ALB SPECIAL FOCUS: MINING AND RESOURCES - THE PATH AHEAD FOR 2012
AustrALAsIAn
LEGAL BUSINESS
PHILLIPS FOX FOREVER Why some rebrands just don’t make an impact PAGE 12
RESOURCES PLAY Will King & Wood help Mallesons secure a larger slice of the resources boom?
NORTON ROSE Trouble in paradise?
PAGE 14
PAGE 28
www.legalbusinessonline.com MARCH 2012
INSIDE DEALS
06
League tables
08
APPOINTMENTS
32
In-house perspective
48
CONTENTS
Australasian Legal Business ISSUE 10.2
18
“Financial structures are important and I don’t downplay that by any stretch. But what is important and what we’ve been able to achieve is one firm behaviour ... I think there are different models which firms might choose to operate, but we operate a model which delivers on one firm behaviour and clients don’t distinguish [between the partnerships] – they see one firm.”
1
28
Wayne Spanner, Norton Rose
NEWS
COVER STORY Industry review: mining & resources The state of play for iron ore, coal seam gas and offshore operations
18
FEATURES Long live the Fox Why some brands simply refuse to die
12
Resource industry and law firm mergers How the resources industry is driving the latest round of law firm mergers
14
In-house issues Our sector by sector profile on the top issues preoccupying the in-house profession
34
Postgraduate education Path to career advancement or a surefire formula for lawyer burn-out?
52
DEALS Deal in-depth: coal consolidation Is there room for more M&A in the coal sector?
06 26
Sponsored update Buddle Findlay NZ update
09
Profiles
Managing partner profile Wayne Spanner, Norton Rose
28
In-house perspective George Toussis, HP Australia
48
APPOINTMENTS
32
Special focus Law firm IT Top tips to optimise your firm’s IT spend
42
Australasian Legal Business ISSUE 10.2
2
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EDITORIAL
Australasian Legal Business ISSUE 10.2
3
ALB SPECIAL FOCUS: MINING AND RESOURCES - THE PATH AHEAD FOR 2012
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com FEBRUARY 2012
A new look for ALB Welcome to the revamped ALB magazine, featuring an update on some of the design elements which have been part of the publication since our Australian launch in 2002. Apart from what we hope is a “clean” new feel, the substantive changes are as follows:
PHILLIPS FOX FOREVER Why some rebrands just don’t make an impact
RESOURCES PLAY Will King & Wood help Mallesons secure a larger slice of the resources boom?
NORTON ROSE Trouble in paradise?
PAGE 12
PAGE 14
PAGE 28
INSIDE DEALS
06
LEAGUE tABLES
08
APPOINtMENtS
32
IN-hOUSE PERSPEctIvE
48
• News coverage: gone are the days when professionals are prepared to wait a month to read the latest headlines. With that in mind, we’ve replaced the extended news section with a “month at a glance” wrap of the top stories and more “value add” industry commentary. However, we remain committed to our breaking news service, which you can still access in full and for free at www.legalbusinessonline.com. • Deals: coverage of the latest deals has always been a large part of the raison d’etre of ALB and we take pride in providing original research and insights on the monthly deals list, as opposed to simply republishing facts from press releases. Our new deals section has been redesigned to give more prominence to this approach. Monthly league tables of the top M&A firms, based on Thomson Reuters data, will also be a regular feature of this section. • Expert analysis: when it comes to the technical aspects of the practice and the business of law, there’s no substitute to hearing from the specialists. This month IT consultant Damian Huon provides his perspectives on law firm technology and you can expect to see more first hand commentary from the experts in coming months. And ALB’s commitment to thought-provoking analysis and our flagship features such as the Fast 10 and the ALB30 remains, of course, unchanged. We hope you enjoy the new ALB. Renu Prasad Australasia Editor, Australasian Legal Business, Thomson Reuters
AustrALAsIAn
LEGAL BUSINESS
4
NEWS
Australasian Legal Business ISSUE 10.2
In case you missed it….. The month’s top headlines from www.legalbusinessonline.com King & Wood Mallesons: ‘full integration’ by 2015
The partnerships of King & Wood and Mallesons have set an “aspirational” goal of full financial integration by 2015, sources from both firms have told ALB. The firms had previously announced a full integration of Hong Kong operations from 1 March and the use of a Swiss Verein structure to unite the non-integrated partnership elements under a single brand.
Freehills confirms Herbert Smith talks
Freehills staff have been advised via email that the firm is in “preliminary” merger talks with Herbert Smith, a source has told ALB. The email stated that talks were still at an early stage and no date had been set for a partnership vote and nor was any other timeline in place.
Minter Ellison opens office in Mongolia
Minter Ellison has opened an office in Ulaanbaatar, Mongolia. The office will be manned by former Hong Kong partner Elisabeth Ellis who will be supported by the firm’s regional energy and resources group and a team of Mongolian lawyers. Chief executive partner John Weber said the partnership had voted overwhelmingly in favour of the decision to open an office in the rapidly emerging economy. “Mongolia is the logical next step for us,” said Weber. “It is an increasingly strategic market with a substantial resource-based economy and is attracting the attention of the global resources industry, including Australian companies. Many of these are Minter Ellison clients.”
Corrs jumps on LPO wagon
Corrs Chambers Westgarth has become the latest firm to put in place a legal process outsourcing (LPO) option for clients. The firm has signed agreements with providers Integreon and Exigent. Mallesons Stephen Jaques announced late last year that it would be offering LPO through Integreon to clients while Blake Dawson announced it had signed an agreement with Exigent soon after. Baker & McKenzie also uses Integreon as a preferred supplier for LPO work.
Singapore moves to liberalise legal sector
Singapore has taken steps to ease the restrictions on foreign law firms in its hitherto fiercely regulated legal sector by proposing amendments to its Legal Profession Act. These amendments will allow foreign law firms to own stakes in domestic firms, share in the latter’s profits, and let foreign-qualified trial lawyers appear in local courts. Currently, six firms hold Qualified Foreign Law Practice (QFLP) licences, which allows them to practise domestic law by employing Singapore-qualified lawyers. These firms are Allen & Overy, Clifford Chance, Herbert Smith, Latham & Watkins, Norton Rose and White & Case. A number of other foreign firms are in joint law ventures (JLVs) with local partners, including Baker & McKenzie.Wong & Leow, Linklaters Allen & Gledhill, Hogan Lovells Lee & Lee and Pinsent Masons MPillay.
Kensington Swan confirms Abu Dhabi closure; Lowcay moves to Minters
Quentin Lowcay, the former managing partner of the Kensington Swan office in Abu Dhabi, has made the move to Minter Ellison Rudd Watts. Lowcay will be based in Wellington. Kensington Swan CEP Clayton Kimpton confirmed with ALB that the firm’s Abu Dhabi office is now closed. “In the middle of last year, we decided to close our Abu Dhabi office and manage our Middle East practice remotely from our Middle East Desk,” he said. Kensington Swan officially opened the office in April 2010, which means the office was in operation for a little over a year.
“
“ BOTTOM LINE BENEFITS 25 physical servers into 6 hosts Reduced overheads 50% space saving Disaster Recovery in just 1-2 hours Scalable for the future
MELBOURNE: (03) 8459 2156 SYDNEY: (02) 8401 8000 W: www.huonit.com.au E: info@huonit.com.au
6
DEALS
A$212.6 million
Australasian Legal Business ISSUE 10.2
Your month at a glance Firm
debt Lynas Corporation issue of unsecured convertible bonds
• Other recent equity capital markets transactions for Allen & Overy include Kerogen Capital’s cornerstone investment in AJ Lucas, BT Investment Management’s A$275 million entitlement offer to finance its acquisition of JO Hambro Capital Management and Banpu Public Company’s strategic partnership with Hunnu Coal
Arnold Bloch Leibler
A$317 million Trusts Tishman Speyer proposed purchase of US REIT from Tishman Speyer Office Fund
• Arnold Bloch Leibler advised Tishman Speyer on the Australian aspects of the transaction, while Mallesons Stephen Jaques acted for the Trust itself, including the winding up of the trust and the implementation and purchase agreement
Baker & McKenzie
Blake Dawson
• Mallesons Stephen Jaques has acted for TSAL for a number of years since its establishment under Australian law Clayton Utz
A$286 million DEBT Fletcher Building corporate refinancing
• Fletcher is also involved in a takeover bid for the Crane Group, advised by Gilbert + Tobin. In November 2011 the transaction cleared a major regulatory hurdle with the Australian Competition and Consumer Commission, as it agreed not to intervene in the acquisition on November 2
Australia
CBA covered bond issuance
1,850
Debt
Australia
Lynas Corporation issue of unsecured convertible bonds
213
Debt
Australia
Brookfield Rail financing
824
Project Finance
Australia
Tabcorp offer of unsecured, subordinated notes
200
Debt
Australia
Grenda Transit Management sale to Marcopolo and Venture
400
M&A
Australia/ U.S.
Tishman Speyer proposed purchase of US REIT from Tishman Speyer Office Fund
317 Trusts
Australia
RREEF acquisition of 20 Bridge St, Sydney
185
Real Estate/M&A
Australia
Harbert acquisition of Techdrill Civil & Mining Services
100
M&A
Australia
Fletcher Building corporate refinancing
286
Debt
Australia
Clough sale of offshore marine construction division to SapuraCrest
127
M&A
Australia
Sims Metal Management acquisition of 20 pct stake in Chiho-Tiande Group
Undisclosed
M&A
Australia
Brookfield Rail financing
824
Project Finance
Australia
Fletcher Building corporate refinancing
286
Debt
Australia
FLSmidth proposed acquisition of Ludowici Limited
264
M&A
Australia
Clough sale of offshore marine construction division to SapuraCrest
127
M&A
Australia
Godfreys Group debt to equity swap
Undisclosed
Australia
Yara/Apache Energy acquisition of BHL
Australia
iiNet acquisition of TransACT
Australia
APLNG – Sinopec agreement extension
Allen & Overy
Allens Arthur Robinson
Value Practice ($Am)
Jurisdiction Deal name
Equity
133.5 M&A 60
M&A
Undisclosed Resources
A$133.5 million
Undisclosed
M&A
Resources
Yara/Apache Energy acquisition of BHL
APLNG – Sinopec agreement extension
• Yara has acquired an additional 16 percent stake in Burrup Holdings Limited (BHL) for A$133.5 million, increasing its overall stake in the company to 51 percent. Apache Energy has concurrently acquired the remaining 49 percent of shares, and signed a new agreement with BHL
• Clayton Utz was appointed project counsel to the APLNG project in 2008. Graham Taylor and Andrew Smith have been the key partners for the project at the firm. • Herbert Smith and Blake Dawson also both advised on the original agreement with Sinopec in the first half of 2011
DEALS
Australasian Legal Business ISSUE 10.2
Your month at a glance Firm
Jurisdiction Deal name
Value Practice ($Am) Project Finance
A$150 million Real Estate
Australia
Brookfield Rail financing
Australia
Yara/Apache Energy acquisition of BHL
133.5 M&A
Corrs Chambers Westgarth
Australia
Lynas Corporation issue of unsecured convertible bonds
212.6
DibbsBarker
Australia
‘Mosaic’ property development Fortitude Valley, Brisbane
150
Real Estate
DLA Piper
Australia
‘Mosaic’ property development Fortitude Valley, Brisbane
150
Real Estate
Australia
Stapling of Abacus Property Group and Abacus Storage Fund
Australia
Grenda Transit Management sale to Marcopolo and Ventura
400
M&A
Australia
Watson Pharmaceuticals acquisition of Ascent Pharmaceuticals
375
M&A
Australia
‘Mosaic’ property development Fortitude Valley, Brisbane
150
Australia
Yara/Apache Energy acquisition of BHL
Australia
Godfreys Group debt to equity swap
Gilbert + Tobin
Australia
FLSmidth proposed acquisition of Ludowici Limited
Hemming & Hart
Australia/ China
Reignwood International Investment Group investment into Citigold
Herbert Smith
Australia
Watson Pharmaceuticals acquisition of Ascent Pharmaceuticals
HopgoodGanim
Australia
CuDeco share placement
Australia
Brookfield Rail financing
Australia/ U.S.
Tishman Speyer proposed purchase of US REIT from Tishman Speyer Office Fund
Australia
Tabcorp offer of unsecured, subordinated notes
Australia
RREEF acquisition of 20 Bridge St, Sydney
185
Real Estate/M&A
M&A
Australia
Clough sale of offshore marine construction division to SapuraCrest
127
M&A
Australia/ China
Reignwood International Investment Group investment into Citigold
Clough sale of offshore marine construction division to SapuraCrest
50 Equity
Clifford Chance
Freehills
Mallesons Stephen Jaques
824
7
Debt
‘Mosaic’ property development Fortitude Valley, Brisbane
• DLA Piper has not previously represented The Carlyle Group within Australia – this signals the start of a new client relationship for the firm • Freehills has advised relationship client Leighton extensively over the years.
2,100 M&A
Real Estate
133.5 M&A Undisclosed 264
Equity M&A
50 Equity 375 M&A 35 Equity 824 317
Project Finance
A$400 million M&A Grenda Transit Management sale to Marcopolo and Ventura
• Freehills has not previously acted for Ventura
A$375 million M&A Watson Pharmaceuticals acquisition of Ascent Pharmaceuticals
• Freehills also counts Glaxo SmithKline and Biochem Pharma Inc among its Pharma industry clients
Trusts
200 Debt
A$824 million Project Finance Brookfield Rail financing
• Mallesons Stephen Jaques has recently advised China Development Bank in relation to the US$1.2 billion syndicated project finance facility to Karara Mining Limited, a multi-billion dollar financing to State Concern Turkmengas for the development of the South Elotan Natural Gas Project in Turkmenistan and Hunan Valin’s investment in Fortescue Metals Group
A$127 million • Mallesons Stephen Jaques and Blake Dawson also both advised on the strategic alliance between AMP Capital and Japanese trust bank Mitsubishi UFJ Trust and Banking Corporation • Baker & McKenzie has advised Clough for a number of years, and worked on various transactions, including the sale of an 82 percent stake of Indonesian company PT Petrosea TBK to PT Indika Energy TBK in 2009
8
DEALS
A$100 million M&A Harbert acquisition of Techdrill Civil & Mining Services
• McCullough Robertson has also been involved in one of the major recent coal sector mergers, between Whitehaven and Aston, in the industry which TCMS will provide its services. The firm has also worked with Rockdrilling’s other advisors for a number of years • This is the third transaction Middletons has worked on for Harbert
A$60 million
Australasian Legal Business ISSUE 10.2
Your month at a glance Value Practice ($Am)
Firm
Jurisdiction Deal name
McCullough Robertson
Australia
Harbert acquisition of Techdrill Civil & Mining Services
Australia/ Indonesia Middletons
Norton Rose
Skadden, Arps, Slate, Meagher & Flom
Up to 100
M&A
Tower Bersama Infrastructure acquisition of Indosat tower assets
484
M&A
Australia
Watson Pharmaceuticals acquisition of Ascent Pharmaceuticals
375
M&A
Australia
Harbert acquisition of Techdrill Civil & Mining Services
Up to 100 M&A
Australia
iiNet acquisition of TransACT
60 M&A
Australia
Brookfield Rail financing
824
Project Finance
Australia/ Indonesia
Tower Bersama Infrastructure acquisition of Indosat tower assets
484
M&A
Australia/ Indonesia
Tower Bersama Infrastructure acquisition of Indosat tower assets
484
M&A
Does your firm’s deal information appear in this table?
M&A
Please contact
alb@thomsonreuters.com
61 2 8587 7484
iiNet acquisition of TransACT
• Middletons has been a long term adviser to iiNet, including during the acquisition of AAPT’s A$60 million consumer division in August 2010. The internet provider seeks growth through acquisition
Top M&A Advisors - Announced deals, year to date
1
NO.
