For corporate America, the urge to merge has struck again—particularly in the telecom industry.
With the economy in the doldrums and stock prices sliding down, mergers and acquisitions (M&A) activity had cooled off considerably from the go-go '90s. Back then, the business press regularly reported on mergers worth billions of dollars. But M&A soared again in 2005, to heights not seen in years (see sidebar titled, "The Biggest Deals of 2005").
Planning, negotiating, and announcing a major new deal may be hugely exciting for everyone involved. But as anyone who has ever worked in the trenches of a major merger knows, there is not quite as much thrill or glory in completing the deal and working to combine two companies. Digging through boxes and boxes of financial data, hammering out antitrust concerns with state and federal regulators, and meeting face-to-face with the employees whose lives will be tremendously changed once the deal is done involves even more work, attention to detail, and sensitivity.
A Cingular Wireless board member characterized the task of completing this merger while continuing to run an organization as analogous to changing the jet engines on an airplane while in flight. Joaquin R. Carbonell III, executive vice president and general counsel of Cingular Wireless, would know; he was part of the team at the center of Atlanta-based Cingular's acquisition of AT&T Wireless in 2004. Carbonell was a member of the senior management team that oversaw the $41 billion deal, which at the time was the largest cash transaction in U.S. mergers and acquisitions history. The deal involved working closely with federal regulators at the U.S. Department of Justice (DOJ) and the Federal Communications Commission (FCC). And it was completed in eight months, a breakneck pace for a merger of that size and complexity.
Carbonell, who emigrated from Cuba when he was nine years old, was involved in the merger from the very beginning. Like several other senior members of the Cingular management team, Carbonell was still working at 2:30 a.m. the night the agreement between AT&T Wireless and Cingular was hammered out. He recalls how a team of lawyers from BellSouth and SBC (now AT&T Wireless' other suitor were all home in bed.
After the agreement was reached, one of Carbonell's first phone calls was to Carol Tacker, vice president, assistant general counsel and corporate secretary of Cingular. "When I went to bed after the last day of negotiations, I thought we had lost the deal," Tacker recalls. "Then at three in the morning I received a call from Joaquin telling me we had a deal after a very competitive bidding process. My first reaction was, 'You must be kidding!'" says Tacker, who knew that the real work of the merger was just beginning.
"By combining the strengths of these two companies, we expect to accelerate the availability of advanced wireless services for consumers. This combination is expected to create customer benefits and growth prospects neither company could have achieved on its own and will mean better coverage, improved reliability, enhanced call quality, and a wide array of new and innovative services for consumers."
—Stanley T. Sigman, Cingular Wireless
A Flurry of M&A Activity
Cingular itself is a joint venture of AT&T Inc. and BellSouth. With more than 52 million cellular service subscribers, it is not the only telecom company with mergers and acquisitions on its mind. In the last two years, such notable deals as the $24.8 billion merger of Sprint Corp. and NEXTEL Communications Inc., SBC Communications Inc.'s $16 billion acquisition of AT&T, and Verizon Communication Inc.'s $7.2 billion acquisition of MCI Inc. have taken place (see sidebar titled, "The Biggest Telecom Deals of 2005").
"Our role became mission-critical after the deal was struck in order to ensure a timely approval by the FCC and the DOJ."
"There's no question that telecom activity has spiked again," says Thomas A. Hart, Jr., a partner in the Washington, DC, office of Holland & Knight LLP. "There has been a flurry of activity both in wireless and landline telecom."
Competition and the capital-intensive nature of telecom are stirring the latest round of mergers. "Competitive pressures have pushed the weaker players to the margins," Hart notes. He predicts the trend will continue, particularly as Congress considers amendments to the Telecommunications Act of 1996 in 2006. Indeed, "Hearings have already started in Congress, and hundreds of billions of dollars are at stake," according to Hart.
But for Al Richter, senior vice president and general counsel of AT&T Southwest, M&A activity never really went away. Richter has seen four mergers and divestitures of considerable size in his 30 years in the telecom industry, including the November acquisition of AT&T by SBC. He points out that until 1982, there was one telephone company—the old AT&T, known as Ma Bell. In 1982, the U.S. Department of Justice ordered the phone company to break up because of antitrust concerns. That breakup took place in 1984, when AT&T divested seven regional telephone carriers, the so-called "Baby Bells."
"At the time, we all thought AT&T would be dominant and the regionals would fade away," says Richter. "Clearly, it didn't happen that way."
While AT&T was in the midst of its mandatory break-up, it was unclear how cellular phones, the Internet, and cable companies would radically change the telecom market. Now, one of the Baby Bells has acquired the parent AT&T, and other companies are rushing into the telecom market. "It's been a cascading event since 1995," says Richter. "Where it ends, I'm not quite sure."
