Posted by Julie Triedman
Slaughter and May's Charles Randell was by the British government's side when it privatized British Gas in 1986. Earlier this year, he and colleague John Papanichola were tapped by the gas company--now known as Centrica plc--to lead the legal front on a long-running takeover bid for Aberdeen, Scotland-based Venture Production, a North Sea oil and gas producer.
On Monday, six months after it floated a first offer to Venture's management, and just a single working day after European regulatory clearance was granted, Centrica won the takeover battle when it successfully scooped up enough outstanding shares in Venture to declare majority ownership. The remainder of the shares are expected to be tendered to Centrica in the coming days.
Centrica, a gas and electric supply company, set its sights on Venture given that the acquisition would ensure that more than half of the energy Centrica sells comes from its own supplies, rather than from the U.K.'s volatile and illiquid wholesale gas market. If it could get Venture, its energy hedge would close in on 60 percent.
By last winter, Centrica had raised a cash war chest through a rights offering. In March the company decided to approach certain key institutional investors, hoping to convince them to defect and thereby give Centrica a platform from which to launch its bid for Venture. The Slaughter and May team helped Centrica past that first key hurdle, negotiating agreements with two large shareholders for an initial 23.5 percent stake. (The Slaughter team worked side-by-side on the deal with Centrica's general counsel, Grant Dawson.)
Venture rebuffed the offer after a meeting to discuss a negotiated deal, but Centrica was not deterred. The takeover strategy was, in his experience, unique, Randell says (pictured above right). For one, its 845 pence per share offer, it told shareholders, would be its final price unless another company moved into the arena--a deal worth $2.13 billion for all the outstanding shares, and a 45.7 premium over the pre-offer share value. Presenting the offer as final "left a stark choice for shareholders," notes Papanichola, 36. "Either accept the offer or accept Venture's management's promises."
U.K. securities laws prohibit U.S.-style poison pill defenses and so the battle for Venture was to be decided by the choice made by Venture's shareholders.
The key to the attack, say the lawyers, was speed. "Time is generally on the side of the target," says Papanichola (pictured left). In July, Centrica obtained the shares of another major investor, lifting its ownership stake to roughly 29 percent. Under U.K. securities laws, regulatory approvals are required before an acquiror can buy shares that push it over a 30 percent threshold. When a would-be acquiror crosses that threshold, it has to make a so-called mandatory offer, which is conditioned on the acquiror getting to 50 percent.
While the Slaughter team raced to get that clearance (a process that almost always takes 25 business days), Centrica presented Venture shareholders with an official cash offer conditioned on regulatory approval, and collected promises that another 11 percent of shares would be tendered. But Venture's board and its largest shareholder, U.S. investment firm ArcLight Capital Partners, along with U.K. North Sea oil and gas veteran Larry Kinch, wouldn't budge and continued a high-profile appeal to shareholders to reject Centrica's advances.
European Competition Commission regulators greenlighted the deal last Friday, after just 22 days--"record time" according to Papanichola--and three days before the market expected Centrica's final push. At the opening bell of the London Stock Exchange on Monday, Centrica and its bankers waged a "dawn raid," acquiring huge blocks of shares on the open market. The company crossed the 50 percent threshold before noon.
Randell says he hasn't seen a similar dawn raid in the U.K. since Unilever bought tea company Brooke Bond on the open market in 1985. The practice fell out of favor in subsequent years, because institutional investors tended to support incumbent management.
Randell says he won't be surprised to see more large-scale hostile bids of this sort in the near future. "Companies that have got the cash are in a hugely advantageous position," he notes. "If we're going to see successful hostile deals, they're likely to come from strategic buyers like Centrica, with cash in hand."
