At first glance, lawyers have done very nicely out of Marconi. Since March, when Marconi’s management admitted that the company would have to be restructured, the law firms involved have enjoyed combined fees of 500,000 a week.
Allen & Overy (A&O), one of the ‘magic circle’, has gained the most. It began working with Marconi in 1997 when the company was joined by John Mayo, the ex-deputy chief executive who has sustained much of the blame for its downfall. Next in line is fellow magic circle firm Clifford Chance, which advised a syndicate of 27 investment houses which were owed a staggering 2.3bn by Marconi.
Like many expansionist telecoms companies, Marconi had also issued bonds, or debt, so it could continue with its acquisition spree. The bondholders were owed 1.7bn, and because bonds originate from the US, the clients needed a law firm with both UK and US law capability. Step forward Bingham McCutchen, a US firm with a London office that specialises in acting for bondholders.
Now, 500,000 a week may sound like a lot of money, and because the restructuring is expected to run until the end of the year, overall fees could rise to as much as 16m. However, this particular restructure was incredibly complicated.
For Clifford Chance the main challenge was making sure that all 27 banks agreed with the deal. It would have been impossible for the firm to talk to the banks individually, so the syndicate was led by Barclays, HSBC and JP Morgan Chase. Clifford Chance had to secure an agreement whereby the banks would at least gain some recompense for writing off millions of pounds which Marconi was unable to pay back.
For Bingham McCutchen, the issues were slightly different. There are thousands of different companies, institutions and boutiques that invest in bonds, so, like the banks, a small number of bondholders agreed to lead the group.
In many deals, bondholders are ranked behind banks, so if the company goes under, the banks get their money back first. With a business like Marconi, which was classed as relatively safe to invest in, the banks and the bonds were ranked equally. But because Marconi’s financial condition had deteriorated so badly, the bondholders found themselves being sidelined as the banks fought for seniority. The main focus for Bingham McCutchen was to keep its clients in the frame.
Finally, A&O needed to complete the deal as quickly as possible before the company disintegrated further. The dash to secure a deal that would keep Marconi solvent climaxed in three weeks of almost back-to-back all-night meetings. Because Marconi’s management had to keep the company trading while all this was going on, A&O worked closely with restructuring company Talbot Hughes, which took over the day-to-day negotiations from the management.
At the time of going to press, all the parties had agreed in principle on a deal which will give the banks and the bondholders control of Marconi.
But the lawyers’ work is not over yet. Now they must draw up a scheme of arrangement, and get every party to sign it. So while 16m may sound like a lot, in this case the lawyers have probably earned it.