A$185 million Real Estate/M&A RREEF acquisition of 20 Bridge St, Sydney
• KordaMentha is a long standing client of Arnold Bloch Leibler in various capacities
A$1.85 billion Debt CBA covered bond issuance
• This was the first covered bond issuance under the CBA’s 30 billion global covered bond programme established in November 2011 • Allen & Overy advised on the establishment of global covered bond programmes conducted by all four major banks in 2011
Rank
Freehills
882.07 Deals: 4
Market Share: 17.4
Legal Advisor
2
Gilbert + Tobin
Value ($Mil)
Value ($Mil)
497.23
Mkt. Share
Deals
9.8
3
3
Middletons Lawyers
394.35
7.8
2
4
Vinson & Elkins LLP
100.00
2.0
1
5
Quigg Partners
86.71
1.7
1
6
Corrs Chambers Westgarth
18.31
0.4
1
7
Mallesons Stephen Jaques
17.88
0.4
2
7*
Cassels Brock & Blackwell LLP
17.88
0.4
1
7*
Jackson McDonald
17.88
0.4
1
10
Allion Legal Pty Ltd
16.47
0.3
1
11
Gadens Lawyers
6.96
0.1
1
1,313.28
25.9
12
Subtotal without Legal Advisor
3,752.39
74.1
123
Industry Total
5,065.67
100.0
135
Subtotal with Legal Advisor
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-02-14 08:35:19 EST
Firm Profile
NZ Commentary
Facebook and the $100 billion data question Many analysts were staggered by the almost US$100 billion valuation given to Facebook in its recent pre-IPO filing – while Facebook has shown greater staying power than the likes of MySpace or Friendster, most social networking sites have had to operate under the constant threat of being just one college student’s idea away from obscurity. The key difference between Facebook and other, less successful social networks is that Facebook has been able to achieve and – crucially – maintain a critical mass of users across a wide range of demographics. And although Facebook may be considered by some as the ‘future of human interaction’, in the more sceptical eyes of Wall Street analysts it is little more than an advertising channel, albeit a very powerful and pervasive one. Facebook’s power is of course derived from the wealth of personal information that its 800 millionodd users worldwide are falling over themselves to give it – where they live, what articles they’re reading, where they drink their coffee and meet their friends. The information and conclusions that Facebook can draw about its users from this data can be used to create a very detailed and accurate model of the types of people they are – and therefore they types of companies they might be interested in seeing ads from. Facebook’s landing page proudly promises that its service is free “and always will be”. But the information that Facebook’s users supply it, and upon which Facebook’s valuation is largely based, is arguably much more valuable than a subscription fee. This fact is not lost on privacy regulators, particularly those in Europe who see personal data as “the oil of the internet and the new currency of the digital world”1. Some of the rhetoric emerging from European data protection regulators in recent years would suggest that Europe is embarking on a trade war with the US over personal data, and there are ever-tightening restrictions on the ability of businesses to transfer personal information outside the European Economic Area, including to the US. In fact, it is telling that in the same week that Facebook made its IPO filing, the European Commission announced a radical overhaul of EU privacy laws that would, among other things, ensure that online businesses who offer goods or services to European citizens are subject to European data protection laws. There was little attempt to hide that such measures are aimed at US companies like Facebook, who are at present able to remain largely out of reach of European privacy regulators.
Meglena Kuneva, European Consumer Commissioner, March 2009
1
The new regime – which is expected to come into law by the end of 2014 – also includes a ‘right to be forgotten’, which would require businesses like Facebook to permanently delete all records relating to an individual user on request. The logistics of responding to such requests would be substantial, and Facebook will need to consider whether it is able to retain such historical data on an anonymised basis, and whether there is any value in doing so. Facebook has in the past had run-ins with regulators over its approach to privacy and Mark Zuckerberg’s rather liberal attitudes have probably attracted it as much regulatory scrutiny as its actual privacy practices. Despite its CEO’s belief that privacy is no longer “a social norm”, Facebook has misjudged the mood of its users on more than one occasion – in unilaterally changing the privacy settings of all its users in 2009, in publishing the browsing habits of its users through its controversial Facebook Connect service, by introducing facial recognition technology without consent, or by allowing advertisers to track users’ online activities through the Beacon advertising system (which eventually led to the company settling a class-action lawsuit for US$9.5 million). As a result of these types of high-profile incidents, Facebook is now under watch from both the Federal Trade Commission in the US and the Irish Data Protection Authority, and (as part of a settlement of regulatory investigations) has agreed to submit to independent privacy audits every six months. And while, despite these blemishes, user numbers have continued to climb, Facebook’s IPO filing suggests that the company has learnt its lesson when it comes to privacy. The risk of falling out of regulatory and public favour following a privacy lapse is cited throughout the document as a risk factor, and Facebook probably understands better than most companies the effect that customer trust and public reputation can have on a bottom line. Going forward, the considerations for Facebook are as much social as they are legal – while it can take every step to keep up with the letter of privacy law in every country around the world (and nothing less than full compliance will be demanded by regulators), social attitudes to online privacy will of course change as well – it would be surprising if the first generation of teenagers who grew up with Facebook did not begin to regret some of their online candidness when interviewing with potential employers, for example.
The challenge for Facebook will be in making sure that it is open and clear enough about its privacy practices that its incredibly diverse range of users will freely, happily and lawfully give their consent, but that it still allows itself enough flexibility to adapt its business model, introduce new products and find new ways to use the vast swathes of data it has access to without going back on promises made to users, and regulators.
This article was written by Allan Yeoman, a senior associate in the Auckland office of Buddle Findlay, one of New Zealand’s leading law firms. Allan is a New Zealand and English qualified lawyer, who specialises in technology and media law. He has worked with numerous businesses operating in the digital media space, and has particular experience in helping companies develop strategies to comply with European data protection regulation. Allan can be reached on +64 9 363 1029 or email allan.yeoman@buddlefindlay.com
Allan Yeoman
Buddle Findlay
10
DEALS
Australasian Legal Business ISSUE 10.2
Top M&A advisors - announced worldwide
Top M&A advisors deals completed in 2012 year to date
1
NO.
1
NO.
Allen & Overy
1,101.93 Deals: 3
Value ($Mil)
Market Share: 19.8
Rank Legal Advisor
Linklaters
50,643.5 Deals: 12 Market Share: 21.2
Rank Legal Advisor Value Mkt. ($Mil) Share
Value ($Mil)
Value Mkt. ($Mil) Share
Deals
Deals
2
Freshfields Bruckhaus Deringer
49,554.35
20.8
8
3
Skadden
14,936.60
6.3
15
4
Kirkland & Ellis
11,957.50
5.0
17
5
Davis Polk & Wardwell
11,264.11
4.7
7
10,263.06
4.3
24
2
Blake Dawson
1,101.50
19.8
4
3
Minter Ellison
913.75
16.4
3
4
Freehills
881.33
15.8
3
6
Jones Day
5
Clayton Utz
673.59
12.1
4
7
Clifford Chance
9,452.99
4.0
5
6
Sullivan & Cromwell
550.00
9.9
1
8
Blake Cassels & Graydon
8,021.79
3.4
7
7
Blake Cassels & Graydon
428.36
7.7
1
9
Shearman & Sterling LLP
7,743.37
3.2
13
10
Sullivan & Cromwell
7,656.76
3.2
11
7*
HopgoodGanim
428.36
7.7
1
11
7,300.00
3.1
1
7*
Gilbert + Tobin
428.36
7.7
1
Milbank Tweed Hadley & McCloy
12
Dewey & LeBoeuf LLP
6,350.94
2.7
1
7*
Allens Arthur Robinson
428.36
7.7
1
13
Vinson & Elkins LLP
5,806.24
2.4
6
11
Hogan Lovells
401.93
7.2
1
14
Norton Rose
4,246.93
1.8
4
12
Middletons Lawyers
394.35
7.1
2
15
Paul, Weiss
4,091.70
1.7
6
16
Nishimura & Asahi
4,072.07
1.7
3
13
Simpson Thacher & Bartlett
300.93
5.4
1
17
Simpson Thacher & Bartlett
3,978.21
1.7
7
14
Edward Nathan Sonnenbergs Inc
251.51
4.5
1
18
Hannes Snellman
3,839.78
1.6
3
19
Bracewell & Giuliani
3,650.82
1.5
3
15
Simpson Grierson
150.00
2.7
1
20
Hengeler Mueller
3,547.03
1.5
4
16
Khaitan & Co
19.70
0.4
1
21
Stikeman Elliott
3,077.39
1.3
5
22
Thompson & Knight PC
2,850.00
1.2
1
17
Steinepreis Paganin
11.77
0.2
1
22*
Andrews Kurth LLP
2,850.00
1.2
1
24
Dorsey & Whitney LLP
2,479.42
1.0
4
25
Dechert
2,471.57
1.0
4
Subtotal with Legal Advisor
3,020.37
54.3
15
Subtotal without Legal Advisor
2,541.09
45.7
83
Industry Total
5,561.46
100.0
98
Subtotal with Legal Advisor
3,020.37
54.3
15
Subtotal without Legal Advisor
2,541.09
45.7
83
Industry Total
5,561.46
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-02-14 08:19:31 EST
100.0
98
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-02-14 08:19:31 EST
AUSTRALASIAN L AW AWA RD S 2012 24 may 2012, Sydney’s prestigious Town Hall
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ANALYSIS
Australasian Legal Business ISSUE 10.2
The Fox is dead. Long live the Fox. Old habits die hard and defunct law firm brands often persist long after they have been officially put out to pasture. Will Ashurst and King & Wood Mallesons suffer the same fate?
D
eacons is dead, but Phillips Fox lives on. The question of why some extinct law firm brands have proven to be more enduring than others is food for thought for those engaged with the business of marketing and branding. “Looking at DLA Piper and Phillips Fox, the Phillips Fox moniker is alive and well. The reality is that they still get referred to, by and large, as Phillips Fox by many decision makers and influencers,” observed Trish Carroll, principal of Galt Advisory. “The Phillips Fox brand in Australia was very strong and it hasn’t been replaced; whereas Deacons has absolutely been replaced by Norton Rose.” It should be noted that the Phillips Fox name is still
in use in New Zealand, as is the Deacons brand in Hong Kong. Deacons has been widely credited with running a successful and high profile campaign to alert the market to its rebranding, whereas Phillips Fox has taken a more low key approach. Perhaps it is this difference in strategy which may explain the contrasting market reaction, although other theories have also been proposed. The relative strength of the old brand in comparison to the new one is an obvious factor and Karen Sinclair, a patents and trademarks attorney at Watermark Intellectual Asset Management, says that even the more external elements of the brand are relevant: “By way of example, for me, “DLA Piper” is less aurally attractive
and less meaningful in a law firm context than “Phillips Fox” especially when one considers the tradition that law firms are known by the names of significant former contributors in many instances,” she said. “In this particular instance, the back story of the brand name is well known and has cultural significance - Emanuel Phillips Fox was a well known member of the Heide school of art and is an exhibited artist.” Game on This year a number of firms, headed up by Blake Dawson and Mallesons, will be attempting to reinvent themselves in the eyes of the market, joining Squire Sanders, Norton Rose and DLA Piper who have already been engaged with this challenge.
ANALYSIS
Australasian Legal Business ISSUE 10.2
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ALB’s pick of the top law firm rebrands Clifford Chance
Norton Rose
King & Wood Mallesons
ALB comment: What’s there not to like about the Clifford Chance brand? The fact that two respected but relatively low profile firms managed to secure one of the world’s Mark Pistilli, most prestigious Clifford Chance names for themselves puts this merger in the category of one of the great rebrands of the past 10 years. Mind you, we’re not saying that anyone’s become a better lawyer because of the name on the door. We’re just saying that it’s a darn good name.
ALB comment: This is undoubtedly the yardstick by which all rebrands are measured. Everything seemed to fall perfectly into place: the advertising campaign, the Don Boyd, willingness of the Norton Rose market to embrace the new identity. And perhaps there is a second factor at play too: with due respect to Deacons, the Norton Rose name was certainly a step up the pecking order.
ALB comment: Purely from a brand perspective, it is mystifying that the premier brand in the Australian legal services industry would relegate itself to Stuart Fuller, third place. However, Mallesons a rebrand is not just about a name – it is about selling an idea. Love them or loathe them, there is no doubt that the market understands the KW Mallesons concept and has no doubt about what this new entity is trying to achieve. That’s a brand proposition of which rival firms can only dream.
Previously known as Chang Pistilli & Simmons and Cochrane Lishman Carson Luscombe
Carroll suggests that King & Wood Mallesons is more likely to be accepted by the market because of a “clear strategic alignment and advantage for both parties. There’s a sense of equality in the King & Wood Mallesons arrangement. I think people will get used to calling them King & Wood Mallesons.” Sinclair agrees with this prediction, noting that the retention of part of the old brand at the end of the three-part name will assist in the transition. The reaction to the Blakes-Ashurst transformation is more mixed. “I venture to suggest that in the Blake Dawson case, at least in my field, the lack of brand strength of Ashurst compared to Blake Dawson will make transition to this name harder for the new merged firm,” said Sinclair. Carroll agrees. “Ashurst is not a really well known global brand. When you’re talking about less well-known brands then you need to work a lot harder,” she said. “Blake Dawson is giving up its name completely to take on a brand name that is not well-known in Australia and arguably not that well known in Asia, so they will have to do an enormous amount to make
Previously known as Deacons
that brand well known. As an outsider looking in it doesn’t look like the smartest move.” However, Advent Lawyers CEO John Knox, who was formerly head of business development and marketing for Allen & Overy Asia, disagrees. He believes that the brand has a stronger presence than the Australian Blake Dawson brand, and that will win the firm work within Asia. “I think most in-house counsel at large companies in Singapore will be more familiar with Allen & Overy and Ashurst and others. Most already have offices in the region. I think it really depends on the client,” he said. “I’ve heard commentary from Australian firms saying brands like Allen & Overy, Clifford Chance and Ashurst don’t mean anything to clients [but] if you look at Allen & Overy, they’ve built a brand in 35 countries. Why wouldn’t they be able to build a brand within Australia? The argument that Ashurst is not a well-known global brand is just wrong. The people who make those comments wouldn’t want them to build their brand in Australia,” he says. U.S. newcomer Squire Sanders has also
Previously known as Mallesons Stephen Jaques
attracted a mixed reaction. “As for Squire Sanders – who are they? That’s the general level of understanding of that brand in this market. They are virtually unknown unless you’re at Minter Ellison. They don’t look to be of the ilk of Norton Rose or Clifford Chance or Allen & Overy,” said Carroll. Branding is always an intriguing question, but everyone is in agreement that it will remain subsidiary to the key question of quality personnel. “By way of example, I will always associate Mary Padbury with Blake Dawson - she has been such a significant contributor to the firm and particularly in my field and to the industry at large,” says Sinclair. Peter Hallett, director of Watermark Intellectual Property Lawyers, agrees. “Branding’s important, reputation’s important but at the end of the day it’s about who within a firm do you want to work with. With legal services it’s always about the quality of the individuals that you’re dealing with. Most firms have good operators and not so good operators,” he said.
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ANALYSIS
Australasian Legal Business ISSUE 10.2
Rush to resources
Australian law firms are anxious to secure their place in the increasingly globalised resource industry – but which firm’s strategy will come up trumps? Renu Prasad reports.
W
hat do Mallesons, Blake Dawson and Norton Rose have in common? They’ve all got their eyes on the same prize: a piece of the lucrative investment flow out of Asia into resource projects in Australia, Africa and South America. The game plan may differ between firms, but the objective is the same: lawyers have observed a diamond-shaped work flow between the four continents and they want a piece of the action. “We haven’t seen anything that our competitors haven’t seen – but our strategy is different,” said Mallesons partner Scott Gardiner. The Mallesons – King & Wood merger is often discussed in the context of bilateral Australia/Chinese investment flows, but according to Gardiner developing markets – and specifically Africa – were always a foremost consideration. Gardiner says that it is the Africa-China connection which will particularly benefit KW Mallesons. “Africa was historically the dominion of the UK and French firms, but now the money is coming from a different direction – if you’re not with the Chinese, you’re not doing the work,” he said. But if Mallesons is aligning itself with Chinese investors, what are the implications for the firm’s existing
Australian resources clients such as BHP, who will inevitably end up on the opposite side of the table at some point? Gardiner says that is an eventuality that the firm has taken into account. “I’m not denying that it won’t happen,” he said. “The more choice [of work] we have as service providers, the greater the danger of conflict – that is just part of the business. We will work through those issues as they arise – we would rather have too much choice of work rather than no work at all.” The Swiss Verein structure may also operate to minimise the conflict factor. This is hardly a new issue for Mallesons either – the firm has a long track record advising international resource companies on transactions where local miners are counter-parties and regular clients include Chevron, Total and BG. Perhaps King & Wood is just another step in the evolution. Ashurst Ashurst is a more Euro-centric proposition than King & Wood, but there is a similar logic behind the Blakes-Ashurst tie up. “This [merger] means that when we’re talking to a client, for example, in India who may be looking at assets in Indonesia or Australia or elsewhere, we have a larger global platform to service them,” explained Blake Dawson’s Tony Denholder. In addition to inheriting Ashurst’s Asia network, Blakes will be able to plug into the firm’s resources in the U.S. and Europe. “That enables us to provide English and [U.S.] law advice which is important for some transactions,” said Denholder. Notable Ashurst clients include Japanese trading company Mitsui and Korea Gas Corporation, which recently purchased a stake in the Santos LNG project at Gladstone in Queensland. The missing piece of the equation is China. Ashurst has no Chinese offices, although it intends to establish a presence in
ANALYSIS
Australasian Legal Business ISSUE 10.2
INTERNATIONAL RESOURCES STRATEGY – HOW THE MERGERS STACK UP Ashurst
Tony Denholder, Blake Dawson
Ashurst derives only about 10 percent of its revenues from Asia, so expanding the firm’s base in Asian jurisdictions will be a clear priority. Ashurst does have a notable resources practice and clients include Japanese trading company Mitsui and Korea Gas Corporation. Blake Dawson is also well regarded in the resources space and is often perceived to have a stranglehold on BHP workflow, a perception which irritates other firms on the BHP panel. This merger is in some respects the opposite of the KW Mallesons merger, offering the security of a solid Euro-centric base of expertise but also requiring more work on the firm’s Asia profile. By contrast KW Mallesons will have plenty of exposure in Asia, but needs to shore up its resources in Europe and the U.S.
