Category: Deal 5

On May 7, 2018, CEE Legal Matters reported that DTEK Renewables is developing the Nikopol solar power plant project in Ukraine, which will be the most powerful in the country. We reached out to Ivan Lyakh, General Counsel for DTEK Renewables, for comment.

CEELM: What would you identify as the biggest challenge in implementing the construction of the Nikopol solar power plant?

I.L: The solar power generation business is quite new for DTEK. Recently, we implemented our first 10-MW solar plant pilot project, which was successfully commissioned at the end of summer 2017. Right after that, we started developing a large scale 200 MW solar plant pilot project. As a market leader, our intention was to create a state-of-the-art PV-generation plant project which would become the largest solar power plant in our country. The biggest challenges were to create a new efficient project team capable of implementing the project against a tight deadline and to perform contract negotiations with Chinese partners to secure the project’s financial indicators and set timelines.

CEELM: Why did you choose Dentons to assist you on this specific project?

I.L: DTEK is the leader in Ukrainian energy market. When selecting advisers we follow the strategy of working with market leaders in the relevant spheres. Legal advisors are no exception. Dentons stands quite well with legal expertise in the Ukrainian energy market and easily qualified. We paid special attention to the legal advisers’ presence in the Chinese market where all top solar plant equipment producer and EPC contractors are located. I should be also honest to say that Dentons’ competitive financial offer allowed their team to be first shortlisted and then selected as legal adviser to the deal.

CEELM: What exactly was Dentons’ mandate on the matter?

I.L: Dentons team reviewed the EPC documentation, together with financial arrangements inseparably incorporated into the supply and constriction part of documentation. The team also supported us in 24/7 contract negotiations which we finished in world-record time. After closing, Dentons issued English, Chinese, and Ukrainian law legal opinions on the enforceability of EPC documentation.

CEELM: China Machinery Engineering Corporation became your construction partner. What can you tell us about the agreement making process with Chinese?

I.L: We have a lot of cultural difference with our Chinese partners, which, at the beginning, caused multiple everyday implications. However, after spending several months in contract negotiations and the construction process together, we learned how to understand each other so that the project ran smoothly. What definitely inspires us about the CMEC team is their hardworking approach. The DTEK team learned a lot from them.

CEELM: You refer to “a lot of cultural differences with your Chinese partners.” Can you elaborate on this? What sort of differences did you encounter, and what methods did you employ to resolve them?

I.L: The cultural differences more lay on the different focuses of the parties on both “what we are doing” and “how we are doing it.” In our culture, we are usually more straightforward and focused on the main aim and results. In eastern countries, before you could discuss the aim and results, you must pass many other ceremonial steps. One of such issues we faced is that Chinese partners very rarely say a strict “no.” How did we adapt? Easily. We just learned from each other from the first meeting and applied that knowledge in subsequent ones. The learning curve was not long due to the time constraints of the project. 

On October 30, 2017, CEE Legal Matters reported that South African investment fund Coast2Coast had acquired Polish soup and pate manufacturer Profi — one of several recent CEE investments. Coast2Coast’s Regional Counsel CEE Anna Wawrzynczak agreed to answer our questions about the recent acquisitions.

CEELM: CEELM has reported on Coast2Coast’s acquisitions of Bezgluten and Stella Pack as reported by CEE Legal Matters on November 17, 2017  and, Krosno S.A. as reported by CEE Legal Matters on October 10, 2016, and Unitop Group as reported on November 23, 2017. In those matters, Gessel, White & Case, Dentons, Deloitte Legal, and SSW advised Coast2Coast as external counsel. Why did you choose to have a different law firm advising you on each deal? What external counsel selection system do you have at Coast2Coast and why did you select CMS for the Profi acquisition?

A.W: I would say that the reason for that was rather of practical nature. First of all, Coast2Coast entered the Polish market as early as 2016 and as a new player on the capital market we wanted to work with a selection of local legal services providers so that in the future we could stick to a panel of trusted legal advisers on a regular basis. Second of all, working on an acquisition requires the involvement of many lawyers, especially during the due diligence phase. It would have been too burdensome to involve the same team on several deals.

If it comes to the selection of our legal advisors, we act according to our internal tender policy. The request for proposals is sent to a few legal firms and the legal counsel is chosen based, among other things, on quality, credentials, and fee quote criteria. We assess the counsels’ track record in advising on transactions of a comparable nature, and evaluate our past cooperation, the commercial and cultural approach, and firm’s flexibility. The legal market is not as big as it seems. After being on this market for quite a long time, I know that reputation and client recommendations are crucial. 

