The ongoing battle over what was to become of Russian oil joint venture (JV) TNK-BP finally concluded at the end of 2012, in one of the largest M&A deals of the year. Skadden, Arps, Slate, Meagher & Flom, Cleary Gottlieb Steen & Hamilton and Linklaters all played lead roles on TNK-BP’s multibillion-dollar sale to Russian state-owned oil giant Rosneft in December.
The deal has made Rosneft, advised by Cleary, the largest listed oil company in the world. However BP, represented by Linklaters, still has an almost 20% stake in the company after negotiating a cash plus shares sale worth $27bn.
Russian consortium Alfa-Access-Renova (AAR), which partnered BP in the JV, sold its stake to Rosneft for $28bn, giving the transaction a total value of $55bn. This deal was, according to Linklaters corporate partner Stephen Griffin, the biggest Russian private M&A transaction to date.
The deal saw a raft of heavyweight partners on all sides take centre stage. Griffin and global head of corporate Jeremy Parr acted alongside commercial litigation partner Michael Bennett in leading the Linklaters team.
At Skadden, the team executing the sale was led by London M&A partners Michal Berkner, Scott Simpson, litigation partner David Kavanagh, and Moscow partners Dmitri Kovalenko and Linda Davies. Other Skadden partners involved include Mark Darley on banking and Tim Sanders on tax. Brussels competition partner Ingrid Vandenborre and Hong Kong corporate partner Clive Rough also assisted.
‘Skadden’s work for AAR began in earnest with its advice in connection with the dispute between AAR and BP.’
Scott Simpson, Skadden
Cleary’s team comprised corporate partners Russell Pollack and Daniel Braverman in Paris and London respectively, as well as Brussels antitrust partner Antoine Winckler and Moscow partner Murat Akuyev.
The origins of the deal can be traced back to a fractious relationship between AAR and BP, which came to a head in a dispute when BP tried to enter into an arrangement with Rosneft to pursue joint projects in the Russian Arctic shelf in early 2011. AAR turned to Kavanagh, alongside Simpson, and successfully sought an injunction from the UK High Court to prevent the BP-Rosneft deal in the Arctic.
‘Skadden’s work for AAR began in earnest with its advice in connection with the dispute between AAR and BP over the Arctic joint venture that BP had announced with Rosneft,’ said Simpson.
The next step was to decide what was going to happen to the JV while the matter went to arbitration. Although there were theoretically three possibilities – BP buys out AAR, AAR buys out BP or Rosneft steps in and buys out both – in reality BP would probably have been prohibited by Russian law from buying out AAR.
The prospect of being left in an uncomfortable partnership with Rosneft if BP pulled out of the JV was realised in June 2012, when BP announced its intention to sell its stake. AAR soon decided to dispose of its stake as well.
But Bennett does not think the initial dispute necessarily caused the eventual disposal of TNK-BP to Rosneft. ‘This deal was a new development. It would be wrong to characterise it as an inevitable consequence of what happened in 2011,’ he said.
An interesting aspect of the deal was the integration of litigation and corporate partners, something that is more common in the US M&A market. ‘Litigation is in general not an element of UK Takeover Code public M&A transactions but often can play a significant part of cross-border M&A that is not governed by the code,’ said Michael Hatchard, head of Skadden’s corporate practice in London. Given its pedigree in hostile takeovers and major US M&A transactions, Skadden had a distinct advantage in this area.
Bennett said that having disputes and corporate working together from the onset is no longer rare in the UK. ‘It is not the case that every M&A transaction in the UK will have a litigator on it as a matter of course but it is becoming more common to see litigators as part of the team,’ he said.
He added that the increased appetite for having litigators on deals is in part due to the fact that clients are becoming more risk aware, in particular with regard to regulatory concerns, and are keen to have someone on board who is more attune to how risks materialise in practice.
All the firms involved in the deal have a presence on the ground in Russia. Simpson viewed that as the crucial factor for his firm being instructed by AAR. ‘The firm’s pre-eminent practice in Russia, as well as its reputation for complicated cross-border M&A and dispute resolution, were all essential to winning AAR’s confidence at the outset of the relationship,’ he said.
Linklaters’ Griffin added that the firm’s Moscow office was heavily involved in the deal due to the multitude of Russian regulatory issues that naturally arise when you’re selling a company the size of TNK-BP, especially in the oil sector.
BP is a longstanding client of Linklaters and the firm worked alongside the company’s extensive in-house legal team on this deal. On the corporate side, Griffin worked closely with Jens Bertelsen, associate general counsel in BP’s M&A group in London.
Bennett added that he worked ‘day to day’ with Jo Cross, managing counsel for dispute resolution at BP. ‘We didn’t run autonomously at all,’ said Griffin. ‘The in-house team [at BP] are a pretty sophisticated lot.’
The final transaction was relatively straightforward according to partners at both Skadden and Linklaters. Simple or not, this deal helped all the firms involved with their M&A league standing at year end, not least Skadden, which added a string of major deals including this one in December to catapult it to the top of mergermarket’s 2012 M&A rankings.