King & Wood Mallesons
This formidable combination has a distinctly Chinese bias to it. That’s fine in an era where the Chinese are the principal drivers behind the global resources play – but is KW Mallesons ready for a world where Indonesia and India rise to take their rightful place alongside China? Watch out for some interesting decisions on client conflicts along the way too.
Scott Gardiner, Mallesons
Norton Rose
Norton Rose can claim “first mover” advantage as one of the first global firms to understand and invest in the Africa-Australia-Asia-America resources play. That may pay dividends in South America, but it’s less clear how much of an advantage the firm will enjoy on the African continent, where it’s still very early days indeed for the mining industry.
James Stewart, Norton Rose
Beijing, while Blakes has a small office in Shanghai – a somewhat underwhelming state of affairs for the combined operation. Ashurst Asia managing partner Geoffrey Green has been quoted by The Lawyer as predicting that the firm’s China presence is “likely to remain small.” Perhaps this is an indication of the firm’s strategic intent – there are more ways to participate in the resources “diamond” than pursuing Chinese investors and financiers. Top of the list, of course, is to follow investment outbound from Australia. Australian resource companies are widely tipped to prioritise off-shore projects over Australian projects in order to maximise their margins. West Africa and South America are the usual suspects, but the emerging opportunities in other jurisdictions such as North America (think BHP-Petrohawk) may prove to be equally important, although the wisdom of the latter acquisition has been brought into question of late. CEO Marius
Kloppers has been typically circumspect, but indications are that BHP will tread a more cautious path when it comes to investment decisions this year, although strategic M&A from rival miners may become the impetus for a response in kind. The international manoeuvres of companies such as BHP must be food for thought for Blake Dawson. Indications are that BHP will proceed with its A$20 billion Olympic Dam mine expansion in South Australia, but the company has also been wheeling and dealing off-shore with the guidance of firms of the ilk of Slaughter & May and Sullivan & Cromwell.
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ANALYSIS
Australasian Legal Business ISSUE 10.2
“Deneys Reitz is a fantastic firm but have they done a lot of work above Namibia? No they haven’t. Being a South African firm is not necessarily an advantage to operating in Africa”
Will the new look Ashurst get a slice of the international action? Or for that matter, any other Australian firm with an international network? “BHP hasn’t done any deals in Australia for quite a long time, whereas they’ve been doing deals overseas and we have been involved in some of those deals,” observes Norton Rose partner James Stewart. “We have particular expertise in the Africa and South America [markets] that these companies are now moving into. It creates the opportunity to do things with those sorts of clients in other parts of the world and that allows us to become involved with them in Australia as well.” There might be an element of wishful thinking at play, but the choice for firms such as Blake Dawson is clear: follow clients off-shore, or risk conceding market share to a competitor. Norton Rose Norton Rose is often credited with the most aggressive strategy in pursuit of the resources “hot spots” in Africa and South America and is one of the few international firms to establish a presence – albeit via mergers – in these jurisdictions. However, critics point out that Norton Rose’s presence in Africa – facilitated largely via merger partner Deneys Reitz – is too oriented around South Africa to represent a credible coverage of the diverse nations and peoples of the African continent. “Deneys Reitz is a fantastic firm but have they done a lot of work above Namibia? No they haven’t. Being a South African firm is not necessarily an advantage to operating in Africa,” one lawyer told ALB. However, the same lawyer
expressed admiration for the Norton Rose partner firm in the Americas, Macleod Dixon, which was said to enjoy a genuine depth of experience in Latin America. Another factor which may favour Norton Rose and other so-called Euro-centric firms is an expertise in French law, which is likely to carry weight in Francophone Africa. Colonial ties are sometimes slow to die. Australian firms have also demonstrated their worth in the emerging markets of Africa: examples include AAR advising Rio Tinto on its Simandou iron ore project in Guinea and Freehills advising Roc Oil on the sale of off-shore Mauritania assets. Australian lawyers have not needed international networks to make their mark in Africa: for example, Gilbert + Tobin’s Michael Blakiston has been active in African resources projects since the 1990s. West Africa is becoming a replay of the Asia expansion story of the last decade, with the roles reversed. Top tier Australian firms have always maintained that their large footprint in Asia has given them a local advantage over rivals with “fly in, fly out” Asia operations. Those same firms now appear to be arguing that “fly in, fly out” is no handicap in Africa – perhaps understandably so, given the intense difficulties likely with infrastructure and sourcing local talent in some jurisdictions. This is a particularly fluid time for the development of the legal services market in Africa and it may be many years before we see a clear market leader emerge. This is, as they say, anyone’s game. Local alignment International expansion may provide the impetus for firms to revise their client portfolio within the Australian market: commercial conflicts remain a regular hazard for any Australian firm in the resources space and managing them is a logistical headache. “If you’re acting for Santos or Origin or BHP and you’re constantly doing deals against other people it’s very hard to act for anyone else,” one lawyer told ALB. “So if you’re acting for Santos, it’s very hard to act for anyone else in oil and gas – there’s just constant conflicts.” The argument that top tiers are constantly “conflicted out” has superficial attraction because the majors are so often linked with particular advisors: for example, Rio Tinto is commonly associated with Allens Arthur Robinson, BHP is commonly associated with Blake Dawson; Santos is commonly associated with Freehills and Origin is commonly associated with Clayton Utz. These
ANALYSIS
Australasian Legal Business ISSUE 10.2
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“If you’re acting for Santos or Origin or BHP and you’re constantly doing deals against other people it’s very hard to act for anyone else,” one lawyer told ALB. “So if you’re acting for Santos, it’s very hard to act for anyone else in oil and gas – there’s just constant conflicts.”
relationships are certainly not exclusive, but it is easy to see how they give rise to the perception that large firms have their allegiances, for better or worse. Freehills partner John Tivey is aware of the issue. “We are adopting a much more disciplined approach to portfolio analysis of our clients in the relevant sectors,” he told ALB. “And that is not just in the sense of managing conflicts but it’s about growth as well: to have a portfolio analysis across the firm and to make decisions on a strategic basis rather than a reactive basis.” The relationships between large miners and their legal advisors is more fluid than it is sometimes perceived to be. BHP, for example, regularly calls on panel members Mallesons and Freehills for advice, despite the long relationship with Blake Dawson. Similarly, Blakes has picked up important work from long term Freehills client Santos on its Gladstone LNG plant and the firm is also understood to do some work for Rio Tinto. Woodside has frequently used Corrs for major transactions of late, but it used Freehills for its A$2.5bn capital raising at the end of 2009. Freehills suitor Herbert Smith is reported to be advising Woodside at present on the A$40bn Browse LNG project and the firm also counts Chevron as a major client, so it will be interesting to see what impact the putative entry of Herbert Smith into the Australian market will have on the way these clients purchase legal services. It is clear any attempt to generalise about the alignment of
clients and firms gains in simplicity what it loses in accuracy. This is a highly complex issue upon which, ultimately, only the client is qualified to cast a judgment. One conclusion, however, can be safely drawn: strategic client management can only increase in importance as Australian firms spread their wings abroad and international firms make their home Down Under. For more discussion of the Australian resources industry, see the Mining & Resources feature in this issue.
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Australasian Legal Business ISSUE 10.2
Mining & Resources 2012:
Destination unknown The mining industry appears set for a more moderate year after the record profits of 2011 – but lawyers say that’s no cause for concern.
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Australasian Legal Business ISSUE 10.2
“So I don’t think you’ll see a huge drop off - it’s just that some of the more marginal stuff probably won’t crystallise as well as it might otherwise have.” John Tivey, Freehills partner
T
here seems to be an unspoken agreement amongst lawyers working in the resources & mining space: don’t mention the downturn. Lawyers might be following the manoeuvres of the Eurozone and AsiaPacific flow on effects with interest, but no one wants to be quoted as talking down the prospects of the Australian resources industry just yet. That might be because “slowdown” is a relative term, especially when you’re coming off the high levels of activity of 2011. “Mate, if people are telling you that things are slow in resources, they’re obviously not on the ground here in Perth,” laughed one resources lawyer. But lawyers concede that the economic pessimism is taking its toll. The availability of funding has tightened and everyone
has heard of at least one or two projects that are in jeopardy. Rationalisation of smaller projects is predicted, while the majors are expected to continue to hedge their bets by pursuing off-shore projects with better margins. Meanwhile, the existing pipeline of projects is ensuring a reliable stream of work for lawyers. “We’ve got mandates on at the moment that suggest we still will be strong,” says Gilbert + Tobin’s Michael Blakiston. “We’re still looking to hire. If you asked other parts of national practices, there’s talk of people being on a zero hire - for us that’s not the case.” It’s an old story with credit: debt is available for good projects, but at a higher price which is in turn causing some of the more marginal projects to be put on hold. However, lawyers point out that this is not necessarily a new trend and there is little evidence that key industry drivers are losing steam. “It’s probably going to be a tougher time for the more marginal projects but on the flipside I’d say we’re still seeing a lot of interest from overseas investors – the Japanese, Koreans and Chinese and so on,” says Freehills partner John Tivey. “So I don’t think you’ll see a huge drop off - it’s just that some of the more marginal stuff probably won’t crystallise as well as it might otherwise have.” The fact that resources projects are rather long term investments provides some degree of insulation from economic vagaries. “Some of these projects in WA are huge,” says Norton Rose partner James Stewart. “They will be producing for 20-30 years and providing jobs for a long long time. If you talk to people in WA, they have a lot of confidence in the market.” “These projects are not a one year proposition,” adds Blake Dawson’s Tony Denholder. “Companies recognise that even if there’s a short term slow down, these large mines and rail and port projects have five year lead in times - so whereas 20 years ago people might have pulled up stumps as soon as there was a hiccup, now they realise they have to keep moving head.”
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LNG The viability of the Australian oil and gas sector has been called into question of late. Ratings agency Fitch issued a negative credit outlook for the sector in January, citing high debt levels and cost overruns with landmark LNG projects. Reuters has reported that Woodside’s A$14.9 billion Pluto LNG project, due to come online in March, came in about A$1 billion over budget and there is speculation over the future of Woodside’s A$30 billion Browse project, which has had final investment decision pushed back to the first half of 2013 in the wake of complications relating to land acquisition and other issues. However, as this edition was going to print there were reports that China National Petroleum Corp had expressed interested in acquiring a stake in Browse. These developments contrast with the generally bullish sentiment surrounding the Australian LNG industry; the recent final investment decision on the US$34 billion Inpex/ Total Ichthys project off the Northern Territory and predictions that Australia will overtake Qatar as the premier exporter of LNG by 2017.
AUSTRALASIA L AW AWA R D S 2 0 12 24 may 2012, Sydney’s prestigious Town Hall
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Australasian Legal Business ISSUE 10.2
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“If you’re taking 4.5 years to build a project and all the planning is on paper, the practicality is that you’re going to encounter things that are completely left field and that’s going to add time and cost.” Michael Blakiston, Gilbert + Tobin
LNG projects are an easy target for criticism precisely because of their ambitious scope. “It’s easy to paint a bad picture because there’s a long period between the development decision having been made and first gas coming out and inevitably people face challenges in getting their projects up and running.” says Tivey. “Any infrastructure project is going to be challenged by cost overruns and landholder issues etc – the institutional analysts will say it’s just that phase in corporate life where companies are going through major developments – their share price doesn’t reflect the potential until they get closer to first production. That’s where we’re at now.” Blakiston agrees: “A lot of these projects are a one off: incredibly complex and cutting edge projects. If you’re taking 4.5 years to build a project and all the planning is on paper, the practicality is that you’re going to encounter things that are completely left field
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Australasian Legal Business ISSUE 10.2
“That doesn’t mean nuclear will stop, but the Japanese have come back into the market in a big way looking for gas – you’ll see more gas fired stations in Japan.” David Walker, Holding Redlich
and that’s going to add time and cost.” The fact that projects such as Ichthys and the Gladstone LNG projects in Queensland have attained final investment approval is an indicator of their viability and of the successful closure of long term supply agreements with the eventual purchasers of the gas. However, these supply contracts do not necessarily represent a guarantee of the project’s profitability: it is common for pricing to be determined in accordance with complex formulae linked to global LNG spot prices. They may feature price reset mechanisms which could potentially push the price below economic levels, triggering the option to cease or reduce supply. This is significant because there are already indicators that the global market for LNG is undergoing transformation: the development of shale gas reserves in North America is expected to see the U.S., previously a net gas importer, become a net gas exporter. Many exploration companies, including Australia’s AJ Lucas, have great expectations for the development of the coal seam gas industry in the UK, which is said to have the potential to displace Russia as Europe’s main source of gas. All of this is remains somewhat hypothetical, but there is a clear potential for an impact on global LNG prices. “It’s good old economics 101,” observes Holding Redlich’s David Walker. “The greater the supply, the more demand will drop.” Tivey also concedes that global supply will be a factor to watch. “It’s not that there won’t
be any customers - the question is at what price customers will be taking [the gas],” he says. However, there are equally other factors which bode well for the future of Australia’s LNG industry – for example, aversion to nuclear energy in light of the Fukushima disaster, which has caused Japan to review its options. “That doesn’t mean nuclear will stop, but the Japanese have come back into the market in a big way looking for gas – you’ll see more gas fired stations in Japan,” says Walker. “Japan has no gas. It has to import all of its gas and the only way it can import it is LNG. Korea is the same. Every time a Tokyo Gas or a Korea Gas decides to build a couple of power stations and needs the gas for it – that changes the economics for the producers because suddenly the demand has increased.” Iron ore The Pilbara region of Western Australia is well known as the major source of Australia’s iron ore. The region is particularly associated with haematite iron ore, which is valued because it requires less processing than other forms. However, in recent years a new series of iron ore ventures in the Mid West region of Western Australia, south of the Pilbara, have been put on the table. The iron ore in the region is largely of a variety known as magnetite iron ore. “For a long time magnetite was out of favour because it takes more processing to produce a product in saleable form,” explains Norton Rose’s Stewart. “However, once it is in that form it has a higher iron content and attracts a higher price because it’s easier for the Chinese steel mills to process.” The magnetite sector is a relatively recent development. “It’s really only in the last five years we’ve seen the magnetite sector starting to emerge,” says Stewart. “A lot of these companies in the Mid West region are focussed on developing magnetite projects - most are in development or the early stages of production.” A potential obstacle to these projects is the continued uncertainty over the proposed Oakajee deep water port, which was intended to service the Mid West iron ore industry. “The existing ports at Geraldton and Fremantle don’t have enough capacity to cope with
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RESOURCES all the production in the Mid West, which is why Oakajee is so important,” says Stewart. “A lot of mines will be dependent on the development of the Oakajee port.” Last June, Sinosteel shelved its A$2 billion Weld Range Iron Ore project in the Mid West, citing concerns over the direction of the Oakajee development. The status of the project at the time of writing was that foundation partner Murchison Metals has withdrawn, having sold its stake to fellow partner Mitsubishi. The West Australian government has insisted that the project will proceed, most likely with new investment from Chinese stakeholders. Once again, this project has become easy fodder for the critics. Blakiston says that history – and in particular the history of other iron ore projects in Western Australia - may provide some perspective on Oakajee. “When you look at the development of the Pilbara region, there was huge uncertainty around the decision to put in infrastructure to open up iron ore at Mt Newman,” he says. “The decisions were incredibly brave and now you look back and say look at the money Rio and BHP are making. The complexity that sits around the Oakajee project is enormous – 560km of rail, a deep sea port, magnetite, not haematite, and projects the sponsors of which are not AAA rated. You invest all of that money upfront and you’ve got to capture a return over 40 or 50 years - that’ s hard. You got to get it right.” Blakiston for one is not writing any eulogies for the Oakajee project just yet. “It’s difficult,” he concedes. “But Mitsubishi is a very profitable outfit, a long term investor and their business is about getting it right. When you’ve got a balance sheet like Mitsubishi and a belief it will get there, I think it will happen – they wouldn’t be doubling their investment if they didn’t think it could get there.” And that’s a point that seems to apply across the resource industry. Projects may be called into question, but the interest from investors has not waned. “We’re still seeing people out there looking to get their foot on iron ore and LNG and looking at doing deals – Japanese, Koreans, Chinese,” says Freehills’ Tivey. “It all runs counter to the doomsayers. Obviously there may be an impact on the price they are prepared to pay for their equity interest or their off-take, but they’re still out there wanting to get their foot on resources.”
