Freshfields under scrutiny as Alibaba deal falls foul of Hong Kong takeover panel

Freshfields Bruckhaus Deringer has come under scrutiny for its role on an acquisition by China’s Alibaba that has fallen foul of Hong Kong’s takeover regulator.

The Hong Kong regulator found that the e-commerce giant had breached takeover rules when it bought a healthcare company in 2014, because the acquisition amounted to a “special deal”, prohibited under the code.

The regulator said Alibaba’s $171m (£118m) acquisition of CITIC 21CN, now known as Alibaba Health Information Technology, was in breach of the rules because it also bought a company owned by the brother of the healthcare firm’s vice-chairman on “favourable terms” that were not offered to all shareholders.

Freshfields advised Alibaba on the purchase and represented it in front of the Takeovers and Mergers Panel.

Berwin Leighton Paisner (BLP) advised CITIC 21CN on the deal, while offshore firm Appleby acted as Bermuda counsel.

In its judgment, the panel made reference to Alibaba’s legal advisers, noting they should have been aware of the issues and should have consulted the Takeover Executive.

The decision said that “given the proximity of the relationship between siblings, the Hong Kong legal advisers should have been concerned”.

It said: “Alibaba had been briefed by its Hong Kong advisers on the principal provisions of the Takeovers Code and was made aware of the requirements… All Alibaba and its advisers had to do was to ask whether he [the vice-chair's brother] was still a shareholder [of CITIC] before the agreement was entered into but for whatever reason, it did not make that enquiry.”

Slaughter and May was mandated by Alibaba alongside Freshfields as an adviser for the panel hearing. The company also mandated Hong Kong senior counsel Benjamin Yu.

Ms Chen Xiao Ying, vice-chairman of 21CN, turned to special counsel Daniel Fung and Hong Kong firm H M Chan & Co.

Ying’s brother, Chen Wen Xin, turned to O’Melveny & Myers plus Des Voeux Chambers’ Jose-Antonio Maurellet as legal counsel.

Alibaba Health Information Technology was advised by Debevoise & Plimpton at the panel hearing.

Freshfields, BLP, Debevoise and Slaughters declined to comment.