Joseph M. Burton, managing partner of Duane Morris' San Francisco office, points to the increasing demand for services as another reason for the uptick in telecom mergers. "Phones are no longer just phones," says Burton. "Phones once just meant voice communications." Now, telecom customers expect more and more "bells and whistles" from their telephone companies, such as cable services from their landline phone companies and video feeds from their cell phone providers. "You have to deliver new and different services," says Burton.
A Tale of Two Companies
Indeed, when the Cingular and AT&T Wireless deal was announced on Feb. 17, 2004, the companies stressed the ability to offer more services to customers.
"By combining the strengths of these two companies, we expect to accelerate the availability of advanced wireless services for consumers. This combination is expected to create customer benefits and growth prospects neither company could have achieved on its own and will mean better coverage, improved reliability, enhanced call quality, and a wide array of new and innovative services for consumers," said Stanley T. Sigman, president and CEO of Cingular Wireless, when the deal was announced.
As soon as the acquisition offer was approved by the boards of directors of both companies, the legal department swung into action, Tacker recalls. "Our role became mission-critical after the deal was struck in order to ensure a timely approval by the FCC and the DOJ," she says.
Tacker refers to the "very aggressive goal" of finishing the deal in record time. Speed was important because all parties involved wanted the deal completed by the fourth quarter of 2004. The holiday season is the busiest time of year for mobile phone sales, and Cingular Wireless wanted to present a unified advertising campaign of the "new" company to consumers. And with a great deal of work, the merger was officially completed on October 26, 2004.
In order to ensure that that deadline was met, Sigman presented a personal—and very visible—challenge to Carbonell, who served as a member of the steering committee that oversaw the transaction. Sigman attached a little red sticky note—the type used to identify places on documents that need signatures—on Carbonell's door. As Carbonell recalls, his CEO told him that that sticky note would stay on his door for everyone to see until the DOJ and FCC approved the deal. "[Sigman] drew a line in the sand," says Carbonell. "He said, 'We will do this, and we will do this in record time.' After we received approval, I took down the red one and put up a green one," remembers Carbonell, who was recently named chair of the National Chamber Litigation Center. The center, the public policy law firm of the U.S. Chamber of Commerce, represents the interests of the business community.
"That we did it in eight months shows the tremendous commitment on the part of the DOJ and the FCC. This was an example of the government understanding the function of the marketplace."
Getting the DOJ's and the FCC's approval in only eight months took a great deal of cooperation from everyone involved, including Cingular, the owners of Cingular, and the government agencies. "No telecom deal had been done in less than 14 months," says Carbonell. "That we did it in eight months shows the tremendous commitment on the part of the DOJ and the FCC. This was an example of the government understanding the function of the marketplace."
It also took an extraordinary number of lawyers' hours. At one point, more than 500 in-house and outside counsel were working on legal and regulatory issues. Attorneys had to review more than one billion pieces of data and look at 40 million documents. Every employee who worked on matters that concerned the DOJ had to have their entire hard drive copied and reviewed. "In total, we produced more than 18 million bits of information to the DOJ and the FCC," Carbonell recalls.
Between them, Cingular Wireless and AT&T Wireless had more than 100 attorneys in-house at the time of the merger. Carbonell worked closely with in-house counsel from Cingular's parent companies, the then-SBC (now AT&T) and BellSouth. Outside counsel, including lawyers from Crowell & Moring, Axinn Veltrop, Sullivan & Cromwell, Fried Frank, Arnold & Porter, and Wilkinson Barker were an integral part of the team, as were numerous contract attorneys. "There were very few unemployed lawyers on the East Coast during that time," laughs Carbonell. "This was a full employment act for lawyers."
Tacker strongly believes that Cingular's commitment to diversity helped meet the rigorous deadlines. "Joaquin and I, and Cingular as a whole, are completely invested in diversity and believe that a diverse workforce is critical to every challenge. We also strongly encourage our legal team and our outside counsel to seek out attorneys from diverse backgrounds, and we expect the outside firms we use to demonstrate their commitment to diversity," she says.
"Diversity encourages multiple perspectives to problem-solving and invariably results in innovative solutions. We employed large numbers of outside counsel to help gather material for the DOJ investigation, and a woman was the chief coordinator on that effort. We could not have closed this deal in the compressed time in which we did without the diverse members of our team, both inside and outside of Cingular."
And of course, while all this was going on, Carbonell and his in-house counsel still had to tend to their everyday legal and regulatory work.
But as much as the in-house counsel and other employees at Cingular Wireless worked to pull off the deal, it was probably more stressful for employees of AT&T Wireless, says Carbonell. "It's probably more difficult for the aquiree," says Carbonell, who praised the professionalism of the employees from AT&T Wireless.