Australasian Legal Business ISSUE 10.2
Africa Perth-based Michael Blakiston has been advising on resources projects in Africa since the 1990s. He has continued to pursue that specialisation under the Gilbert + Tobin banner and spends over 100 days in Africa each year. Blakiston says that despite the increased publicity given to the African resources play (see the analysis piece in this issue), there is still a shortage of lawyers with relevant experience. “There are still not many practitioners that do overseas work in the resources space,” he observes. “There are a lot that get exposure in Australia but translating those skills into going and doing those projects off-shore – that doesn’t just happen through osmosis. There are people that are very expert at providing the finance and negotiating a contract but there aren’t many people that have been on the ground and taken projects and explorations through to development.” Blakiston says that it is futile to attempt to impose Western norms of transacting business where they are at odds with local culture. He cites meetings as an example. “You don’t necessarily look to get outcomes in meetings – they might have their own discussions that happen outside of normal meeting structures and you need to allow for those sorts of processes to happen,” he says. “So if, for example, there’s a meeting and people don’t show up, that is just part of life. Ordinarily if you’d arranged a meeting with another Australian group and they didn’t show up, you’d take a read on it and have a view – that’s not something you can afford to do [in Africa] – they might have a reason or another set of priorities. It’s not something you show displeasure at. We’re operating in their country and there’s no point in us superimposing our value set and culture on them because it doesn’t work.” There are significant variations in the difficulty of each operating
RESOURCES
Australasian Legal Business ISSUE 10.2
environment. “Take a country like Namibia, where they have an established mining culture and basically if you’re a professional lawyer with experience in the field you can operate there – there are local laws of course but there’s a developed mining culture,” says Blakiston. “But if you’re in a country where there may not have ever been a mine you can’t come along with your skill set expecting that people will understand – you’ve got to go back to absolute base principals and work through how you establish it.” Nor can one assume that a particular status quo will have any special longevity. “Kenya is an incredible example – they had bloodshed at their last election,” says Blakiston. “They had 60 years as a British democracy, which would have suggested to the outsider that Kenya was a very stable environment. But as soon as there was an issue it split down tribal lines after 60 years of democracy and relative peace. And that’s what can happen.” The implications for business are obvious. “You can form strong relationships with a particular political group because they’re open to it,” says Blakiston. “But the way African democracy works, there could be change tomorrow and that generally means wholesale change across the board because people get tossed out based on tribal lines. All of a sudden you have to start again.”
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ANALYSIS
Australasian Legal Business ISSUE 10.2
Any coal’s a goal Lawyers are eyeing the next round of M&A in the coal sector, writes Kalianna Dean
T
he A$8bn Gloucester/Yanzhou and the A$5.1bn Whitehaven/ Aston Resources mergers mark another major stage of M&A in the Australian coal industry and many are predicting there is more to come. “The hunger for Australian thermal and metallurgical coals from developing countries is unlikely to slow in the mid-term, and that will drive significant M&A activity in the coal sector in the year ahead,” notes Corrs Chambers Westgarth partner Bruce Adkins. However, it is not necessarily a case of full steam ahead for all of these transactions. “Some transactions have not been happening or have been stalled or called off. There’s a bit of a downturn, a bit of a softening of the prices,” said Minter Ellison partner Simon Scott. One noteworthy aspect of the current deal activity is that the latest deals do not appear to be taking the participants off the Australian market. “The most recent large deals, Aston/Whitehaven and Yancoal/ Gloucester, don’t take the participants off the Australian market; they are scrip deals where the merged entity will be listed here, and in fact one brings a previously privately owned participant to the Australian market, with the acquirer intending to list on ASX concurrently with the transaction. This contrasts with some of the cash deals earlier in the year,” observes Freehills partner Philippa Stone.
Further consolidation Adkins says there are not a lot of opportunities left to acquire mid-cap coal companies with existing operating mines. “There are, however, a number of opportunities at the next level down – smaller listed companies with undeveloped coal projects moving towards development – and that is where I expect to see a lot of action this year,” he concludes. Mergers such as Whitehaven/Aston have buoyed the market. “Parties are very excited about the opportunities it [the Whitehaven/Aston merger] represents. The deal consolidates ownership of almost the entire Gunnedah coal basin; lots of
Coal company
Market ASX capitalisation description in AUD
NEW HOPE CORPORATION LIMITED
NHC
4766561959
WHITEHAVEN COAL LIMITED
WHC
2754159181
AQUILA RESOURCES LIMITED
AQA
2166090435
ASTON RESOURCES LIMITED
AZT
1950493623
GLOUCESTER COAL LIMITED
GCL
1690206314
COALSPUR MINES LIMITED
CPL
974435762.6
LINC ENERGY LIMITED
LNC
668446125.6
COAL OF AFRICA LIMITED
CZA
606173279.3
COCKATOO COAL LIMITED
COK
421721641.5
BANDANNA ENERGY LIMITED
BND
388433602.1
ASPIRE MINING LIMITED
AKM
235825932.8
BLACKGOLD INTERNATIONAL HOLDINGS LIMITED
BGG
200626965.2
GUILDFORD COAL LIMITED
GUF
178538701.6
WHITE ENERGY COMPANY LIMITED
WEC
148568945.7
AJ LUCAS GROUP LIMITED
AJL
143128750
MASTERMYNE GROUP LIMITED
MYE
139429948.3
STANMORE COAL LIMITED
SMR
139176876.1
NUCOAL RESOURCES LIMITED
NCR
127933649.2
COALWORKS LIMITED
CWK
123743810.4
*The top 20 Coal producing companies in listed on the ASX provided by Thomson Reuters
advantages and synergies will flow from that,” notes Gilbert + Tobin partner Gary Lawler, who is shortly set to make the switch to Blake Dawson. “The Aston history is an interesting one. Tinkler bought the coal deposit from Coal & Allied, then proved it up and then floated it at an increased equity value, reflecting that work,” said Stone. “Aston has continued to progress development plans and was later able to sell a stake in the project to Itochu at a higher price again, reflecting the value Aston had added and the reduced risk, and obviously subsequently the value of the group has been further enhanced as the project progresses, culminating in the recent transaction. The assets were fundamentally very good assets which have increased in value as they have been developed, and as the required elements
ANALYSIS
Australasian Legal Business ISSUE 10.2
COAL INDUSTRY IN TRANSITION – RECENT HIGHLIGHTS Gloucester Coal – Yanzhou merger – A$8 billion
Whitehaven Coal and Aston Resources merger – A$5.1 billion
Firm: Clayton Utz Lead Lawyer: Rory Moriarty Client: Noble Group
Firm: Corrs Chambers Westgarth Lead Lawyers: Andrew Lumsden, Shaun McGushin, David Sim, James Shirbin, Nicholas McBride, Jennifer Leung and Jin Ooi Client: Whitehaven Coal
Firm: Freehills Lead Lawyers: Philippa Stone, Jai-Shi Liew, Jay Leary, Roxann Halliday Client: Yanzhou Coal Mining Company (Yanzhou) Firm: Minter Ellison Lead Lawyers: John Steven, Bart Oude-Vrielink, Alberto Colla, Sam Lawson Client: Gloucester Coal Ltd (Gloucester)
Firm: Gilbert + Tobin Lead Lawyer: Gary Lawler Client: Boardwalk Resources Firm: McCullough Robertson Lead Lawyers: Damien Clarke, Janelle Moody and Emma Jenkins Client: Whitehaven Coal
• Freehills has worked on various transactions with Yancoal Australia, but this is the first time the firm has advised the Chinese parent company, Yanzhou
Firm: Freehills Lead Lawyers: Matthew FitzGerald, Philippa Stone and Phil McMahon Client: Aston Resources
• In 2011 Minter Ellison advised Gloucester on its acquisition of a 100 percent interest in Donaldson Coal Holdings Ltd and Ellemby Holdings Pty Ltd as well as a A$285 million capital raising
• Whitehaven Coal and Aston Resources have announced a merger-ofequals to create the largest ASX-listed independent coal company, with a pro forma market capitalisation of approximately A$5.1 billion
• In 2010 Minter Ellison advised Gloucester on its response to a takeover offer from Macarthur Coal and Noble Group, and the acquisition of a 49 percent interest in the Middlemount Coal Joint Venture and A$570 million capital raising
• Freehills advised Aston Resources on its initial public offering (IPO) and listing on the Australian Securities Exchange in 2010. It also advised the Brisbane-based company on the sale of 15 percent of its Maules Creek project in New South Wales’ Gunnedah Basin to a subsidiary of Japan’s fourth largest resources and trading company, Itochu Corp for A$345 million
of the project and project funding have progressively been put in place.” Stone is leading the team advising Aston on the A$5.1 billion deal. “That kind of process applies, and is continuing to apply to others. They will merge with each other or be bought up. Aston is a good example of value being added by an acquirer,” she concluded. Consolidation can be viewed as beneficial as it strengthens participants, enabling them to keep projects moving, with flow on effects to the development of infrastructure. “Many combinations bring significant synergies in terms of mine development with coal blending and economies of scale including sharing infrastructure. Often there’s significant benefit from a merger,” adds Stone: “We’re supplying a global market. Consolidation which benefits Australian producers enables them to compete more strongly in that market.” Hurdles China First Ltd owner Clive Palmer has threatened to sue Queensland Rail for breach of confidentiality and misleading conduct over plans for a 500km railway between the Galilee Basin and Queensland’s Central Coast. Freehills partner Jay Leary believes the whole issue highlights the competitiveness of the industry in the Galilee Basin, and warns there could be an impact if approvals are delayed. “Historically it’s been the case that infrastructure information is not considered to be valuable confidential information – it does highlight the fact that, particularly in the Galilee, it is a competitive environment and shows how important rail and port development is to Hancock, Waratah, AMCI and Vale in the Galilee Basin,” he says. Adkins points to the Queensland Government’s recent announcement that stamp duty will, for the first time, be payable on the transfer of interests in exploration tenements, and the abolition of ‘over the counter’ applications for exploration tenements as regulatory impediments that are damaging the
industry. “[They are] the latest in a very long line of regulatory changes that are really hurting the little guys,” he concludes. Apart from the regulatory challenges, IR issues loom large on the horizon for the coal sector, with BHP and Rio Tinto both embroiled in disputes. These issues are not new to the coal sector, according to those who spoke with ALB. “[Industrial action] is part of a cycle to some extent. It was there 5-10 years ago. It’s clearly a challenge but it’s a challenge which is not [limited] to one company alone and it’s not in mining alone either,” notes Scott. Scott also says he sees echoes of the recent Qantas IR dispute in the responses made by mining companies through media commentary, which could trouble a nervous market. “That is something that would concern investors who are looking to invest,” he adds. Adkins also has concerns for the junior end of the market which will be forced to become more agile as consolidations occur. “We have seen what Yancoal has done in the few short years that it has been in Australia, and I know for a fact that there are other Chinese SOEs who look at Yancoal and wish to follow in its footsteps. I think it is getting harder for small players to survive and prosper, with skyrocketing costs and increasing regulatory impediments,” he notes.
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Profile: Managing Partner
Australasian Legal Business ISSUE 10.2
ALB 2012 MANAGING PARTNER SERIES
Norton Rose Australia
Wayne’s world
Norton Rose Australia managing partner Wayne Spanner is determined to foster a culture of unity –but he’s staying mum on the issue of financial integration. Renu Prasad reports.
L
aw firms are well known for having a choice slogan or two to sum up the firm’s ethos and to rally the troops. Over at Norton Rose, it is clear that “one firm” is the phrase du jour, especially when managing partner Wayne Spanner is around. He uses the phrase a lot. “We have adopted a one firm strategy and I can’t emphasise that enough,” he says. “We really do have one management structure – one management structure which has transformed the way we do business in Australia in the sense that we were looking to global practice group leaders, global industry sector leaders, looking to global CEOs; so we started to operate our business on day one in a global framework.” Norton Rose may be one firm, but behind the scenes there are four partnerships – the original Norton Rose LLP, Norton Rose South Africa, Norton Rose Canada and Norton Rose Australia, which for some reason also includes the firm’s Indonesia and Vietnam operations. Former Deacons chief Don Boyd has been quoted as describing the financial integration of these partnerships as being of “absolute importance” and, back
in early 2011, foreshadowed a full merger “within the next 18 months.” But when asked for an update on this integration process, Spanner embarks upon a somewhat circumlocutory response: “I think [financial integration] is something that always needs to be considered,” he says. “In terms of our current structure, it works very well for us in the current context and how we manage ourselves. We have transformed how we do our business in terms of the ability to share intellectual capital and move people. We are not beholden to any particular country, place or philosophy – it is about one firm and one culture.” What does all this mean? Is it fair to say that financial integration is no longer on the list of immediate priorities for Norton Rose? “No I don’t think that’s fair,” says Spanner. “Integration and looking at how we integrate more and more is constantly on the agenda.” So has the firm set a date for financial integration? “I don’t think that setting dates is completely important in the overall scheme of things,” Spanner responds. “Full integration is very important but I suspect tying yourself to particular dates as I think
Photography by Thilo Pulch
Australasian Legal Business ISSUE 10.2
Profile: Managing Partner
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Profile: Managing Partner
Australasian Legal Business ISSUE 10.2
“Financial structures are important and I don’t downplay that by any stretch, But what is important and what we’ve been able to achieve is one firm behaviour” Wayne Spanner, Norton Rose Australia
some firms have sought to do raises all sorts of problems in their own way. What is important is how you integrate and how you operate as one firm. When I look in the market place and I look at the experience we have had, we are operating as one firm.” In an interview with Legal Week last year, Norton Rose Group CEO Peter Martyr described criticism of his firm over the lack of financial integration as “old fashioned” and “rubbish”. Legal Week went on to quote anonymous Norton Rose sources who said that Australian partners had been pushing hard for full integration and had met with resistance from the London partners because of concerns about a disparity in profitability. Clearly there is more to this saga than what Spanner is prepared to say on the record. However, there is something to be said for the argument that financial integration is no longer the sine qua non of a modern law firm merger. While the recent King & Wood Mallesons merger attracted some degree of market scepticism, surprisingly little of this was directed at the use of the Swiss Verein structure. Similarly, the market – at least in Australia – seems to be prepared to accept Norton Rose on face value as a single firm. “Financial structures are important and I don’t downplay that by any stretch,” says Spanner. “But what is important and what we’ve been able to achieve is one firm behaviour ... I think there are different models which [firms] might choose to operate, but we operate a model which delivers on one firm behaviour and clients don’t distinguish [between the partnerships] – they see one firm.” The market has readily accepted the Norton Rose brand. “The Deacons name fell away very quickly,” observes Spanner. “In my own experience [Deacons] is hardly ever referred to internally and hardly ever referred to externally. We are seen as completely integrated with Norton Rose.” Maybe Don Boyd’s now famous billboards at airports around the country did the trick. It is also equally important to note that Norton Rose was already a familiar name locally prior to 2009. “Anecdotally we would see a number of GCs would have spent time in London where it’s a very well known brand, as it is across Europe and Asia,” says Spanner. “The branding exercise I might add is now seen in the market place as one of the leading ways to change your brand. It had a remarkable impact on clients and people. People saw it as a leading brand which was one they culturally understood and one which provided a level of focus in our business.” Evidence of the firm’s cohesiveness can be seen in the movement of personnel around the world. “We’ve moved in the order of seven partners offshore from Australia to various parts of the network – Japan, Hong Kong, Singapore, London and Paris and likewise we’ve had partners from other parts of the global network in Australia,” says Spanner. “We’ve had the global head of climate change,
Anthony Hobley, in Australia for the last two years which has been hugely successful for us in terms of showing that intellectual capital and bringing that expertise and experience from other parts of the world and having it resident in Australia when we are going through one of the most significant developments around climate change and the introduction of a carbon tax. Likewise, our graduate programme – we send about 14 of our graduates into the Asian offices to spend a couple of months in rotation in an Asian office. It’s about giving them experience and the ability to learn about the network to meet clients and be able to bring that back.” Norton Rose has been active in the lateral recruitment market and the firm’s marketing material regularly promotes the fact that there have been 22 lateral partner hires in the past 22 months. This figure should not be confused with actual growth in partner headcount, which has remained flat. In addition to the partners who have moved offshore, the firm has also had some notable departures including former private equity head Nick Humphrey and OH&S specialist Bill Kritharas, who departed not long after being promoted to the partnership. Both Humphrey and Kritharas headed to Sparke Helmore and Humphrey has been quoted as expressing an interest in “mid-market M&A” which may partly explain the impetus for the move. However, there is no doubt that Norton Rose has made some good gains, including resources specialist Robert Milbourne, formerly GC of Vale Australia, who is credited with enhancing the Norton Rose relationship with Vale worldwide.“We’ve been incredibly blessed with these [hires]” says Spanner. “You’ve got serious practitioners around town that are looking within their own firm and don’t see significant opportunities necessarily in their own firm, but they see them here.”
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DLA Piper Australia has appointed industrial relations and employment specialist Murray Procter to its partnership in Brisbane. He was most recently at Norton Rose. Procter has specialised Murray Procter in industrial relations and employment law for more than 15 years, advising employers in a number of sectors including energy and resources, financial institutions, health, human services and government. He is experienced in all areas of workplace law including industrial strategy, bargaining and disputes, discrimination, dismissals, workplace health and safety, executive employment including restraint of trade, and workplace investigations.
