Slaughter and May is preparing to handle the UK’s first full nationalisation since the 1970s following the announcement this week that the Government plans to take control of Northern Rock.
The decision to reject two private sector bids for the ailing mortgage lender will come as a blow to a number of City firms, including Allen & Overy, which was advising Virgin Group, the front-runner to acquire the bank.
The news leaves Slaughters, which is fielding a team under partner Charles Randell, working on an unprecedented corporate takeover under intense scrutiny. The bid, which will be backed by emergency legislation, will notably have to avoid falling foul of European Commission rules on state aid and is also likely to face a legal challenge from Northern Rock shareholders.
The Government this week indicated that it intends to run the business largely in its current form before seeking a private sector sale at the nearest opportunity.
The Northern Rock saga has so far generated roles for more than a dozen major law firms since the Bank of England was forced last year to make multibillion-pound loans to prop up the lender after the first run on a UK bank for more than 100 years.
Total adviser fees for the unsuccessful auction, including investment banks, have been estimated at more than £90m.
Commenting on the situation, Slaughters senior partner Tim Clark told Legal Week: “The last time a company was brought to nationalisation was before my working life.”
In a further development, it has this week emerged that Linklaters partner Charlie Jacobs has secured a major instruction on the deal. The firm, which previously had a minor role for Lloyds TSB on an unsuccessful merger discussion with Northern Rock, has been instructed to advise new executive chairman Ron Sandler on his position and the establishment of a new board.
Under the proposed nationalisation, Freshfields Bruckhaus Deringer’s role as adviser to Northern Rock is less clear as the company is reshaped under state control, though it looks likely to continue advising on the process. Freshfields partner Alan Newton has been acting for the company on a possible takeover since autumn 2007.
Sullivan corporate partner Tim Emmerson commented: “It would not make sense to replace Freshfields. They know the company. The interests may be different but it is the same business and the same legal work - albeit for less money.”
Slaughters, as adviser to the Treasury, is no stranger to state-backed deals, albeit from a different perspective, having acted on a series of major privatisations in the late ’70s and ’80s.
The deal is being closely followed by M&A advisers watching to see what tactics will be adopted on the groundbreaking but controversial takeover.
One partner at a top 10 firm said: “There are two proposals: one - the transfer of critical ownership running until a private sector entity comes along, which is not likely to happen; and two - a permanent move to put the whole of the company into public ownership.”
Shearman & Sterling corporate partner Peter King commented: “We have not had a nationalisation like this in living memory - the nearest you get is Railtrack. [The Government] may run the business down or try to wait for the credit crisis to pass and make Northern Rock private again.”
Other significant firms involved include White & Case, which is acting for hedge fund SRM, one of the main shareholders in the bank and a fierce opponent of nationalisation.
Nabarro, meanwhile, is acting for the group’s other major shareholder, RAB Capital. Together with SRM, the pair hold just less than a 20% stake in the company and are likely to mount a challenge.
City boutique Edwin Coe is acting for the smaller shareholders, who have also vowed to fight the Treasury in the courts. Edwin Coe litigation partner David Greene said: “The situation is, in many ways, comparable to the bad days of the ’70s - although they did not have the funding issue that is the point of the dispute here.”