If it comes to CMS, it’s a very reputable and well-respected law firm with a presence and leading position in CEE in M&A and financing. We were extremely satisfied with their legal assistance on Profi. 

CEELM: Did any of the companies acquired by Bounty Brands have their own in-house legal teams? What happened to those teams post-acquisition?

A.W: Each Bounty Brands portfolio company either has its own in-house lawyers who have deep knowledge about the company’s legal affairs or cooperate with selected external legal advisors on a regular basis. Being responsible for CEE legal issues, I maintain close relations with both, as cooperation is the key to success. 

CEELM: What other responsibilities does your role entail other than acquisitions in CEE? 

A.W: In 2017, the major focus was put on acquisitions. I literally joined the Coast2Coast team in the middle of the action. I was involved in all aspects of each transaction as a part of the deal team. This allowed me to gain sufficient knowledge about the targets, their structure and organization, people and business risk, etc. Now I can leverage on this.

Working on transactions is extremely exciting, but I also appreciate working on other legal matters, such as post-closing requirements, corporate restructuring, HR issues, contracts, reporting, compliance obligations, and many more. I manage and supervise other lawyers, who support me on all topics. My scope of duties is very broad. Priorities shift based on business needs and deadlines. Working on a wide range of legal issues and being in touch with the business is intellectually challenging. Setting priorities is crucial, as is the ability to see things from a business perspective, and strategize and anticipate risks for the company.

CEELM: Now that Profi is owned by Coast2Coast’s Bounty Brands, will its structure change? 

A.W: The Profi group consists of four legal entities and our plan is to simplify it by merging all entities into one.

CEELM: CMS Partner Marek Sawicki has stated that, “looking at the European market we can clearly see that a significant part of the transactions involve family offices, often as joint investments with private equity funds.” From your experience, what are the peculiarities of acquiring family businesses. 

A.W.: Buying a family business requires a lot of sense and respect for the seller, who often built it from scratch, feels responsible for its future and the future of its employees, and who went through the ups and downs of business cycles and who know the company better than the investor. In the case of Profi we were approaching a strong, award-winning Polish brand, one of the leading food producers in Poland. 

I would say the biggest challenge involved with this transaction was making sure that all the sellers felt satisfied with the agreed terms of the transaction. We are extremely happy to be able to work with the Profi team and actively participate in the process of increasing the company’s market value. 

On February 28, 2018, CEE Legal Matters reported that NEPI Rockcastle PLC had taken over a commercial building in the city center of Sibiu, Romania, for shopping mall development. We reached out to Robert Ionita, Head of Legal at NEPI Rockcastle, to get his perspective on the deal.

CEELM: What was the most challenging aspect of the acquisition? 

R.I: Our cooperation with the sellers has been stellar. However, given that this was an acquisition of a future retail development, there are multiple variables that need to be accounted for: market studies, catchment, discussions with future tenants, permitting, and construction. This leads to complicated transaction structures which need to take into account many variables and potential scenarios that the parties and their lawyers have to addressed contractually. The more variables you have, the more aspects and scenarios that the parties have to negotiate, agree upon, and regulate in the transaction documentation.

CEELM: Why did you select Reff & Associates as external counsel on the deal?

R.I: NEPI Rockcastle has a longstanding relation with Reff & Associates which goes back more than ten years. They have assisted us in many landmark and record breaking deals. This translates into excellent communication and understanding on their side of our approach and objectives. On the other hand, in our turn we know their team very well – not only due to our longstanding client-lawyer relationship but also due to the fact that several of our in-house lawyers, including myself, were at various moments in their career members of Reff & Associates.

I think that at the top level of the game it is difficult to objectively differentiate the players based on technical skills or even credentials. The key ingredient of successful and productive client-lawyer relations is compatibility between the client and the lawyer assisting him. In addition, we also take into account the compatibility of the lawyer with the deal at hand and the contracting party. Pragmatism, creativity, a business-minded approach, proactiveness, and quick turnaround time are the main qualities we look for in our lawyers assisting us across CEE.

CEELM: According to a Reff & Associates press release, the plans for construction of the mall existed since 2008. What does that mean, exactly? Why was there a delay in getting the commercial center actually built?

R.I: A shopping mall development is a complex endeavor. A series of factors are at play, including timing and access to financing. While we don’t know the full extent of reasons that Festival was on hold since 2008, we can assume that the financial crisis put a stop to many good real estate projects. However, over the last years, in light of the [region’s] economic growth, we have been experiencing a strong appetite from tenants and consumers for good retail projects.