Middletons
Thomsons Lawyers
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Trans-Tasman law firm Duncan Cotterill has made several senior appointments across its network. Former Freehills senior associate Kerryn Tredwell has joined the firm’s Sydney office as a partner. Tredwell has extensive experience in employment law and industrial relations gained in practice in Australia, in the United Kingdom at Eversheds LLP and on secondment with one of Australia’s largest banks. She represents employers in a range of employment-related litigation in courts and tribunals and advises across the spectrum of employment law and industrial/workplace relations. In the Wellington office the firm has promoted Matt Yates to the partnership. Yates is an experienced corporate lawyer and specialises in capital markets, mergers and acquisitions and takeovers. He has a broad range of experience advising clients on corporate governance,
Finding the right lawyer should be this easy. securities law, New Zealand Exchange listing rules, joint ventures and also intellectual property matters. Corrs Chambers
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Sar Katdare has been promoted to partner having been a member of the competition group in Sydney since joining the firm as a senior associate in 2009. Katdare specialises in all Sar Katdare aspects of competition law including advising Australian Stock Exchange-listed companies on Australian Consumer Law. Norton Rose
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HWL Ebsworth has appointed Scott Charaneka as a partner in the firm’s financial services team. Charaneka joins from Norton Rose in Sydney where he was also a partner, and will be relocating to HWL Ebsworth’s Melbourne office. He has expertise in the establishment, licensing, administration, distribution, disclosure, compliance and claims matters associated with superannuation, funds management and life insurance. Browne & Co
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Mid tier firm Hall & Wilcox has appointed commercial lawyer Martin Ross as a partner in its corporate and commercial team. Ross joins the firm from Browne & Co where he had practiced for the previous 15 years and had been partner since 2006. Ross has previously acted on behalf of a wide variety of clients, including sports organisations, content owners, large corporations and government bodies. He is currently a director of the Australian and New Zealand Sports Law Association (ANZSLA), as well as a current and founding member of the Law Institute of Victoria’s sports law committee. Shaw Reynolds Bowen
TressCox
TressCox adds insolvency partner TressCox has appointed a new partner in the Sydney commercial litigation team. Kirsten Farmer joins the firm from Shaw Reynolds Bowen & Gerathy where she was an insolvency and commercial litigation partner. She has advised insolvency practitioners and key stakeholders during the past 20 years and specialises in litigation under the provisions of the Corporations Act and Bankruptcy Act. Farmer began her career in the United Kingdom before moving to Minter Ellison in Sydney. She has also worked as a senior lawyer and acting deputy director in the proceeds of crime branch for the Commonwealth Director of Public Prosecutions.
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34
IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.2
In-house 2012: the road ahead As business prepares for a year of heightened economic uncertainty and unprecedented legislative change, Olivia Collings spoke with in-house lawyers from a diverse range of industry sectors to find out their take on the road ahead.
IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.2
RETAIL
The Australian retail sector has been facing tough conditions for the past few years and 2012 is set to be no different. A slower world economy, the growth of online retailing and weak consumer confidence have all played a part in making the sector more vulnerable than usual. The Australian Retailers Association is predicating sector growth of around 2.3 percent this year following one of its worst years in history. According to a Deloitte Access Economics report the sector grew only 1.3 percent in the 12 months to June 2011, making it the worst year in two decades. Meanwhile the Australian Bureau of Statistics reports show retail sales grew 2.4 percent in 2011. However, in the crucial month of December, retail sales fell 0.1 percent. For general counsels in the sector this manifests itself in renewed budgetary challenges and new obstacles. “The key challenges for the year ahead will be determined by what happens in the global economy,” says Westfield group general counsel Simon Tuxen. “There is a lot of uncertainty and the capacity for really serious disruption if things don’t go right in Europe.” At Woolworths the situation is no different. Group legal manager - corporate & commercial, Rod Bordignon says the low margin retailer is continuing to face “challenging trading conditions” in the consumer marketplace. In order to address this and ensure profitability now and in the future the company is looking at introducing new businesses and channels, selling some existing businesses, changing the mix within stores and more. “Our legal team is heavily involved in all of these areas,” he adds.
35
Rod Bordignon, Woolworths
Simon Tuxen, Westfield
Regulatory requirements and the new Carbon Tax are also set to impact the sector which is already struggling. “[Regulatory requirements] have been a significant burden in the last four or five years and I don’t see that changing. But I don’t see the burden getting significantly worse as a result of new laws,” says Tuxen. In the case of Westfield, Tuxen nominates the harmonisation of OH&S laws as a key legislative change. “There will be a significant dialogue with boards because directors will want to understand what the regime is,” says Tuxen. While it won’t necessarily require a significant amount of change, Tuxen says the introduction of the harmonised laws in Queensland, NSW, Northern Territory and the ACT “is a good opportunity for the legal team to go back and reinforce the basics.” The hotly debated carbon tax or carbon price is set to have significant flow-on impacts at Woolworths. For example pass-through costs from upstream include energy supplies and cost of goods increasing overall, while downstream costs include landfill levies. Woolworths has been investing in energy efficiency and low carbon technology to minimise the effect of a carbon price in recent years. The legal team has played its part in those efforts, particularly in terms of equipment procurement and advising on lease-related aspects in relation to stores and will continue to have a role to play as suppliers and other business partners feel the full effect of the price. As with many areas of business, the legal departments of Westfield and Woolworths have both felt the pressure to do more for less. ”It’s a challenge as it is there every
year,” says Tuxen. “Working smarter, being more efficient … Every corporation in the current environment is looking for ways to deliver value and better service without increasing staff.” In order to address cost pressure Tuxen says he will be looking at maximising external law firm advice. “We will be making sure their services are being delivered to us in a cost effective way,” he says, indicating that he will be using fixed prices on certain types of work as a key tool in keeping costs down. He is also looking at the legal process outsourcing proposition more carefully. “It’s an area that we will look at to see if there is any mileage,” he says. Bordignon is also looking at costs pressures within his division: “A focus on costs is always a part of our mindset in retail. However, the tighter trading conditions in the consumer marketplace have brought a renewed focus on the cost of doing business across all of our divisions, including support functions such as legal.” As a result of this Bordignon will be looking for external law firms to play a “more efficient and effective role” as they look to receive more value out of the legal spend. “We will look to target spending with those firms that invest in our relationship and can demonstrate measures to control costs. The firms that can best tailor their service offering to meet these objectives will become more important to us,” he says. Firms working for Woolworths can also expect more of the work to be put out for competitive tender in areas where Bordignon feels they can achieve better value, “particularly on a project basis,” he says.
36
IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.2
“2011 was a big year for regulatory reform in relation to insurance and I expect that will continue in 2012, at about the same rate” Mathew Kaley, Allianz Australia
Jon Downes, ACE Insurance
Mathew Kaley, Allianz Australia
INSURANCE
In recent years the Australian landscape has been plagued by floods, storms, droughts and bushfires, not to mention the Australian and international insurance players. The 2011 financial year was a tough year for insurers according to the J.P. Morgan Deloitte General Insurance Industry Survey, as higher claims costs associated with elevated levels of catastrophe impacted profits. The joint survey reveals that sharp losses were incurred across property classes for all underwriters in commercial lines, personal lines and in particular reinsurers. Increasingly the sector is also being faced with tougher regulatory burdens. In a recent industry survey of underwriters, regulatory burden and staffing tied for equal first (64 percent for both) as the top issue facing the industry. “Maintaining a strong compliance culture and ensuring regulatory compliance is an ongoing focus,” says ACE Insurance (ACE) general counsel, Australia & New Zealand, Jon Downes. “Almost every legal task performed has a compliance aspect.” This year a particular challenge for the industry will be the introduction of the Financial Advisers Act and the new prudential regime in New Zealand, where the market has been going through a phase of transition. At ACE Insurance this has necessitated ensuring
a sufficient legal and compliance presence in New Zealand, and the relocation of a staff member from Sydney to New Zealand 15 months ago. Allianz Australia general counsel Mathew Kaley also cites regulatory reform as a key issue for the industry and hence the legal departments of insurers. “2011 was a big year for regulatory reform in relation to insurance and I expect that will continue in 2012, at about the same rate,” he says. Similarly, Anna Lenahan, group general counsel and company secretary at Suncorp Group says one of the main challenges for her and her legal team is that the volume of regulatory change has accelerated, along with government inquiries, such as the bushfire inquiry in Victoria and the flood inquiry in Queensland. She also cites anticipating the business impact of continued financial challenges in Europe and America as other key challenges for the business, including the impact of Basel III reforms. On the prudential side, the Australian Prudential Regulation Authority (APRA) is in the process of concluding significant changes to the capital requirements for insurers and has also conducted a wholesale review of its prudential standards. Outside of these insurance specific regulatory matters, there were also a number of general changes of relevance to insurers, such as the introduction of the Personal Property Securities Regime and the proposal to revise the privacy legislation. “All of these matters have required significant work by the legal and compliance departments, and affected business units, within insurers to assess the changes being proposed,” says Kaley. “The work is not complete though; many of these initiatives will be continuing on into 2012. And no doubt there will be some more.” The ACE Group of Companies acquired Combined Insurance in 2008, which resulted in legal integration occurring in Australia and New Zealand in 2010. Last year, there was focus on postintegration matters but in 2012, with the increased size of the
IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.2
company, greater range of product lines and number of stakeholders, a key challenge for Downes and his team will be to ensure the business is appropriately serviced from a legal and compliance perspective. The legal and compliance team manages a diverse range of work: from multi-million dollar litigation, to providing sophisticated technical advice on policy wording, to advising on complex business arrangements with global customers all the way through to reviewing the legal requirements in respect of staff footy tipping competitions. As a result, Downes is looking to grow the team in the coming year. “As the business grows, the team needs to evolve with it,” he says. However, having a bigger team also brings with it new challenges, such as keeping team members enthused and proactive. Downes addresses these issues by holding regular team meetings, performance reviews, training and development, encouragement, feedback and social activities. He also encourages his team to get amongst the business. “I believe that it is important that the team know and understand the business they are providing a service to, which also means getting to know work colleagues across the company and breaking down barriers,” he states. Where it is necessary to use external legal service providers, Downes will generally use agreed capped fees. “ACE has developed a globally integrated legal costs management system which external firms have to use. This makes monitoring fees and agreeing costs much easier,” he says. Downes adds it is also critical for the firms he uses to have a commercial focus. “They need to be flexible in how they deliver their service, which again goes back to the relationship,” he states.
Employer 1
Employer 2
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Four most important issues currently facing the industry according to underwriters
Issue
Percent of respondents who voted it top issue
1. Regulatory burden
64%
2. Staffing issues
64%
3. Climate change / weather events
55%
4. Increased competition / capacity
45%
Source: 2011 General Insurance Survey
Employer 3
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IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.2
Banking & finance
2012 looks to be highly challenging for the banking & financial sector. In addition to the constant challenge of highly volatile markets, financial organsiations in Australia will this year also have to deal with the introduction of more regulatory requirements and more proposed regulatory changes. On July 1 the Gillard Government is set to introduce the Future of Financial Advice (FOFA) Reforms, provided the Corporations Amendment (Future of Financial Advice) Bill and the Corporations Amendment (Further Future of Financial Advice Measures) Bill pass through the parliament before then. However, this in itself is an issue for banking institutions and their legal advisers; as the implementation date draws nearer, details remain sketchy at best. “The FOFA reforms in particular are generating a lot of work for us,” says Commonwealth Bank of Australia group general counsel David Cohen. “There is a lot of uncertainty around FOFA and the legislation. We have not been given a lot of detail about it, considering how significant its impacts will be.” The wide-ranging FOFA reforms include the banning of assetbased fees on geared funds, stricter licensing and banning powers for the corporate regulator the Australian Securities and Investment Commission (ASIC). In preparation for the introduction of the reforms, ASIC has indicated it will be releasing new regulatory guides, including guide 98, which covers administrative action against financial services
David Cohen, Commonwealth Bank of Australia
Brian Salter, AMP
providers. However, any amendments to regulatory guidance are unlikely to be available to institutions before the July 1 introductory date. AMP general counsel and company secretary, Brian Salter, says that as a result of these and other reforms much of his teams work will be focused on regulation and compliance: “We anticipate that the implementation of the Federal Government’s proposed new laws for the financial services industry will account for a greater percentage of our legal work in 2012,” he says. “Taking policy intentions and turning them into legislation is a complex and difficult task.” INGDirect head of legal and compliance, Matt Sinnamon, adds: “With the extent of regulatory changes coming through, I anticipate the team will be spending a significant amount of time researching and understanding these changes – assessing the impact they will have on our business and advising the business on how to respond.”
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IN-HOUSE ISSUES
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Matt Sinnamon, INGDirect
On top of FOFA, Stronger Super reforms including SuperStream (measures to improve the ‘back office’ efficiency of the superannuation industry) are set to begin early next year while other aspects of the reform including MySuper are due to start in July 2013. The raft of changes proposed for the superannuation sector comes after months of consultation. “A lot of our work last year was spent on lodging submissions on upcoming regulation whereas this year it is the implementation of that regulation and getting into the nitty gritty of the changes and how they impact the business,” says Cohen. However, according to Salter, more submissions and negotiations are also on the cards in 2012. “We see an important role for AMP, and the rest of the financial services industry, to participate in the
process [consultation] to achieve good legislative outcomes within a framework of reasonable business obligations and cost,” he says. “The coming year has the potential to bring many opportunities for our industry and for our customers if we succeed in getting the implementation right.” As with other sectors, keeping legal costs in check can be a constant challenge, for legal managers in the finance and banking sector. New regulation means new chances to miss something critical and understanding new legislation alone can be time intensive. In order to address this issue Cohen is seeking to keep costs flat by focussing on more judicious use of technology (eg reducing unnecessary multiple devices per person) and reducing discretionary expenditure (eg travel, external conferences). Similarly, Sinnamon will be seeking to rein in costs by being vigilant on bills incurred through external legal advice. “We have continued to ensure we maintain a close working relationship with our panel firms which allow us to benefit from volume based discounting,” he says. “However, what remains important is the cost-benefit equation not merely the bottom line.”
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IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.2
Mining and resources
The Australian mining industry is touted as the backbone of the economy, but companies in the sector are increasingly facing tougher, more complex, regulation and taxation as the government seeks to capitalise on the sector’s prosperity. Nerilee Rockman, vice president legal-commercial and supply chain at AngloGold Ashanti Australia describes the year ahead as an era of “unprecedented legislative change”. The increasingly complex regulatory environment elevates the level of risk, both to the individual role holder and the business itself, according to Rockman. OZ Minerals general counsel and company secretary Francesca Lee is also set for more government regulation, which she predicts will account for a greater percentage of the legal department’s work, “in many areas of the law”. One of many new pieces of legislation to come into force in the next 12 months is the hotly debated carbon price. On July 1 2012, 500 operations across the country, such as power stations, mines and heavy industry, will be liable to pay a fixed price of A$23 per tonne of carbon. However, while only 500 companies will be liable, many suppliers and customers down the line will feel the impact, resulting in contracts between those companies and suppliers being examined closely by legal teams. “There is certainly a spike in our work in that area, as we accommodate the details of the scheme into our business processes and contractual documentation,” says Rockman. “This is exacerbated by the fact that there seems to be a poor understanding of the scheme in many sectors of the market. Negotiating appropriate contractual outcomes is more difficult given this.” According to Rockman, contractors in particular will be seeking to increase costs and pass costs onto customers as a result of the carbon tax. Negotiations with contractors have already begun at AngloGold Ashanti Australia, although Rockman predicts a “flurry” of activity in the months before the introduction and immediately
Nerilee Rockman, AngloGold Ashanti
Francesca Lee, OZ Minerals
after. “I think a lot of companies won’t know for several months the true impact of the carbon price. In some cases it would be open to them to negotiate retrospective cost increases,” she says. Once the scheme is fully operational, Rockman expect that the workload will reduce, as business processes and cost structures adapt to the scheme. “However I expect we will again see a material spike in three years if and when we move from the fixed price structure as foreshadowed,” she states. July 1 is also the proposed start date for the Gillard Government’s Mineral Resources Rent Tax (MRRT) a 30 percent tax on coal and iron ore companies expected to generate A$12 billion. As uranium, copper and gold are exempt from the tax, Rockman and Lee do not have to deal with the specifics of the proposal. Assuming the MRRT makes it through the senate and is passed into law, it may then face a High Court challenge from a number of mining companies on the grounds that the resources are property of the states, thus making the MRRT an unconstitutional tax on state property. However, the Federal Government has indicated it will argue it is a tax on profits made by the private sector, not resources. Assuming the MRRT overcomes these challenge, like any new tax, it is likely to generate disputes and
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>>
litigation amongst companies impacted by the tax, generating even more work for legal teams and general counsels. As a result of these changes and other government regulation, inter alia the new harmonised workplace laws and changes to the Corporations Act, Rockman says she has to increasingly help shape the direction of the business and the business processes to reflect and accommodate the new environment. “Our challenges are twofold,” she explains. “Namely synthesising the regulatory landscape into advice that is meaningful and specifically relevant to the realities of our business, and recommending actions that enable the business to operate within that landscape whilst achieving our corporate vision and targets.” In order to achieve this Rockman regularly calls on external lawyers to provide specialist expertise in areas where she cannot justify a business case for a permanent in-house lawyer. However, as with other legal departments, costs are a constant battle for her and increasingly she is turning to fixed fees and secondees to manage this issue. “I see fixed fees as crucial, to enable legal work to be budgeted. The budget I have for our legal department is fixed and finite, and I cannot manage that if I do not insist on the same from the providers with whom we work,” she says. Rockman has been requesting fixed fees for some time but says legal providers have only recently become better at honoring original quotes. “They are getting better at tracking and monitoring the costs compared to the original quote,” she says. “I have seen a noticeable improvement in the past six months.” In addition, Rockman says law firms could do more to assist in-house legal teams. “Law firms should be far more proactive in telling me where think they can add value or assist us to adapt and advise in a new area of regulation,” says Rockman. “Given the fact law firms should be seeing the impact and approach across multiple clients in multiple sectors, I am often disappointed by the lack of proactive smarts offered.”
