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Corporate Finance
Economic Storm changes Corporate Deal-type
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Scotsman Legal Review
November 2008
ver the last year the economic storm clouds have gathered and the storm has begun. This has resulted in big changes in the type of deals transacted. Initial Public Offers (IPOs) were still showing some life in January when we acted in the IPO of AsianLogic raising $100 million. By July, the public markets for IPOs were all but closed with only the oil and gas sector engendering institutional interest. The start of the oil price collapse that month killed any remaining IPO window and it is difficult to envisage any company currently starting an IPO process.
Bar the high-profile UK Bank secondary issues – now a distant memory – rights issues have also remained subdued, perhaps surprisingly with the current reduced access to debt finance. The betting however is that that as recession bites, we will see more rescue rights issues as well as more mergers and acquisitions (M&A) as difficult economic conditions force sector consolidation. We are already seeing a number of corporate reconstructions and insolvencies and unfortunately a significant increase over coming months seems inevitable. Over the last few weeks, we have acted for the Administrators both of the airline Zoom and of Heritable Bank, a subsidiary of Landsbanki. Another sign of the times was Shepherd and Wedderburn acting for Bank of Scotland in the establishment of its £20 billion Euro Medium Term Note Programme backed by a guarantee from HM Treasury under the 2008 Credit Guarantee Scheme.
On the M&A side, we are already advising clients with war chests looking to make distressed purchases as the economy deteriorates. Current thinking is that conditions will significantly benefit the cash-rich buyer rather than a buyer needing bank finance unless normal business with the banks can rapidly be restored. We have also recently seen a number of overseas buyers showing interest in UK acquisitions, particularly where there is a strong strategic objective. One such M&A deal - which has involved us in many months' work - has been the £12.5 billion EDF bid for British Energy acting as principal legal adviser to the Nuclear Liabilities Fund which has a 35.6% interest in British Energy.
Bar the high-profile UK Bank secondary issues – now a distant memory – rights issues have also remained subdued, perhaps surprisingly with the current reduced access to debt finance. The betting however is that that as recession bites, we will see more rescue rights issues as well as more mergers and acquisitions (M&A) as difficult economic conditions force sector consolidation. We are already seeing a number of corporate reconstructions and insolvencies and unfortunately a significant increase over coming months seems inevitable. Over the last few weeks, we have acted for the Administrators both of the airline Zoom and of Heritable Bank, a subsidiary of Landsbanki. Another sign of the times was Shepherd and Wedderburn acting for Bank of Scotland in the establishment of its £20 billion Euro Medium Term Note Programme backed by a guarantee from HM Treasury under the 2008 Credit Guarantee Scheme.
On the M&A side, we are already advising clients with war chests looking to make distressed purchases as the economy deteriorates. Current thinking is that conditions will significantly benefit the cash-rich buyer rather than a buyer needing bank finance unless normal business with the banks can rapidly be restored. We have also recently seen a number of overseas buyers showing interest in UK acquisitions, particularly where there is a strong strategic objective. One such M&A deal - which has involved us in many months' work - has been the £12.5 billion EDF bid for British Energy acting as principal legal adviser to the Nuclear Liabilities Fund which has a 35.6% interest in British Energy.