CEELM: Is the commercial center fully leased yet?

R.I: Key international tenants are secured: Kaufland (with its first hypermarket integrated in a shopping center in Romania), Inditex (with several brands, including Zara), H&M, and a cinema operator. We expect the scheme to be fully leased by its target opening at the end of 2019. We are very confident about the quality of the tenant mix.

CEELM: Is Reff & Associates helping you in that process as well?

R.I: No. Reff & Associates provides us with legal assistance when required. Commercial matters such as leasing are mostly done in-house. 

On February 26, 2018, CEE Legal Matters reported that Timex Card had sold 51 % of its shares to UTA GmbH. Agnieszka Slowiak, Chief Legal Counsel at Timex Card, spoke with us about the deal.

CEELM: We’re not quite clear on the full nature of the deal, including Timex Card’s ownership pre-and-post sale. Can you break it down for us?

A.S: The transaction in question was a so-called “share deal.” It was structured as an acquisition of shares, in which UTA GmbH acquired a 51% stake in its distributor, Timex Card sp. z o.o., from its sole shareholder. As a result UTA GmbH became a majority shareholder. Additionally, under the Timex Card acquisition agreement, UTA GmbH has an option to purchase shares held by the minority shareholder (the seller in the share deal), who in turn has an option to sell its shares to UTA GmbH.

CEELM: Union Tank Eckstein (UTA) retained external counsel for assistance. Why did the sellers choose not to?

A.S: Neither the seller nor the company refrained totally from external advisors. However, of course, the directions of the deal were set, decisions made, and the transaction managed internally. Total refraining from external advisors would not be possible particularly due to the multi-jurisdictional character of the transaction. It is enough to say that Timex Card is present not only in Poland but also in Lithuania, Latvia, Estonia and Ukraine, so we had to deal with five different legal jurisdictions, four of which were foreign, including one from outside the European Union. Additionally, the parties to the transaction were from another two distinct legal jurisdictions. Even for this reason only, it was necessary to involve foreign lawyers.

Apart from the wide territorial scope, the scale of Timex Card’s activity and the determination to keep the project’s time schedule also made it necessary to organize additional support with workload capabilities. Not without reason the buyer involved law firms with big teams of lawyers. We decided to cooperate with Russell Bedford in Warsaw, and I am more than happy with that choice. Not only because they are experienced legal professionals but also because I find them to be a very dedicated and efficient team, always available.

The good organization of the project and cooperation with external advisors when necessary were the keys to achieving our goals.

CEELM: What were the biggest challenges you encountered in the sale? 

A.S: One of the most challenging parts of the deal were the negotiations with the internal specialists of the buyer. I must admit that I was impressed by their extensive knowledge and experience in such transactions. They were challenging opponents to cross swords with, but thanks to this the successful completion of the transaction gives me only more satisfaction. 

Also the multi–jurisdictional character of the transaction I already mentioned before was a demanding part of the deal. The difficulty — and thus also a risk — in such cases arises from the diversity of legal structures and their consequences in each legal system. The careful clarification by the lawyers, understanding and then adaptation to the whole transaction conducted in another legal jurisdiction, is always an important part of each project with international aspects. This always requires great attention. Therefore, despite several years of experience, I still find deals concerning multi-jurisdictional cooperation challenging.

Not less demanding was the preparation of the company itself for sale and taking it across the whole transaction. Due to the fact that the company did not have an in-house lawyer it required my total and direct involvement in the company’s affairs on a daily basis, consisting, among other things, in internal legal advisory, project coordination, supporting the management board and the employees in this  extraordinary process, and a multiplicity of other tasks that had to be undertaken as legal project manager. Such efforts, however, brought results, and we achieved the intended goal by closing the transaction with no damage to the company’s normal business operations, which was of great importance to the management board and the company’s shareholder.

CEELM: What was the most difficult moment in the negotiations with the buyer?

A.S: When the opposing interests and expectations of a buyer and a seller clash it is always difficult to point out just one most difficult moment in the negotiations. They were provided strictly on the merits, so many of the standpoints that appeared on both sides touched essential substantive matters and thus generated further issues that required intense discussion. It was even more difficult considering that apart from closing the deal we also had to create conditions to ensure further cooperation between the parties within the company Timex Card.

CEELM: Will the new ownership structure of Timex Card influence your role in the company in any way?