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In-house Q&A ►► Australia Law firms in Singapore Firm Advent Lawyers Allens Arthur Robinson
Model
Jennie Lester
Foreign law practice Joint Law Venture with TSMPLegal Counsel & Company Secretary Institute Baker IDIlaw Heart & Diabetes Institute Blake Dawson Foreign practice Freehills Foreign law practice In your opinion, why have in-house lawyers become an increasingly Kanji Group Foreign law practice indispensable part of an organisation? Webb Henderson Foreign law practice The growing number of Legal in-house lawyers in the non-profit Wojtowicz Kelly Representative officesector is a great exampleSource: of organisations recognising the value contributed by in-house lawyers. Singapore Attorney-General’s Chambers In the charitable sector, funding is always scarce and there are many competing needs for the use of that funding, so the business case for an in-house lawyer is particularly well scrutinised.
1
There are significant cost efficiencies from investing in an internal legal department, both in respect of delivering cost-effective legal services and in efficiently managing the relationship with external counsel. However, to my mind an in-house lawyer’s true value arises from their understanding of the full range of corporate activities, history, risks and sensitivities and from their ability to build strong relationships with colleagues. Good corporate knowledge allows an in-house lawyer to ask questions that might not otherwise be apparent and in doing so can significantly improve the quality of the legal services provided. Strong relationships and trust allows in-house counsel to become part of the executive team working through problems and finding solutions, and also enables legal advice to be tailored to the particular audience. Those relationships also allow an in-house lawyer to keep their finger on the pulse of an organisation’s key legal risks, as significant legal issues often arise informally, with a request for a “quick chat” about something that “seems a bit odd”.
2
In recent times, the role of the General Counsel has diversified into a multi-faceted role, (where the General Counsel can wear the ‘hat’ of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile?
Accountability for the legal team of an organisation has always been accompanied by certain risks. Taking on additional responsibilities, such as Company Secretary, necessarily adds additional statutory duties and increases the risk profile. However, the overlap between those roles often makes them inherently compatible and complementary, and as such they are a natural marriage. I find that legal advice or company secretarial duties for subsidiary companies is another area where it is essential to remain mindful of managing the conflicts and risks.
3
In your opinion, what do you consider to be the main challenges you will face in 2012?
Just as many commercial businesses are facing economic pressures as a result of the global financial crisis, non-profit medical research institutes are also facing significant funding pressures and accordingly it will be essential to continue delivering strong value to the organisation. The range of activities in which the Institute engages, including laboratory based research, clinical trials, clinical treatment and indigenous outreach work, will continue to generate fascinating legal challenges. An unusual challenge for 2012 arises from the Australian Charities and Not-For-Profits Commission which is currently being set up by the Federal government and which is likely to involve a raft of changes to the legislation governing the non-profit sector.
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TECHNOLOGY & TRANSCRIPTION
Australasian Legal Business ISSUE 10.2
FIVE TECHNOLOGIES THAT WILL INCREASE YOUR FIRM’S PROFITABILITY
Smart use of technology is a powerful catalyst for firm-wide improvement, writes Legal Technology Specialist Damian Huon.
N
o matter the structure, staff headcount or number of offices, all firms face a universal challenge – to provide competitive service while minimising costs for a healthier bottom line. While IT is often perceived as too expensive at face value, the right strategy can incite efficiency throughout the business and yield high returns. With the power to transform downtime into opportunity, the following five technologies promise to restructure work activities for greater productivity, increase turnaround times for enhanced customer service, and extend capabilities for more effective marketing.
1) Voice recognition – turnaround dictations three times faster for half the cost Whilst dictation and transcription is common practice across the industry, innovative firms are rethinking ‘how’. Traditional methods rely heavily on support staff, which results in bottlenecks and impairs productivity. Voice recognition however, offers the potential to reduce the cost of transcription, whilst dramatically increasing document turnaround time
Australasian Legal Business ISSUE 10.2
and steering staff toward other billable activities. Exploitable for a growing number of tasks, including document creation and summarisation, emails, and of course transcription, the technology can benefit partners, associates, researchers, paralegals and support staff alike. According to Nuance, the average person types at 39 words per minute, and just 19 when editing. Compare this to the staggering 200 plus words per minute spoken; voice recognition is three times faster than typing. With all of these acclaimed benefits however, adoption amongst Australian firms is still extremely low. Before embarking on any installation, it is important to find the right solution for your needs. Look out for the following features as a base standard: • Legal specialist dictionaries • Support of a wide variety of dictation devices to extend return on current investments • Both client-side (allows dictators to see and edit the words as they appear) and server-side (processed behind the scenes and passed on to a transcriptionist for finalisation) options to suit your individual staff preferences • Template friendly, to automatically insert jobs into fully formatted documents • Compatible with different programs, including Microsoft Word, emails, and even some internet sites and forms It is also important to prepare for limitations of the software. While the quality has improved drastically over recent years (achieving accuracy rates of up to 9599%), it doesn’t work for everyone. Voice recognition software can
TECHNOLOGY & TRANSCRIPTION
accommodate varying accents and speech patterns, but does require some ‘training’ to do so. A voice profile is created for each user, remembering information about their unique voice characteristics and logging mistakes to enable better accuracy over time. Users can also create a unique vocabulary, with a customised set of words and commands. For some, this is achieved quickly with ease – however for others it takes time and patience. So while you may not get 100% uptake rates across staff, it can help your firm streamline processes and will achieve greater author to typist ratios. With vast improvements in recent years, even if you have tried it in the past you should consider giving it another go. Running a no commitment pilot across a varied group of users may surprise you. 2) Video conferencing – enable collaboration and easy meetings Many major firms have been conservatively using video conferencing for some time; however recent developments in quality, flexibility and affordability means the technology is now relevant for even the smallest of firms. As the hype around video conferencing grows, so does its commercial benefits. Video conferencing solutions have become more reliable, easier to use, and even portable. While today it is predominantly used by multi-office firms to cut the expense and time out of travelling between branches, the potential extends far beyond this. Staff can not only leverage from an enhanced internal collaborative network, they also gain global access to experts, training and education. HR practices can be restructured to streamline processes and even extend the reach of recruitment. Perhaps the most notable trend on the horizon is the potential to improve client service. While many partners are concerned with a loss of rapport with clients, the benefits can balance this out. Video conferencing allows more frequent meetings, utilisation of expert resources who may be interstate or overseas, and assists to trim the budget for cost conscious clients. Some savvy firms have even embraced video conferencing as a marketable tool to gain a competitive edge in client service. A smart approach is to decide on a ratio of video conferences to face to face meetings, which strikes a healthy compromise between leveraging the technology’s efficiencies whilst still getting the chance to shake hands regularly.
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TECHNOLOGY & TRANSCRIPTION
Australasian Legal Business ISSUE 10.2
“While IT is often perceived as too expensive at face value, the right strategy can incite efficiency throughout the business and yield high returns. ” Damian Huon, Huon IT
The choice of solution is absolutely crucial to successful meetings. With a wide variety of products available, some important features to consider are: • Scalability to meet varying case loads • Broadly compatible with other enterprise video conferencing solutions, as well as individuals using Skype • Flexibility for mobile devices, including iPads and smart phones to empower mobile workforce • Number of parties allowed to participate per group call • Boardroom set up – dual screens are recommended with one for the video, and the other for reviewing documents such as PowerPoint presentations • Internet link requirements – video and audio puts a heavy load on bandwidth which may be at the expense of computing performance To find your firm’s best fit and understand what benefits you’ll truly achieve, a low risk approach is to arrange a loan kit to get hands-on experience. While some traditionalists may fight the transition, this new generation of meeting is here to stay – and with the right strategy you can reap significant benefits. 3) Business process management – detangle your systems As the legal market faces an almost daily barrage of new products and solutions, many firms are operating in a tangled web of disparate systems, add-ons and complicated integrations. While this is often an unavoidable side effect of customisation, a holistic approach to management can bring these elements into clear alignment. Business process management software provides a workflow designer tool for effective process creation. With an easy to use visual system, rather than writing code, even the most ‘non IT savvy’
staff can view, organise and perform tasks more effectively without waiting for IT assistance. Usable right across the firm, all levels can benefit from the technology; with CEO’s able to maximise resource utilisation, CFO’s cutting overheads, practice manager’s increasing turnaround time, and much more. This increased functionality helps leaders keep their finger on the pulse, and even makes the organisation itself more responsive to change. When selecting the most appropriate business process management tool for your needs, research the following features: • Compatibility with your standard operating environment • Levels of process automation available • User friendliness to encourage user acceptance and reduce training requirements • Reporting capabilities to help management make informed decisions • Security settings to control access permissions and provide audit trails Through seamless integration with most other software packages, business process management tools allow for the consistent application of business rules. To assess how it could streamline operations at your firm, most vendors will offer a proof of concept program.
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TECHNOLOGY & TRANSCRIPTION
4) Mobile dictation – increase flexibility and make the most of devices you already own As iPhones, iPads, Androids and BlackBerry’s already reside in the pocket or handbag of most professionals, dedicated dictation devices are fast becoming a dying breed. Mobility licensing from your dictation vendor of choice now allows you to leverage from the hardware you already own by transforming them into on-the-go dictation devices. With all the functionality of traditional hand held’s, this technology provides extra flexibility and convenience to professionals in transit. While lawyers have been able to dictate from anywhere for some time now, they had to wait until back in the office to plug in and send for transcription. Now simply requiring an internet connection, staff can immediately send their recordings from anywhere. This streamlined process enables faster document turnaround times, enhances staff productivity, and improves customer service. While there are a lot of solutions on the market, to ensure you select a comprehensive solution for your firm you should check for the following features: • Easy integration with your firm’s existing dictation workflow • Security options to protect confidential information, such as encryption • Workflow options, so staff can choose to send direct to a secretary or to a typist pool • Functionality to monitor and prioritise jobs by urgency • Ability to retrieve jobs for revision and editing • Option to utilise speech recognition features, as per point one. This is one technology that requires minimal investment yet yields significant outcomes in terms of staff productivity and efficiency. Speak to your dictation vendor about ‘try before you buy’ sample licenses. 5) Email marketing – plug the gaps in your PMS Many firms feel that their practice management package is lacking in customer relationship management (CRM) tools. Particularly when it comes to electronic marketing, even some of the big name vendors struggle to provide the desired functionality such as email, event and even SMS management.
About the Author: Damian Huon is a Technology Strategy Specialist, with over 20 years’ experience working with Australia’s leading legal firms. Damian is CEO and founder of Huon IT, a professional IT services consultancy firm.
Australasian Legal Business ISSUE 10.2
If your firm invests in marketing activities, substandard email campaigns and RSVP management can let you down and be a drain on resources. Fortunately, there are various email marketing programs that can integrate with your existing systems, provide high levels of automation, and don’t cost the earth. Whilst they can be either installed within your environment, or used on-demand via the Cloud, look for a solution that offers: • Creation of powerful emails, in both HTML and text formats • Campaign and event features, including RSVP management • Spam measures to ensure your email doesn’t get filtered before it reaches your prospects • Business analytic reporting to track open rates, click-throughs and bounce backs in real time • Integration with your systems to avoid duplicate data, and automatically feedback results on completion of campaign So while you may be committed to your practice management package, don’t accept its limitations. There are many affordable programs available that will compliment your existing system, and help you to leverage marketing to improve client conversion and retention rates. Once you have shortlisted your options, it is always important to ask for a live demonstration to see how it will help your firm.
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IN-HOUSE PERSPECTIVE
Australasian Legal Business ISSUE 10.2
In-house perspective
An
innovative
legal adviser For many law graduates the road ahead can seem somewhat predictable, but senior legal counsel at Hewlett Packard Australia, George Toussis, proves this is not always the case writes Olivia Collings
L
awyers are often accused of not being “business savvy” enough, but this is something you are unlikely to hear said of George Toussis, senior legal counsel for Hewlett Packard (HP) Australia. Toussis has been involved in businesses since the day he left university. “I went into partnership with a friend in an industry which had nothing to do with law. It helped me understand the value of my own money, which is a principle I have applied in organisations in which I have worked throughout my career – treating their assets as if they were my own,” says Toussis. Toussis cites his own business experience as an ideal grounding for the relevant application of the law in business and senior management. “Starting off in business as opposed to a legal firm made it easy to understand the concepts business people talk about, the financial requirements they are under – the language of business really,” he says. While his own business came to an end, Toussis has spent the past 20+ years assisting other businesses by providing legal advice relevant to their operations. “To be a corporate counsel, an understanding of the law is a given,” he states. “Business colleagues assume that you know the law, as that is what you are required to do. What they need is confidence that you understand the
business requirements – that is where the value add comes into play.” Having a business background has helped Toussis become legal counsel at companies such as Digital Equipment Corporation Australia and Compaq Computer Australia (the former was purchased by Compaq which was then purchased by HP in 2002). Early in his career, he also used his business acumen in roles such as operations manager at various divisions of the WR Carpenter Group, which was part of Ric Stowe’s Griffin Group of Companies. Global brand, changing landscape As senior legal counsel for the south pacific region of a company constantly undergoing metamorphosis, having business acumen is somewhat of a blessing. HP is the world’s largest IT company by revenue. It is one of the very few IT companies in the world that offers a full spectrum of IT products and services from simple printers to complex solutions. Toussis never ceases to be bemused by descriptions of HP as a “printer” or “PC company”. HP is much, much more than this, as Toussis himself states: “It’s got a very strong portfolio of products, including hardware, software and services. In summary it’s IT from A to Z.” However, computers are a key part of the business. According to Gartner, an information
Photography by Thilo Pulch
50
IN-HOUSE PERSPECTIVE technology research and advisory company, in 2011 HP sold the highest number of PC units worldwide and has held the highest market share for the past five years, currently 17.2 percent. As new technologies, such as the ‘Cloud’ (virtual servers available over the internet), are developed Toussis and his team are charged with understanding HP’s offerings and how to provide them within the legal constructs under which the company operates. “The aim of the legal department is to provide robust advice on legal topics, to help the company achieve its goals in an ethical and legal manner,” explains Toussis. The South Pacific legal team, which Toussis oversees, is made up of five lawyers spread across the eastern seaboard and New Zealand. The work they undertake is very much “business as usual” although there have been new projects such as setting up a new HP branch in New Caledonia to keep them on their toes. “Setting up the New Caledonia branch was interesting,” explains Toussis. “They speak and use French law—neither which are part of my skill set.” This is one example of the diversified work the legal team undertakes at a company such as HP. There have also been acquisitions, particularly in the software space, which although not instigated by the Australian business often involve local operations or syndicates. One of Toussis’ many achievements in his role, aside from legal work, is the development of his team members. “Three direct reports have been promoted to higher-level positions, including one who is now a vice president,” Toussis proudly states. In the past 12 months, local legal personnel have also been involved in providing pro bono legal advice. “Personally, it gives me great satisfaction providing whatever assistance I can to those
Australasian Legal Business ISSUE 10.2
less fortunate. It allows me to get involved in areas which I would never otherwise encounter in the normal course of my employment. I encourage any corporate counsels thinking about getting involved in pro bono work to make the commitment. You won’t regret it,” states Toussis. Let’s do business As with his own team, Toussis places a high emphasis on receiving legal advice from external law firms which is business minded. “I look at the way they understand our business and how they apply that to the advice they provide us,” he says. It takes time to develop a thorough understanding of a company such as HP and Toussis has developed meaningful associations with a handful of partners across a number of firms who collaborate on solutions. “It’s based on the relationships,” he says. “Any firm undertaking work for the company is expected to have a thorough understanding of the way HP works,” adds Toussis. “If you don’t invest in understanding the business, it’s impossible to provide legal advice that best aligns with HP’s strategy and direction.” As part of a global initiative, Toussis has become one of the first Australian legal counsels to utilise a Legal Process Outsourcing (LPO) service. Toussis started using QuisLex for contract reviews in 2010. While some have questioned what impact using an LPO can have on internal legal staff, Toussis is quick to point out that none of HP’s approximately 1,000 legal employees globally were retrenched as a result of using an LPO. He also dismisses claims that it will result in less work for law firms. “LPOs are not legal firms and do not provide legal advice,” he says. “At most the work they supply would be equivalent to what is expected of a junior lawyer.” In addition to getting the low-value repetitious work done at a lower cost, Toussis says using LPOs also offers quality control and statistical analysis benefits. “We get a lot of value add in taking advantage of their quality control procedures,” he says. However, like all good things, legal counsels need to take time to train the LPOs at the beginning of the arrangement to ensure the end product is exactly what they want. “Treat an LPO as you would a new employee,” he says. “You need to invest quality time at the beginning of the association to ensure you get the most out of the relationship.” Toussis suggests general counsels do their homework and think about what they expect the LPO to deliver, bearing in mind that it is not a legal firm. He also recommends a visit to the LPO to make sure they will be able to adhere to their company’s requirements.
“Any firm undertaking work for the company is expected to have a thorough understanding of the way HP works. If you don’t invest in understanding the business, it’s impossible to provide legal advice that best aligns with HP’s strategy and direction.” George Toussis, Hewlett Packard Australia
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postgraduate education
In pursuit of
higher learning Postgraduate study for lawyers is increasing in popularity – but it’s all too easy to underestimate the commitment involved.
