyers from the Wolf Theiss Bucharest office assisted in this transaction.
Badea Clifford Chance took care of the due diligence and review of all the companies and properties owned by the seller, including the organization of the data room and processing all the information and documents requested by the buyer.
“The transaction being quite complex, apart from the share sale purchase agreements there were also other documents that needed to be drafted and agreed by the parties,” explains Badea.
Wolf Theiss and Badea Clifford Chance worked together to prepare three different sets of transaction documents, and negotiated the transaction structure, along with the sale purchase agreement. “We also interacted with the client's other advisers in Romania and Germany and conducted negotiations with third parties such as the title insurer, escrow agent and commercial adviser on the deal,” says Bryan Jardine.
“We also addressed issues for the transaction to comply with mandatory provisions of German investment law as they applied to our client,” says the Wolf Theiss representative.
Wolf Theiss prepared a full due diligence on the target companies and their assets.
Both team of lawyers working on this deal have a track record in real estate deals. Wolf Theiss advised Immoeast in the takeover of 25 percent in an Israeli developer active locally, Anador BV on a spin-off process to separate its real estate assets from its taxi business, Global Finance on the development agreements in regards to a mixed commercial residential development in Bucharest and Ram Integrity on the acquisition of several plots of land in Bucharest, among others.
Badea Clifford Chance worked with Lehman Brothers on the acquisition of a participation in a large portfolio of real estate assets in Romania, Ukraine and Moldova, with Eurohypo AG in refinancing and development financing of Iulius Mall, and Europa Capital about a real estate joint venture investment in Romania.
KBC – Romstal Leasing
A deal that also gor media attention was the sale of the majority share package of Romstal Leasing and INK Insurances Broker to Belgium bank KBC. The total value of the transaction reached EUR 70 million. According to the participants to the negotiations on the seller's side, two senior attorneys from Biris Goran worked on this transaction, together with Balkan Advisory Company (BAC). The law firm Musat and Associates represented KBC. Matei Paun, partner with BAC, told Business Review that negotiations lasted about a month, and the closing took about three months, mainly due to the necessary NBR notifications and approvals. “The negotiation of the Representations and Warranties were the most difficult, as KBC came with the normal expectations associated with a top European financial group. Nevertheless, we managed to bridge the gaps which might have existed. All in all, it was a friendly transaction with a lot of good will on both sides of the table. For the seller, the main issues were, on the one hand obtaining as good a price as was feasible, but also limiting the risks (reps and warranties) one normally undertakes when selling a company of this size,” says Matei Paun. According to him, the post-acquisition strategy was not an issue, as KBC came with an ambitious and well funded business plan to grow the company – a big plus for KBC in the tought competition for this acquisition. “Nearly a dozen firms' submitted letters of intent and four companies were selected to participate in due diligence based on their preliminary non-binding bids. The companies participating were mainly top European financial groups, but also a few investment funds – though the funds did not make it into the due diligence phase. Price was ultimately the top consideration, but the professionalism of those bidding also counted,” Paun says. Although he did not mentioned the companies which entered the final round of negotiations, media reports stated that KBC had to compete with EFG, Piraeus Bank, BNP Paribas and Banca Italease for the share package previously owned by Romstal Imex. BAC also intermediated a large real estate transaction involving Romcab and several other deals are rolling. “Additionally, we are looking to close several transactions by the end of the year, including a regional acquisition on behalf of a top Romanian company. BAC also advised SAAB as their National Offset Coordinator for the fighter aircraft acquisition the Romanian government is expected to make,” said Paun.

Ford-Automobile Craiova
When Ford of Europe offered EUR 57 million for Automobile Craiova and made valuable post-privatization promises regarding the increase in the number of employees and the spectacular production targets everyone was pleased. But the deal is not over yet. The European Commission started an investigation regarding a possible state aid. “Nobody is happy that the transaction was closed late. But it is the right of the EU Competition officials to investigate the deal and see if it complies with the EU regulations in order to maintain a healthy competitiveness. Our client recognizes this right, but in what the waiting period is concerned, our client is the only one that could answer this question,” said Manuela Nestor, the coordinator of the NNDKP team which represented Ford. Razvan Gheorghiu-Testa, partner with Tuca Zbarcea & Associates says that “there is nothing atypical in a transaction of such complexity that finalizing the procedures that precede the finalization of the deal to take a few months. The final term is January 30, 2008 but obviously parts can agree to prolong this period if it will be necessary.” According to him, Tuca Zbarcea & Associates told the client that there are aspects of the deal that could make the subject of an EC investigation and the law firm is collaborating now to clarify all these aspects.

