The deals they are a-dyin'

It's no secret that successful non-banking billion-dollar deals - whether friendly tender offers or hostile bids - are going the way of the dodo given the turmoil in the world's financial markets. Which law firm tops our list of dead deals of the past week?

Surprisingly, it's Wachtell Lipton Rosen & Katz, a traditional leader in high-end transactional work. On Monday the firm saw two deals go belly-up: United Technologies's $2.6bn (£1.5bn) offer for ATM manufacturer Diebold and Vishay Intertechnology's $1.7bn (£1bn) bid for California-based semiconductor producer International Rectifier.

Wachtell represented United Technologies and Vishay in those offers, both of which took an increasingly hostile tone. The firm also is advising Little Rock-based telecom Alltel in its proposed $28.2bn (£16.4bn) acquisition by Verizon Wireless. And now there are rumours that Verizon is having trouble lining up financing for its acquisition of Alltel, which went private after a $27.5bn (£16bn) acquisition last year by TPG Capital and GS Capital Partners.

Wachtell isn't the only firm with broken deals. Skadden Arps Slate Meagher & Flom advised Waste Management on its failed $6.7bn (£3.9bn) bid for waste collection rival Republic Services, and the firm and its Canadian co-counsel at Stikeman Elliott advised a private equity consortium seeking to take Calgary-based power producer TransAlta private in a $7.7bn (£4.5bn) deal announced this summer.

"If you're a banking M&A lawyer, there's more work than you can do, but that doesn't help the rest of us," says one M&A lawyer at a top Am Law 100 firm. "You have two forces at work here - the current credit issue, and then businesses getting cold feet on their deals because of the way they're being affected by the market."

The lawyer compares the current spate of stillborn deals to the moribund US housing market. When credit is easy and interest rates are low, you can pay more for a house. When credit is scarce and interest rates high, it makes sense to pay less. For companies involved in many of these deals, credit is either too expensive or non-existent, so it makes sense to batten down the hatches and wait for the market to stabilise.

"There's no question that these deals not happening is not good for the M&A business," says another transactional lawyer bemoaning the dearth of deal work. "Buyers are concerned and sellers don't want to look silly, but I do think some of these deals will happen down the road because people are waiting for a new equilibrium."

The Times has reported that deals totalling about $89.5bn (£52bn) have collapsed since 1 September, with no new suitors stepping in. The bulk of these collapses occurred after 15 September, the report notes, citing data from Dealogic.

One noticeable trend is the number of hostile bids. One M&A lawyer believes there have been more hostile bids since Microsoft "set the tone" earlier this year with its unsolicited offers for Yahoo.

"Microsoft made [hostile bids] a little more chic, or at least more palatable, for some people," says the lawyer. "Given where the prices shake out, you might see a few more of those because there are some good deals to be had."

The increase in hostile bids is one reason why Wachtell - whose name partner Martin Lipton is credited with creating the poison pill to stymie hostile takeovers - has been busy. Along with Toronto's Goodmans, Wachtell advised TransAlta in its effort to remain a public company.

Whether the hostile deals that don't make it to completion will be revisited down the road is hard to assess at this point. Some companies cut deals with other competitors to raise deal-blocking antitrust issues, such as Yahoo's ad agreement with Google and Republic Services's proposed acquisition of Allied Waste. But some wary sellers do come around, especially if their stock price is plummeting.

"At some point the targets themselves might be sellers already and they just don't know it," says one hopeful M&A lawyer. "They just have to realign the values of their companies to become sellers. I think when that happens, when these companies have their 'come to Jesus moment,' you'll see the M&A activity pick back up."

In the meantime, deal lawyers will just have to hunker down like the rest of us.