Australasian Legal Business ISSUE 10.2
Australasian Legal Business ISSUE 10.2
W
ith a selection of 26 postgraduate legal study providers, there is no shortage of choice for lawyers looking to undertake postgraduate study in Australia. The advantages of further qualifications are well established – but prospective students need to have a clear understanding of what they are committing to before they take the plunge into the world of LLMs and Graduate Diplomas. A failure to understand the requirements before signing up is an invitation for high stress levels and hardship. “I think students often overestimate their ability to complete courses in a timely fashion. I’ve noticed an increasing tendency on the part of students to request extensions. At the end of the day there are still limitations on how flexible you can be,” warns Don Rothwell, Professor of International Law at the Australian National University (ANU).
postgraduate education
Time commitment The trend these days is for lawyers to remain in practice while they undertake postgraduate study. “I’d say very few of our students are full time,” observes Gillian Triggs, Dean of the law faculty at Sydney University. This is a contrast to the prevalent approach for previous generations of students. “The idea of working as a paralegal or continuing your job as a solicitor was just unthinkable when I did my masters,” Triggs recalls. It is a situation which takes its toll on the student. “[Students] almost invariably love what they’re doing but they’re so stressed by having to get back to the office, or they’ve got a problem to solve and they miss class,” says Triggs. Similarly, it is not uncommon for students to miss deadlines for research essays as work commitments spiral out of control. The key message is that students should factor in the considerable time commitment inherent in postgraduate study before enrolling. This commitment is twofold: first, the requirement to attend classes and secondly the requirement to undertake study outside of class. Institutions do supply some benchmarks as to what kind of level of personal study is required, although there appears to be some notable variations between institutions. Sydney University, for example, recommends that full time students (both in research
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“Students who’ve been away for a few years often over commit on their return to study” Don Rothwell, Professor of International Law at the Australian National University (ANU)
and coursework streams) commit up to 35 hours a week to study outside of class, with an appropriate pro rata commitment for part timers. Virginia Fox, marketing manager for the faculty of Law at the University of New South Wales (UNSW), told ALB that she recommended four hours of personal study per subject per week. Angie Zandstra of the College of Law says that her organisation recommends “at least six hours per week to study per subject.” However, she acknowledges the vagaries involved with such an estimate: “It depends greatly on the subject someone does and the level of experience they bring. Someone new to practice in a particular area needs to make a greater commitment,” she says. In terms of class attendance, the average
requirement appears to be about two hours face to face teaching per week, reaching a total of 24 to 30 hours per semester which can also be undertaken in intensive blocks over a series of consecutive days or weekends. That may sound like a heavy commitment but according to Don Rothwell, Professor of International Law at the ANU, it does not take long for the excitement of a return to the academic environment to kick in. “Students prefer face to face delivery for postgraduate courses,” he says. “One of the reasons is the dynamic that can be brought up in the classroom environment and also because of the wonderful diversity of students we have. Students like being re-immersed in the university environment.” When class attendance and personal study time are added together, students may be looking at a commitment of up to 80 to 100 hours per subject and institutions warn against being too ambitious when signing up for subjects. “Students who’ve been away for a few years often over commit on their return to study,” says Rothwell. Rothwell attributes this to work schedules often being unpredictable and professionals having lost touch with the
There is a place for law Postgraduate law n
84 electives to choose from
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23 programs to choose from
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1 city location – 555 Lonsdale Street, Melbourne
www.law.monash.edu/ future-students/postgraduate
Australia CRICOS Provider: Monash University 00008C
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Malaysia
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South Africa
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Italy
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India
postgraduate education
Australasian Legal Business ISSUE 10.2
habit and discipline of tertiary study. The duration of the commitment is also notable. A Graduate Diploma can be completed in six months full time or up to two years part time, while a masters can range from one year full time to up to four years part time. Signing up for such a lengthy commitment with such intense time requirements may seem daunting, which is why institutions suggest that students may prefer to enrol in a single subject or part time at least until there is a real sense of how study fits around work for the individual. “It is possible to take a single subject in order to gauge the level of commitment required, before enrolling for a full degree,” notes Cheryl Saunders, Associate Dean for the Melbourne Law School Masters. The other form of commitment that is required is financial and students will need to set aside somewhere in the vicinity of A$20,000 to A$30,000 for an LLM programme. Melbourne University, for example, charges A$4,080 per subject and A$32,640 for eight subjects in 2012 while UNSW charges $24,000 for an eight course LLM program.
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Good Universities Guide The Good Universities Guide has made available the results of student surveys at institutions offering postgraduate legal study and has ranked these institutions based on the salary and employment prospects of students upon graduation and the overall student experience and satisfaction. These results do need to be treated with caution as law, business and accounting students were surveyed together rather than as separate categories of survey respodents. It is also difficult to interpret the “salary upon graduation” criterion since many students would already be working as lawyers. However, the survey does provide some useful indication of the level of student engagement with their institution. Institutions which were rated favourably by students for overall student satisfaction included the Queensland University of Technology, Canberra, La Trobe, the University of Western Sydney and the University of Wollongong. In terms of salary after graduation, the higher ranked universities were Melbourne, Canberra and Monash while Griffith
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postgraduate education
Australasian Legal Business ISSUE 10.2
Most popular LLM specialisations by student number at a sample of Australian institutions UNSW:
Sydney University:
Melbourne University:
1. Corporate & Commercial Law
1. Master of Taxation (MTax)
1. Master of Construction Law
2. Human Rights & Social Justice
2. Master of Business Law (MBL)
2. Master of Commercial Law
3. Corporate, Commercial &Taxation
3. Master of Labour Law & Relations (MLLR)
3. Master of Tax
4. Innovation Law
4. Master of International Law (MIL)
University, Victoria University and the University of Tasmania were at the lower end of the scale. The universities which scored well on the employment prospects criterion were the University of Western Sydney, James Cook University, the UNSW and the University of Melbourne. Sydney University, La Trobe and Bond University were less favourably rated on this criterion. The Sydney University result is perhaps contrary to common market perception and ALB contacted the university for comment. The university pointed out that the result was not reflective of its internal surveys, or its result on the QS World University Rankings (see page 58 for the full QS
4. M aster of Employment and Labour Relations Law
rankings). “Certainly when [the survey] is referenced in relation to Sydney, it may not be that reflective of our law graduates and their career destinations and outcomes. We have market research that dates back to 2002 that consistently delivered a high ranking from our own students in regards to our relationship with employers,” says Greg Sherington, acting marketing and admissions manager at the University of Sydney Law School. According to the QS World Rankings, the top law faculties in Australia in 2011 were the University of Melbourne (9th globally), the University of Sydney (11th globally) and the ANU (15th). Monash University placed 20th, ahead of the UNSW on 29th place.
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Australasian Legal Business ISSUE 10.2
Examples of fees charged at a selection of institutions Sydney University:
$3,540 per subject $28,320 for an 8 course LLM
Melbourne University: $4080 per subject, in 2012 $32,640 for an 8 course LLM
UNSW:
$3000 per unit $24,000 for an 8 course LLM program
Case studies Michael Bacina is a lawyer who is just completing his LLM at UNSW, which he started in 2008. He has been working full time at ERA Legal, a full service firm in Sydney, and has a two year old child. However, he has managed his time well enough to co-edit and write five chapters of the Young Lawyer’s Guide to Civil Litigation, and publish two articles. “Being able to take off a number of semesters, but also the opportunity to take classes in summer school, that’s the real way of juggling that commitment but there’s always a challenge to keep up with the readings when subjects do require a lot of readings,” he says. UNSW also allowed two of the chapters written by Bacina for the Lawyer’s Guide to form part of the assessment for subjects towards his LLM. Bacina says that access to academics who can ‘drill’ down and discuss complex legal issues, as well as getting to know the practitioners who were his lecturers all helped him boost his professional standing and career prospects while doing his masters. Networking with his classmates on a professional level was also a big advantage for him. “I know if I have a question I would never underestimate the power of network building that a Masters has,” he says. Julia Watson is another LLM graduate who appreciates the access to practitioners that can be gained from a Masters. Watson has just completed her LLM with Melbourne University and said the experience she gained was world class and far more than what she got out of a previous MBA in public policy from the University of California, Berkeley. “[It’s] the way they teach subjects, often with one academic and one practitioner. [People such as] Debbie Mortimer, who was lead counsel in the M70 Malaysia solution case, to have a subject taught by her just doesn’t compare to, for example, Berkeley where I did my masters in public policy. These
postgraduate education
Postgraduate legal study: understanding the basics The following summary is extracted from the “Studying Law in Australia” guide by the Council of Australian Law Deans Most law schools have an active postgraduate program. Masters degrees (LLM), normally require a bachelors degree in law with Honours, plus one or two years full-time study involving a thesis or coursework or a combination of both. Masters degrees by coursework usually permit the candidate to select a range of subjects over a number of topics. Graduate diplomas, on the other hand, usually focus on one or two topics in great detail. Most universities with law schools offer masters degrees in law by research; some also offer masters degrees by coursework or by a combination of coursework and research. Other postgraduate research degrees are the Doctor of Philosophy (PhD), Doctor of Laws (LLD) or Doctor of Legal Science (SJD). These degrees normally require at least three years of full-time research culminating in the submission of a thesis. Depending on the topic investigated and the skills of the candidate, a candidate might be required to do some further study in research methods or in a related inter-disciplinary field before completing candidature for this qualification. Australian law postgraduate network An Australia-wide network has recently been established to make it easier for prospective PhD students to find an appropriate supervisor and generally as a resource for PhD students: see http://www.alpn.edu.au
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QS World Rankings: Top law faculties Rank Title
Country
1
Harvard University
United States
2
University of Oxford
3
Academic Employer
Citations
Score
100.0
93.8
35.4
91.7
United Kingdom
92.7
100.0
37.9
89.4
University of Cambridge
United Kingdom
92.6
91.0
38.0
86.7
4
Yale University
United States
83.0
60.5
31.7
71.1
5
Stanford University
United States
67.4
76.7
29.1
66.4
6
University of California, Berkeley (UCB)
United States
75.2
53.9
26.8
64.0
7
London School of Economics and Political Science (LSE)
United Kingdom
63.5
66.0
24.9
60.4
8
Columbia University
United States
61.2
63.9
32.3
59.1
9
The University of Melbourne
Australia
57.1
59.7
42.1
56.4
10
New York University (NYU)
United States
57.7
57.7
25.1
54.4
11
The University of Sydney
Australia
57.0
51.2
43.3
53.9
12
McGill University
Canada
55.9
54.5
38.1
53.7
13
University of Toronto
Canada
58.9
43.0
47.8
53.0
14
University of Chicago
United States
61.3
43.4
27.2
52.5
15
Australian National University
Australia
56.4
45.7
30.3
50.6
16
University of California, Los Angeles (UCLA)
United States
48.7
53.8
42.7
49.6
17
University of Michigan
United States
47.8
51.7
35.1
47.7
18
The University of Auckland
New Zealand
48.0
52.3
28.1
47.3
19
Victoria University of Wellington
New Zealand
43.8
34.7
100.0
46.7
20
Monash University
Australia
40.4
55.9
48.5
45.9
21
King’s College London (University of London)
United Kingdom
44.4
34.8
84.4
45.5
22
UCL (University College London)
United Kingdom
47.5
42.3
35.2
44.7
23
University of British Columbia
Canada
47.4
30.9
57.6
43.5
24
National University of Singapore (NUS)
Singapore
46.2
39.0
20.2
41.4
25
University of Pennsylvania
United States
32.4
61.1
31.9
41.0
26
Duke University
United States
40.8
44.9
28.6
40.8
27
University of Texas at Austin
United States
34.7
46.0
42.9
38.9
28
Cornell University
United States
39.2
39.2
27.9
38.1
29
The University of New South Wales
Australia
36.7
37.8
40.2
37.4
30
University of Otago
New Zealand
32.7
36.3
58.8
36.4
Australasian Legal Business ISSUE 10.2
subjects are incredible for practitioners…to get to know how they work,” she says. Watson is a Judge’s Associate with an interest in public policy and justice and was particularly pleased to be taught weekly by judges, including a Justice of the Federal Court, which she described as an “incredible” learning opportunity. Bacina opted to take his classes on a weekly basis rather than on a condensed basis and says he would recommend this path to others. “Subjects which have a weekly class tend to be the more rewarding in terms of making friends in the course and getting to know the practitioners. Being in the city helps tremendously [too]; to pop a couple of blocks over and into a large law firm for classes. It’s helped train me to become even more organised,” he concludes. Angela Collins, who completed her Grad Dip in Sports Law with Melbourne University, opted for the intensive class option. She has been working for Netball Australia since she started the third subject. “During intensive subjects I attended from 1pm to 6:30pm each day for one week. That facilitated the option of going into work in the morning. I did my last two subjects when I was already working at Netball Victoria and I negotiated with them that I would come in early those days and go to uni in the afternoon,” she says.
postgraduate education
Collins originally left her job within the legal industry in order to combine working as an executive assistant to the CEO of Netball Victoria with her studies and has since landed a new position involving legal liaison, with increased involvement with the legal issues faced by an organisation such as Netball Victoria. “Now that I have completed [the Diploma], my title has changed and I am doing quite a lot of legal work within the organisation. As I’m still directly working for the CEO we have a great relationship,” she says. She was also happy with her decision to leave a job directly within the legal industry for one that was more involved with her passion, sport, while she completed her studies. “I’m really happy with the choice I made. It was a way for me to grow with the study,” she concludes.
Study ANu G r A d u At e L A w the key to successful career development is quality education. we offer a range of programs: > ANu Juris doctor (Jd) > Graduate certificates in Australian Migration Law & Practice, and environmental Law > Graduate diplomas, including Graduate diploma in Legal Practice > Masters programs > Professional development courses > research degrees (Phd, SJd, MPhil) Our specialist coursework study areas include Australian Migration Law; environmental Law; Government & Commercial Law; International Law; International Security Law; and Law, Governance & development. Information
you can also choose research degrees from a diverse range of legal areas.