A.S: I think it is still too early to answer this question. It remains open. For now I can say that I am proud to have been chosen to advise on this complex transaction and to manage its legal aspects. The deal has been successfully completed and the company business remains safe. This is the most important thing for now I need to know as a legal professional and as the person responsible for the transaction. 

On January 8, 2018, CEE Legal Matters reported that the X5 Retail Group had acquired a supermarket chain operating under the “O’Key” brand in Russia. Later we learned that the acquired supermarket chain was LLC Razvitiye Malykh Formatov. We invited Tatiana Sumarokova, Head of M&A Legal Support Division at X5 Retail Group, to share her thoughts on X5’s cooperation with external counsel in the transaction.

CEELM: What system do you usually apply at X5 Retail Group in selecting outside counsel? Did you follow the same steps this time? How and why, ultimately, was White & Case selected?

T.S: X5 Retail Group implemented certain tender politics under which contractors providing goods and services are selected on the basis of price and quality criteria. In determining the quality of each counsel, we rely on recognized rating guides like Legal 500 EMEA and Chambers Europe as well as our own user experience in co-operative work with the counsel, if any. Within a tender process we evaluate, among other things, the counsel’s experience in advising on transactions of comparable nature and materiality, the business approach in negotiations, and the flexibility in relation to the time-schedule of a transaction and other terms of engagement. For transactions with a tight schedule, previous cooperation with X5 on similar transactions is a plus because of the adviser’s understanding of X5 standards and awareness of terms and conditions of transactions acceptable to X5. This time we followed the same procedure.

Andrey Dontsov and Nikolay Feoktistov, Partners of White & Case, whom we have worked tightly with, formed a team of high-level professionals able to perform within quite short deadlines. We have been through a number of complicated transactions with this team and are truly satisfied with their work. It is Nikolay’s ability to organize the work which makes the terms of engagement financially attractive to X5. I can give you an example: When we worked under schedule pressure, Nikolay participated in negotiating transaction terms, and simultaneously transferred the agreed positions to another lawyer located next door who incorporated them in the agreement. After that a senior lawyer took a fresh look at the draft. There was no duplication of functions or excessive expertise when it was not needed on their part, and the work was done in time.

CEELM: What specific tasks did you delegate to White & Case on this transaction and which ones did you keep in-house?

T.S: White & Case was involved in negotiations and the drafting of main transaction documents. While the transaction was negotiated together by X5 team and the counsel, the drafting was delegated to White & Case. Due diligence was carried out by another counsel – a Russian law firm. Other work in the project was done by X5 internally. In particular, X5’s in-house lawyers also prepared certain transaction documents, mostly based on Russian law, and all ancillary documentation, prepared a motion and relevant data for the anti-monopoly clearance, as well as coordinating the work done by external counsels, arranging for risk mitigation (where possible), supervising the performance of relevant CPs, and organizing completion of the transaction.

CEELM: Why did you choose a different law firm to carry out due diligence? Which law firm did you select and what selection procedure did you use?

T.S: In order to streamline the process and reduce expenditure on legal fees, X5 usually delegates certain segments of work to different external counsels which offer the best engagement terms (including price) and at the same time are the best specialists in the relevant area of law. With respect to due diligence of Russian companies, it is difficult for international law firms to compete with Russian law firms in terms of fees. On the other hand, Russian law firms, mostly, are not advanced enough when it comes to M&A transactions governed by English law, which is rather popular for structuring deals owing to its flexibility and centuries-old legal precedents. In this case, in selecting a counsel to carry out the due diligence, we followed our standard criteria — engagement terms, experience in the required practice area, and flexibility in work-schedule — and decided in favor of Lex Borealis.

CEELM: How is the integration of O’Key proceeding? Are there personnel considerations? Did the retail chain have a legal team, for instance, that’s merging with yours? How is that being handled?

T.S: X5 has substantial experience in M&A transactions, so the integration of acquired assets is mostly a technical process which is carried out internally by X5. As of today, more than half of the acquired stores have already been reconstructed in line with X5 standards.

As for the employee’s issue, the in-house team of lawyers and key management of the target company, as contrasted to the acquired stores’ personnel, continued their engagement with the O’Key group.

CEELM: What sort of follow-up, post-transaction review of the process did you perform with White & Case? 

T.S: In fact, there was no post-transaction review of the process with White & Case. X5’s considerable expertise and knowledge of the market allowed us to negotiate and complete the deal in a time-efficient manner. Yet as the legal team was involved in the transaction almost on a 24/7 basis, especially on pre-signing and pre-completion stages, we managed to cut the overall time usually spent on such a transaction in half. We believe that the deal was completed successfully.