Carrefour-Artima, not a sensitive deal
The recent transaction in which French retailer Carrefour bought local retail chain Artima required a team of seven lawyers on the buyer's part, of which two of the partners from Tuca, Zbarcea si Asociatii, the law firm which advised Carrefour in this deal. The transaction is so recent that one of the law firms involved in it, RTPR, which acted on behalf of Enterprise Investors, Artima's sellers, could not offer details on the deal due to confidentiality clauses.
Razvan Gheorghiu-Testa, one of the Tuca partners involved in preparing the deal for Carrefour, said the transaction had no sensitive moments. The acquisition process started this year on August 29 and the two companies signed the sale-purchase agreement on October 26, says Gheorghiu-Testa. The due diligence reviewed all the important aspects, the corporate issue, Artima's assets, the contract the retailer had with third parties, all possible litigious situations. The lawyers are currently dealing with the formalities of notifying the Competition Council on this takeover.
Tuca, Zbarcea si Asociatii also assisted this year ING Real Estate in buying Felicia Shopping Center in Iasi, Domo shareholders' in the company's sale to Equest Balkan Properties. The firm assisted local Laromet in selling a 15.5 hectares plot to Africa Israel Investments. Setler Mina, former owner of River Mall in Ramnicu Valcea, was also their client.
For RTPR law firm, this was a second deal in the retail sector, after advising on the Albinuta – Profi Rom Food transaction. The firm has also advised Eurobank Properties in the Eliade Tower acquisition.

Local RTC deals go smooth
Locally-owned holding RTC sold several of its companies this year. The latest sale is that of Best Distribution to Greek company CD Media, which had its closing date this month.
In this case, both seller and buyer were advised by the same law firm, bpv Grigorescu. CD media took over 40 percent of Best Distribution shares, with the possibility to take over the remaining 60 percent in six months.
“Unlike most of our projects, in this case we have been consultants for the both parties, which gave us a middle-ground position,” says Catalin Grigorescu. The law firm previously advised RTC in selling PayStore to PayPoint. Contract-related negotiations took three months, while commercial negotiations, previous to the contract, took another six, but didn't involve the law firm.
It was a smooth negotiation from all points of view. This time bpv Grigorescu assisted only the seller, RTC.
Four lawyers from bpv Grigorescu and three associated lawyers assisted RTC on this transaction. “The consultancy we have offered focused on the negotiation over the sale purchase agreement, and includes the creation and revising of contracts, assistance in negotiating and finalizing the transaction,” says Grigorescu. The negotiations stage was the longest part of the transaction.

BT Asigurari – Groupama
The financial market registered this year some significant changes. One example is the deal involving Transilvania Bank (BT). The financial institution sold the whole participation at BT Insurances, meaning 90 percent of shares, to Groupama, a French financial group with operations in Europe and Asia for EUR 5.65 million. “The negotiations took approximately one month, but were very intense and involved seven lawyers from Musat & Associates that represented BT. They were available around the clock in order to clarify and finalize all the transaction documents,” remembers Miruna Suciu, partner with Musat & Associates.
According to her, one of the most negotiated articles in the contract was the method by which the interim management at BT Insurances will be assured. “The negotiation process had to define very well the major terms of the transaction and to define the method by which the adjusted price was calculated. This was one of the aspects intensely negotiated. Also, the integration of the company in the buyer group, and I am referring to the way that BTA will be managed in the interim period, were intensly discussed and negotiated,” said Miruna Suciu. Considering what BT got out of the deal, one could say that the company made a great deal: according to the selling contract the transaction comes with an exclusive deal of bancassurance for non-life products, meaning that BT and BT Insurance will continue to work togheter. “The selection took into account the fact that the seller wanted to draw a strategic investor that will lead BT Insurances among the top five players on the local market. Also, one important aspect that was taken into consideration in the final choice was the competitive financial offer made by Groupama,” said the Musat &Associates partner. This year Musat &Associates assisted other significant deals: SBS Broadcasting Group was sold for EUR 3.3 billion to ProSiebenSat.1 Media AG, the EUR 370 million financing from European Bank of Investments to Metrorex for finalizing on line of the railway.

Dana Ciuraru, Corina Saceanu

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