After the acquisition was completed, there was still a significant amount of work to do to merge two large organizations. "It's probably one of the most difficult things to do," says Carbonell. "The adrenaline is going full-speed while you are trying to close the transaction. But there is still a significant amount of work to do on a micro-basis afterwards." Part of that work involved inevitable reductions in staff. But Cingular Wireless was determined to maintain the best employees, not just the ones who came from the acquiring company.
"Cingular decided to take the best of the best. It was not a typical acquirer/acquiree situation. We felt there were a lot of talented people at AT&T Wireless," says Carbonell. Tough decisions had to be made throughout the company, including in the legal department, where differences in staffing philosophies had to be reconciled. Both companies were roughly the same size before the merger, but at AT&T Wireless, the legal department had more attorneys—61 lawyers to Cingular Wireless' 41. The resultant combined legal department, which had 102 attorneys at the time of the merger, now has 73. The team is a diverse one: Among those 73 attorneys, 3 percent are Native American, 7 percent are Asian, 8 percent are African-American, 8 percent are Hispanic and 42 percent are women.
That sentiment of culling the best extended throughout the company, including to compliance. Procedures and policies were selected and meshed based on their merits, not on whether they came from Cingular or AT&T Wireless' handbooks. "We tried to incorporate the best of the best regardless of where that policy was initiated," says Tacker. "The Compliance Office followed that same process. Once that process concluded, the goal shifted to incorporate consistency for the entire company."
In an era when M&A is roiling the telecom industry, increasing competition will make it even more challenging to survive and thrive. Cingular's commitment to diversity, and its willingness to accept the best and not just the familiar, helped to pull off a record merger and strengthen the company for the future. "It has been the most exciting and trying of times," Carbonell concludes.
The Biggest Deals of 2005
It was not just telecom that experienced a boom in M&A in 2005. According to FactSet MergerStat LLC, a global provider of mergers and acquisitions information, last year there were 8,662 deals announced in the United States worth a combined total of $873.2 billion—the most in the United States since 2000. The biggest deals of 2005 include:
|RANKING||DATE ANNOUNCED||DEAL VALUE (IN BILLIONS)||SELLER||BUYER|
|1.||Jan. 28||$57.9||Gillette Co.||Procter & Gamble Co.|
|2.||Dec. 12||$34.8||Burlington Resources, Inc.||ConocoPhillips|
|3.||June 30||$34.5||MBNA Corp.||Bank of America Corp.|
|4.||Dec. 5||$23.9||Guidant Corp.||Boston Scientific Corp.|
|5.||April 4||$17.7||Unocal Corp.||ChevonTexaco Corp.|
|6.||Feb. 1||$17.7||Adelphia Communications Corp.||Time Warner, Inc./Comcast Corp.|
|7.||Jan. 31||$15.0||AT&T Corp.||SBC Communications, Inc.|
|8.||Sept. 12||$15.0||Hertz Corp.||The Carlyle Group LLC/Clayton, Dubilier & Rice|
|9.||Nov. 13||$12.5||Georgia-Pacific Corp.||Koch Industries, Inc.|
|10.||Jan. 31||$11.8||Travelers Life & Annuity Co.||MetLife, Inc.|
|11.||Feb. 28||$11.6||The May Department Stores Co.||Federated Department Stores, Inc.|
|12.||Dec. 19||$11.1||Constellation Energy Group, Inc.||FPL Group, Inc.|
|13.||March 28||$10.4||SunGard Data Systems, Inc.||SunGard Data Systems, Inc./Private Equity Group|
|14.||May 9||$8.8||Cinergy Corp.||Duke Energy Corp.|
|15.||July 6||$8.0||PacifiCare Health Systems, Inc.||UnitedHealth Group, Inc.|
|16.||April 25||$7.9||Premcor, Inc.||Valero Energy Corp.|
|17.||Oct. 10||$7.5||Jefferson-Pilot Corp.||Lincoln Financial Group|
|18.||July 25||$6.9||IVAX Corp.||Teva Pharmaceutical Industries Ltd.|
|19.||Nov. 18||$6.8||GE Insurance Solutions Corp./ Schweizerische Rückversicherung AG||Employers Reinsurance Corp.|
|20.||Nov. 18||$6.6||Scientific-Atlanta, Inc.||CISCO Systems, Inc.|
—Source: FactSet MergerStat LLC
The Biggest Telecom Deals of 2005
Computer software, supplies, and services were the industries that saw the most M&A activity in the United States, but telecom also boasted a sizeable number of deals. The 10 largest are listed below.