law.anu.edu.au
CrICOS# 00120C | 130212ALB
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Companies bill brings M&A confidence
REUTERS/Danish Siddiqui
India’s proposed Companies Bill 2011 promises to facilitate corporate transactions by permitting cross border mergers, promoting corporate governance, and establishing investor protection. As interest holds steady in one of the world’s most dynamic economies, the bill offers much confidence to investors doing business in India, finds Seher Hussain
I
nvestors doing business in India are no strangers to lengthy approval processes and non-competitive regulations. For the last five decades, the marketplace has been governed by the 1956 Companies Act; legislation that has become severely outdated given the rapid growth of the Indian economy. Recent corporate scandals, including 2G (reported in the December issue of ALB) and Satyam, have played their own part in accentuating the loopholes in the law. The time is ripe, if not overdue, for a legislative overhaul. The new Companies Bill, presented in the Lok Sabha in December last year, looks to replace its predecessor and bring the nation in line with global standards. Once passed, the bill is expected to have a positive effect on international and domestic investors doing business in India. However, given its far-ranging provisions, industry insiders have also raised some concerns. A positive deal environment In early January, Indian Prime Minister Manmohan Singh
predicted that the Indian economy would grow at seven percent this year, given the sluggish Eurozone and the uncertainty in the U.S. Although the growth is lower than initially forecast by the government, the Indian market remains attractive for investors due to buoyant exports, and a slowdown in inflation rates. According to the recently published Allen & Overy M&A Index, India was in the top ten of global inbound target markets in 2011, and remains one of the top ten target markets for U.S. buyers. The outlook for M&A deals, especially in the commodities, infrastructure and entertainment sectors, is clearly cautious, yet optimistic. Lending the market certainty are the recent completion of several big ticket outbound deals, notably GVK Group’s $1.3 billion acquisition of Australia-based Hancock Coal’s assets, and Adani Enterprises’ $2 billion purchase of Abbot Point Co 1 terminal in Australia. “Many large Indian groups that we know are standing with high cash balances, which will boost confidence and make deal-making even easier going forward. We see Indian groups, particularly in
M&A
Australasian Legal Business ISSUE 10.2
Southern India, increasingly aspiring to enter new markets, and to acquire new technologies and brands,” says Omleen Ajimal, partner at Taylor Wessing, and head of its India Group in the UK. Furthering this outbound trend, Reuters recently reported that state-run explorer Oil India has also disclosed its interest in purchasing stakes in shale gas assets of U.S.-based companies. On the inbound side, investor interest remains robust. “We received a lot of queries on structuring cross border investments into India; while these did not transpire due to the general cautious sentiments on the global economy which rounded off last year, we felt that this was indicative of the interest in India generally,” says Farhana Siddiqui, director at Drew & Napier. The depreciation of the rupee is also an advantageous factor as the “buying power of the U.S. dollar is 20 percent more enhanced,” says Shook Lin & Bok partner Sriram Chakravarthi, “so 2012 is a favorable year for inbound investment.” Adding to an optimistic outlook is the recent revision of the foreign direct investment policy by the Indian government that now allows 100 percent foreign direct investment in single brand retail trading, given governmental approval. “There will be significant interest by global retail chains like Adidas, Louis Vuitton, Armani, and Gucci to have full ownership of their India operations,” says Rabindra Jhunjunwala, partner at Khaitan & Co. An avid interest on both the outbound and inbound sides ensures that the passage of the proposed Companies Bill is being closely watched by domestic and international corporate players. Cross-border mergers The Companies Bill, 2011 allows inbound and outbound mergers and amalgamations between Indian and foreign companies. Previously restricted under the 1956 legislation, this is seen by many industry observers as the most salient provision for corporate transactions in the new bill. “The existing law states that in the case of an amalgamation, the surviving company should be an Indian company. The new bill, however, permits mergers where the resulting company will be a foreign company. This transaction can be done in cash and in Indian depository receipts which pose interesting business possibilities,” says Vijay Sambamurthi, founding partner of Lexygen. The bill is expected to increase the number of cross border mergers. However, there are several caveats; that the foreign company must be based in a jurisdiction that has prior approval from the government, and that the Reserve Bank of India (RBI) holds final consent over any such transaction. These stipulations are not entirely well received by the market. “M&A transactions are really all about timing, so putting one more hurdle in terms of obtaining another approval from the RBI will just extend the timeline of the deal,” says Chakravarthi. “The thinking behind some of the increased regulation in the bill, particularly the cumbersome regulatory regime that will now apply to M&A, is difficult to understand. It will almost certainly make certain corporate transactions much more difficult to complete,” says Ajimal of Taylor Wessing, adding that “given the Indian government's stated intention to facilitate international transactions, the increased and cumbersome regulation is both surprising and disappointing.” Another expected result of the cross border provision is that Indian companies will penetrate new markets, which will help them to expand their customer base, cut competition, and reduce tax liabilities. Last year saw the India-based Spice Group’s formation of a joint venture with the CSL Group in Malaysia for the acquisition
of CSL Group’s mobile telephony handset assets. It was handled by Chakravarthi, who says: “Due to the double tax agreement with India, the number of incorporations in Singapore of Indian companies has definitely increased and we will see more in 2012, both SMEs and larger companies.” Significantly for the domestic market, the process of mergers between small companies, subsidiaries and holding companies has also been fast-tracked. “Previously, when it came to these sorts of transactions, you needed the dispensation of the high courts; a process that could take between four and six months. Now, they’ve simplified the procedure so that you can just merge following some basic procedures,” says Suresh Talwar, partner at Talwar Thakore & Associates. Enhanced accountability and transparency Given corporate India’s recent woes in the form of the 2G and Satyam scams, the bill’s provisions addressing corporate governance and enhancing accountability are vital to keeping India’s economy competitive in an international marketplace. “It is too simplistic to say that the bill has been provoked by these incidents alone. But there has been a real need for legislative reform not only due to issues which arose out of Satyam, but also otherwise and the government is trying to respond to that demand,” says Siddiqui. The bill will introduce a comprehensive set of regulations aimed at protecting against fraud. Most prominent is the strengthening of the Serious Fraud Investigation Office, which comprises company secretaries, chartered accountants, and corporate law officials responsible for overseeing corporate transactions. It also sets up specialised courts to handle corporate malfeasance. “One of the biggest criticisms to emerge from the Satyam scandal was the slowness of the mechanisms,” says Chakravarthi, “Now there is a provision for the swift delivery of justice.” Other measures focus on establishing transparency: company directors must maintain their independence by disclosing their involvement with other entities, have a fixed term of service, and adhere to a code of conduct. The bill has mandated regular internal audits and rotation of auditors, and also strengthened the role of an audit committee. Not all governance measures have received a unilateral positive response.
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M&A
Australasian Legal Business ISSUE 10.2
The bill prohibits investment through multiple layers, effectively saying that if there are two or more layers, you will have to merge one layer down, says Sambamurthi, adding that “this seems a little retrograde.” Although done with the purposes of transparency, so that the owners of a company are readily identifiable, “it impedes the flexibility of group structurings” he says. Most practitioners tend to agree with Ajimal of Taylor Wessing, who says that “legal and regulatory issues in India are generally cited as being the biggest challenges to efficient cross border deal-making, and are causing increasing nervousness both within the Indian businesses that we know, and amongst our international clients looking with interest at India.” As such, it is predicted that these stringent norms of accountability, transparency, and enforcement will facilitate deals in the marketplace, giving investors confidence after the recent spate of scandals. Investor protection A cornerstone of the bill is investor protection, most distinctly in the form of stakeholder provisions. “Indian regulators are obsessed with giving extra protection to minority shareholders,” says Mohit Saraf, partner at Luthra & Luthra. The bill introduces class action suits in the Indian marketplace, and also establishes an exit price for dissatisfied minority shareholders. However, reaction has been discordant; some practitioners agree that the shareholder provisions will promote overall deal-making, likening it to the compulsory squeeze out procedure already implemented in Europe and the U.S. While others challenge the measures’ efficiency: “I think class action suits are great for providing an effective remedy to shareholders, and for holding management more accountable,” says Sambamurthi, “But exits to shareholders, I’m not sure that’s a fair balance.” He adds that “if you compare the procedures that are available with respect to M&A transactions outside India, there is on one hand, a series of provisions to protect the small shareholders, but also provisions that make acquisitions painless and simple for the acquirer. The interplay between these two provisions in India may result in a confusing and painful process for an acquirer.” However, it is not a consensus that these measures will cripple deal-making. “In light of the limitations imposed on the ability of shareholders to bring an action, it is doubtful that there will be an increase in the level of shareholder activity against companies,” says Siddiqui, referring to the provision that only shareholders with 10 percent or more of ownership can object. Future advice Cross-border mergers, transparency and investor protection aside, the most pressing issue pertains to when the legislation will realistically be implemented. It was tabled in the Lok Sabha on Dec. 14, 2011, and industry observers cautiously expect it to be approved in the Parliament’s upcoming budget session in February. But there are no guarantees. Leaving aside the heated discussions around the bill, it also remains to be seen how many of these provisions will play out in the marketplace. “The structure of the proposed Companies Bill is such that many of the operational details are left to the rules to be framed by the central government. Hence, it is very difficult at the present stage to envisage the exact nature of the regulatory framework that will be put in place” says Ravi Kulkarni, senior partner at Khaitan & Co. Despite the uncertainty, a majority of market watchers have
perceived it as a welcome and much-needed reform providing straightforward legislation, rooting out corruption, and providing a business-friendly environment in which to make deals. “Don’t get scared or nervous by this new policy, get used to the changes,” says Prem Rajani, partner at Rajani & Associates, adding that “people have to become more transparent and we needed a system of strong checks and balances.”
Problematic provisions
One of the most contentious aspects of the proposed act relates to corporate social responsibility (CSR) initiatives. The bill introduces a mandatory CSR committee for large companies, and also requires 2 percent of annual turnover to be set aside for CSR. While many practitioners agree with the sentiment, its institutionalisation raises concerns. “It’s not so much a question of whether two percent is an appropriate number, it’s more a philosophical question of should the law be mandating this?” says Sambamurthi. “This is mostly the government trying to keep up on their social commitments,” adds Chakravarthi, “and I’m sure the corporations will be up in arms about this as two percent is quite a bit.” “The CSR provision has been opposed by most listed companies. It seems unlikely that it will stay when the bill moves forward,” says Talwar. Needless to say, opinions diverge greatly. “These CSR measures may be regarded as excessive by companies but from an overall perspective, the 2011 bill, if passed, could go a long way in enhancing the Indian corporate governance regime,” says Siddiqui of Drew & Napier. It is possible that traditional ”soft approaches” to CSR such as peer pressure and codes of conduct would be more effective, as it wouldn’t mean an automatic erosion of profits to the shareholders. The other provision currently under public scrutiny mandates a certain number of women on a company’s board of directors. The objective is laudable, says Sambamurthi of Lexygen, but “the law shouldn’t micromanaged.” The government, industry insiders say, needs to recognise that corporations are not elected public offices and caution that if you force their hand, shareholders’ value will be affected. Debate about whether the free market should decide, or whether gender-based quotas are necessary are set to continue until the final bill is approved.
DEBT
Australasian Legal Business ISSUE 10.2
63
REUTERS
DEFAULT RISKS COULD SOUR DEMAND FOR CORPORATE DEBT IN EMERGING MARKETS By CAROLYN COHN
(REUTERS) - More emerging market companies are likely to default as the world economy slows and Western banks rein in lending, a risk that is unnerving investors who were snapping up their debt just a year ago. Emerging market corporate bonds were the top pick for yield-hungry funds in early 2011, encouraged by firms’ strong balance sheets and relatively buoyant growth in domestic demand for consumer goods and financial services within emerging economies. As a result, emerging corporate bond issuance reached more than $180 billion (114 billion pounds) last year, just shy of 2010’s record levels, according to data compiled by ING. But appetite for the sector faded in the closing months of the year as the euro zone sovereign debt crisis squeezed confidence from global capital markets and fears mounted about the impact of deleveraging by euro zone banks. This year also started off on a sour note, with the default last week of Kazakh sovereign wealth fund-run BTA bank, which could trigger demands for early repayment of up to $8 billion in debt - a huge sum in the emerging corporate debt sphere. Other flashpoints for investors include China-focused company Sino-Forest, which missed a coupon payment on its debt late last year, while Fitch last week placed Turkey’s Calik Holdings on watch due to refinancing concerns. Following state-owned Dubai World’s debt standstill in November 2009, Dubai faces $15 billion in maturing bonds and loans this year, according to the IMF. It may be difficult for government entities to find the cash without recourse to the emirate or neighbouring Abu Dhabi, analysts say. With the euro zone crisis still unresolved, investors are also fretting about politics, with elections in a number of key countries, and the possibility of a hard landing in China. “The year ahead appears to be laden with a number of risks,” David Spegel, global head of emerging markets strategy at ING told investors this week. “If borrowing costs remain ... higher, we might have to expect long-term default rates for corporates to be adjusted slightly higher and perhaps for us to see more frequent defaults.” ING reckons default rates for emerging markets companies will peak at just over 2 percent in August before easing, compared with less than 1 percent at the end of last year. But in the bank’s worst case scenario, in which all emerging corporate bonds which have traded at 65 cents on the dollar or below in the last three months default, the rate would jump above 8 percent by the end of the year. Polina Kurdyavko, corporate fund manager at BlueBay Asset Management, expects seven defaults this year among 450 companies she looks at, including three in Indonesia, three in China and one in the Middle East.
REUTERS/Toru Hanai
With returns last year having disappointed many investors’ expectations that they would outperform emerging sovereign and U.S. high-yield markets, emerging corporates may also have to pay more for their money. The benchmark emerging markets corporate bond index returned just 3 percent in 2011, compared to 7 percent for U.S. corporate bonds, according to JPMorgan. “The market is not going to be closed but it will be more expensive for borrowers,” said Kathleen Middlemiss, emerging corporate debt analyst at UBS. “Returns will not be stellar this year.” GLIMMERS ON HORIZON The market for corporate borrowers remains open, however, with Russian bank Sberbank holding roadshows this week for a Eurobond, and Latin American borrowers Pemex and Petrobras issuing well-received bonds this month. If emerging market companies, particularly in Europe, cannot get loans from western banks, more of them may seek to raise funds by selling bonds. Banks are still estimating emerging corporate issuance this year of close to $200 billion. “As developed markets are contracting, how many loans are going to be rolled over?” said Spegel, noting that lending constraints during the sub-prime crisis had encouraged U.S. corporates to issue bonds instead. “We might see the same occur in the CIS, eastern Europe and possibly the Middle East.”
MARKET DATA | M&A >>
Market Data: M&A
64
Australasian Legal Business ISSUE 10.2 In association with
M&A TRANSACTIONS AND STATISTICAL ANALYSIS Top 10 Announced Deals - Australasia (01 January, 2012 - 31 January, 2012) Announcement Date
Target Company
Target/Seller Legal Advisor
Bidder Company
Bidder Legal Advisor
Seller Company
SinopecÊInternationalÊ PetroleumÊExplorationÊ andÊProductionÊCorporation
HerbertÊSmithÊ
OriginÊEnergyÊLimited;Ê andÊConocoPhillipsÊCompany
StridesÊArcolabÊLimited
Deal Value (AUDm)
23-Jan-12
AustraliaÊPacificÊLNGÊ PtyÊLimitedÊ(10%ÊStake)
24-Jan-12
AscentÊPharmahealthÊ Limited
MiddletonsÊ AdvisingÊseller:Ê DSKÊLegal;ÊHerbertÊSmith
WatsonÊPharmaceuticalsÊInc
Freehills
23-Jan-12
LudowiciÊLimited
GilbertÊ+ÊTobin
FLSmidthÊ&ÊCoÊAS
BlakeÊDawson;Ê KromannÊReumert
11-Jan-12
AfricanÊIronÊLimitedÊ
Freehills
ExxaroÊResourcesÊLimited
GilbertÊ+ÊTobin
01-Jan-12
BoralÊLimitedÊ (IndonesianÊconstructionÊ materialsÊbusiness)
30-Jan-12
RussellÊJonesÊ &ÊWalkerÊLimited
13-Jan-12
CTECÊPtyÊÊLtdÊ
ForgeÊGroupÊLtd
39
31-Jan-12
HomapalÊPlattenwerkÊÊ (50%ÊStake)
FletcherÊBuildingÊLimited
37
18-Jan-12
OakeyÊpowerÊstation
UndisclosedÊbidder;Ê andÊERMÊPowerÊLimited
04-Jan-12
PeatyÊTradingÊGroup
CKÊLifeÊSciencesÊ InternationalÊHoldingsÊIncÊ
Notes:Ê Ê Ê
SlaterÊ&ÊGordonÊLimited
375
257
TheÊSiamÊCementÊPublicÊ CompanyÊLimited
Macfarlanes
1,045
CapeÊLambertÊResourcesÊLtd
247
BoralÊLimited
132
LawrenceÊGrahamÊ
80
MallesonsÊStephenÊJaques
ContactÊEnergyÊLtd
31
JohnÊMalcolmÊPeatyÊ(PrivateÊinvestor)Ê
31
Based on announced deals, including lapsed and withdrawn bids, from 01 January 2012 to 31 January 2012•Based on geography of either target, bidder or seller company being Australasia•IncludesÊallÊdealsÊvaluedÊoverÊUSDÊ 5m.ÊWhereÊdealÊvalueÊnotÊdisclosed,ÊdealÊhasÊbeenÊenteredÊbasedÊonÊturnoverÊofÊtargetÊexceedingÊUSDÊ10m•ActivitiesÊexcludedÊfromÊtableÊincludeÊpropertyÊtransactionsÊandÊrestructuringsÊwhereÊtheÊultimateÊshareholders'ÊinterestsÊÊ areÊnotÊchanged•League tables areÊrankedÊbyÊvalue•Q1 12 * = 1 January 2012 to 31 January 2012
League Table of Legal Advisors to Australasian M&A (Jan 01, 2012 -Jan 31, 2012)
League Table of Financial Advisors to Australasian M&A (Jan 01, 2012 -Jan 31, 2012)
ValueÊ(AUDm)Ê
DealÊCount
RankÊ
HouseÊ
1420Ê
2
Ê 1=Ê
JefferiesÊ&ÊCompanyÊ
375Ê
1
FreehillsÊ
622Ê
2
Ê 1=Ê
RoyalÊBankÊofÊScotlandÊGroupÊ
375Ê
1
Ê 3Ê
GilbertÊ+ÊTobinÊ
520Ê
3
Ê 3=Ê
FIHÊPartnersÊ
257Ê
1
Ê 4=Ê
DSKÊLegalÊ
375Ê
1
Ê 3=Ê
IntegratedÊCapitalÊSolutionsÊ
257Ê
1
Ê 4=Ê
MiddletonsÊ
375Ê
1
Ê 5Ê
InvestecÊ
247Ê
1
Ê 6=Ê
BlakeÊDawsonÊ
257Ê
1
Ê 6Ê
UBSÊInvestmentÊBankÊ
132Ê
1
Ê 6=Ê
KromannÊReumertÊ
257Ê
1
Ê 7Ê
M&AÊInternationalÊ
80Ê
1
Ê 8=Ê
LawrenceÊGrahamÊ
80Ê
1
Ê 8Ê
KPMGÊ
31Ê
1
Ê 8=Ê
MacfarlanesÊ
80Ê
1
Ê 9Ê
MiroÊAdvisorsÊ
10Ê
1
Ê 10Ê
MallesonsÊStephenÊJaquesÊ
31Ê
1
Ê 10Ê
SalemÊPartnersÊ
-Ê
1
RankÊ
HouseÊ
Ê 1Ê
HerbertÊSmithÊ
Ê 2Ê
ValueÊ(AUDm)Ê
DealÊCount
Australasian M&A Activity - Quarterly Trends 200
70,000
180
Value (AUDm) Volume
50,000
160 140 120
40,000
100 30,000
80
20,000
60 40
10,000 0
Number of deals
Value (AUDm)
60,000
20 0
Q1 03
Q2 03
Q3 03
Q4 03
Q1 04
Q2 04
Q3 04
Q4 04
Q1 05
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 Q3 11 11
Q4 11
Q1 12*
Australasian Legal Business ISSUE 10.1
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