|RANKING||DATE ANNOUNCED||DEAL VALUE (IN BILLIONS)||SELLER||BUYER|
|1.||Jan. 31||$15.0||AT&T Corp.||SBC Communications, Inc.|
|2.||Feb. 14||$5.9||MCI, Inc.||Verizon Communications, Inc.|
|3.||Dec. 9||$4.9||Alltel Corp./Wireline Business||Valor Communications Group, Inc.|
|4.||Jan. 10||$4.5||Western Wireless Corp.||Alltel Corp.|
|5.||Nov. 21||$4.0||Alamosa Holdings, Inc.||Sprint Nextel Corp.|
|6.||May 4||$3.8||SpectraSite, Inc.||American Tower Corp.|
|7.||Aug. 29||$3.6||PanAmSat Holding Corp.||Intelsat Holdings Ltd.|
|8.||Dec. 20||$3.5||Nextel Partners, Inc.||Sprint Nextel Corp.|
|9.||June 24||$1.6||tele.ring Telekom Service GmbH||Deutsche Telekom AG|
|10.||Sept. 22||$1.6||Mobile Satellite Ventures LP||Motient Corp.|
—Source: FactSet MergerStat LLC
Advice to Attorneys Considering the M&A Field
By Kathleen Dreessen
According to these M&A practitioners, crafting mergers and acquisitions (M&A) deals appeal to attorneys interested in problem-solving and challenges. Creativity, business knowledge, and long hours are required for success. Yet, the satisfaction of crafting an agreeable outcome for your client along with a win-win situation for both sides is the reason why many attorneys remain in the field their entire careers. Those in M&A often mention terms such as "unpredictable," "fast-paced," and "fascinating" to describe their work. Diversity & the Bar® spoke to several women and minority M&A practitioners—from firms of various sizes, reputations, and geographical locations—to get their feedback. Read the advice these M&A practitioners offered to up-and-coming lawyers considering the field:
- The more you know about business in general, the better. The more you know about your client's business, makes a better deal.
"More so than general corporate law or other kinds of law, it's helpful to have an understanding of business—why companies are successful and why they're not, what leads a company to want to do a transaction or why not, how does the public view transactions. As far as preparing for it, taking corporate courses is very important. If you have another year of school, take transaction courses like tax and securities law."
James Cole, Jr.
Wachtell, Lipton, Rosen & Katz
"You really need to understand your client's business because each industry is separate, whether it's the restaurant industry or the oil and gas business. For my clients who own fitness centers, I've had to learn about fitness and how you sell memberships. That's the main thing, not just knowing the law, but also knowing the business of the clients. I encourage people who are interested in M&A work to pursue it. It's very exciting and very fun. You just have to have an understanding partner or spouse who knows you need flexibility."
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
- Time spent learning the fundamentals of crafting a deal is time well spent.
"More often than not, the outcomes of negotiations of M&A deal terms are driven by what is deemed standard or market and not simply by considerations of logic or equity. Therefore, you need to stay on top of current and evolving market trends by regularly digesting periodicals, attending conferences, or utilizing other services that will keep you updated on what the courts, the SEC, and the market are doing to impact the form and content of M&A contracts. This will make you a more authoritative and effective M&A lawyer."
Arnold & Porter LLP
"As far as advice, I'd say hang in there because the first couple of years look like drudgery. As a young associate, you tend to work out schedules and gather information; no one likes doing it. But once you're in the position to do a deal by yourself, or at least be responsible for drafting the document and negotiating it and seeing how everything fits into place, it will all be worthwhile."
Aleksandra A. Miziolek
Dykema Gossett, PLLC
- Let others in your firm know you're interested in M&A work, ask questions, and get ready for long hours.
"I tell people interested in taking on a good variety of M&A work not to be afraid to ask questions. Most of the assigning attorneys like associates to ask questions when in doubt. Don't be afraid to let people know you're interested in M&A work and be prepared to lose some sleep. Even in the friendliest M&A deal, you know you're going to have to put in the hours and you're not the only one, the partners are and the clients are as well."
Bell, Boyd & Lloyd LLC
- Learn by doing the required work.
"M&A is an experiential sort of practice, so try to get as much exposure as you can. The basic thing is to understand the principles of corporate law and to monitor changes in the law. The Delaware courts are very interesting to watch. Another important aspect is becoming knowledgeable about the various types of deal structures. After that, you just dig in and you learn by doing deals."
B. Seth Bryant
Adorno & Yoss, LLP
"M&A transactions are not linear transactions, where you have a certain set of rules and a certain set of documents and you just do that. It is far more complex, which means when you're starting out, you really have to focus, spend time on it, delve into your projects, and not skate on the surface. That's why it's a career for 30 years, because you don't get bored with it."
Latham & Watkins LL
From the March/April 2006 issue of Diversity & The Bar®