The Chapter 11 sale of Nortel Networks Inc.'s 6,000 patents and patent applications was one of the year's most extraordinary deals. The four-day auction at the New York offices of Cleary Gottlieb Steen & Hamilton LLP, Nortel's counsel, turned into a showdown between Google Inc. and a host of rivals led by Apple Inc. for technology important in the development of smartphones. The bidding was so intense that the winning $4.5 billion offer made by Apple, EMC Corp., LM Ericsson, Microsoft Corp., BlackBerry manufacturer Research In Motion Ltd. and Sony Corp. was 5 times greater than the $900 million stalking-horse bid Google made in early April. One interpretation of the outcome is that Apple was desperate to keep the patents out of the hands of Google, whose Android device is a potential rival to Apple's iPhone.
The transaction was also a landmark in the market for patents, which has developed significantly over the past decade as companies have sought to maximize the value of their intellectual property. Since Nortel filed for Chapter 11 two years ago, it has made $3 billion by selling off various divisions before auctioning off the patent portfolio.
Says David Berten, a partner at Global IP Law Group LLC in Chicago who helped advise Nortel, "What that suggests to me is that people are going to have to pay more attention to the IP aspects that are transacting in a deal, really to the point of potentially needing to assess them almost independent of the business units in many cases. I think that will be a change you'll see in the future."
Berten's fellow partners C. Graham Gerst, Ragnar Olson and Steven Steger also worked on the deal. Paul Shim of longtime Nortel counsel Cleary Gottlieb advised on the sale of the patents, while Cleary Gottlieb partners James Bromley and Lisa Schweitzer led a large team that worked on the bankruptcy and included Morris, Nichols, Arsht & Tunnell LLP as Delaware counsel; Herbert Smith LLP in the U.K.; and Norton Rose OR LLP in Canada. David Descoteaux and Terry Savage of Lazard provided banking advice. Hughes Hubbard & Reed LLP represented the joint administrators for Nortel's Europe, Middle East and Africa operations.
About a third of the 6,000 assets in Nortel's patent portfolio are applications pending before the United States Patent and Trademark Office, meaning that the technology is reasonably current and the patents will be valuable for years to come. Nortel sent preliminary information on the assets to hundreds of entities last year, and Google produced its stalking-horse bid, an enormous offer in the context of a patent auction.
For example, Microsoft late last year led a consortium of companies that paid Novell Inc. $450 million for 882 software patents relating to the company's UNIX operating system. The winning club also included Apple, EMC and Oracle Corp. The deal was part of Novell's $2.2 billion sale to software developer Attachmate Corp. And in 2005 Qualcomm Inc. paid $800 million for Flarion Technologies Inc. in a deal driven by the target's patents on wireless telecom technology.
The Nortel auction was large enough that the company delayed it by a week so that the Department of Justice could grant early termination of the waiting period between the signing and closing of a deal mandated by the Hart-Scott-Rodino Act. After bidders received that approval, company reps and their lawyers gathered at Cleary Gottlieb on June 28. Google reportedly opened the actual bidding at $1.5 billion. Google used a team led by Wachtell, Lipton, Rosen & Katz M&A partners Adam Emmerich and Benjamin Roth and restructuring partner Philip Mindlin.
The bidding reportedly began with four other parties: Apple; Intel Corp.; a consortium of EMC, Ericsson, Microsoft, RIM and Sony; and a group led by RPX Corp., a so-called nonpracticing entity whose business is buying patents and licensing pools of them to large companies worried about being sued for patent infringement.
Apple used Kyle Krpata, Charan Sandhu and Ronit Berkovich of Weil, Gotshal & Manges LLP, which represented Apple in the UNIX deal. Intel tapped John Burgess of Wilmer Cutler Pickering Hale and Dorr LLP. Intel's general counsel, Douglas Melamed, joined from WilmerHale in 2009.
The group that included Ericsson used Marilyn Sobel at Paul, Weiss, Rifkind, Wharton & Garrison LLP, which represented the Swedish telecom on its winning bids for other Nortel units. Microsoft tapped Benjamin Hoch and Nigel Howard of Covington & Burling LLP, while RIM used Eric Webber of Irell & Manella LLP, and Sony turned to Samuel Waxman of Shearman & Sterling LLP. RPX, which went public in early May, used Spencer Wood of Dewey & LeBoeuf LLP in Chicago.
As the bidding heated up, Nortel allowed parties that otherwise would have dropped out to join forces, much as in a private equity auction. Thus, Apple teamed with the Microsoft group, which dubbed itself Rockstar Bidco LP, and Google aligned with Intel, while RPX bowed out entirely.
Google reportedly dropped out when the bidding hit $4 billion, leaving Apple and Rockstar victorious with their $4.5 billion offer. U.S. Bankruptcy Court Judge Kevin Gross approved the bid at a July 11 hearing in Wilmington, Del. Details on how Apple and the Rockstar consortium members will divide the patents remain sparse. As a data storage company, EMC has different interests than its partners, while RIM, a Canadian company, could conceivably use Nortel operating losses. -- David Marcus
For the dead of summer, there is a lot going on in energy dealmaking. First is the fight for Southern Union Co. Williams Cos. has increased its offer to buy Southern to $44 per share, or $5.5 billion, besting a sweetened bid from Energy Transfer Equity LP for $40 per share. Energy Transfer Equity countered on July 19 with an offer of $44.25 in cash or one unit of Energy Transfer Equity.
Williams is getting advice from Barclays Capital's Barbara Byrne, Rob Pierce, Gary Posternack and Michael Cormier, and Citigroup Inc.'s Andrew Safran, Michael Casey, Ralph Watts and Claudio Sauer. Byrne, a former Lehman Brothers Inc. banker, has worked with Williams for 20 years, including in 2002 when the company was on the brink of bankruptcy after Enron Corp.'s implosion. In 2003 she advised the company on the sale of its 54.6% stake in Williams Energy Partners LP to Madison Dearborn Partners LLC and Carlyle/Riverstone Global Energy and Power Fund II LP. Pierce, another Lehman alum, also worked on the deal, as did Safran.
Providing Williams with counsel are Cravath, Swaine & Moore LLP's Richard Hall, Faiza J. Saeed, Minh Van Ngo and Michael L. Schler and Gibson, Dunn & Crutcher LLP's Richard Russo. Russo has known Williams' general counsel Jim Bender for 29 years; Bender was an associate at Gibson Dunn before working a series of in-house jobs, joining Williams in 2002.
Southern Union is getting advice from Evercore Partners Inc.'s Robert Pacha, Raymond Strong III and Christopher Juban; Locke Lord Bissell & Liddell LLP's Don Glendenning, Dovi Adlerstein, Christopher Allison and Andrew Betaque; and Roberts & Holland LLP's Lary Wolf, Elliot Pisem and Libin Zhang. Sullivan & Cromwell LLP's Joseph Frumkin, George Sampas, Tia Barancik and Yvonne Quinn have also stepped in, counseling the special committee of Southern Union's board reviewing the offer.
The other big deal of the season is BHP Billiton Ltd.'s purchase of Houston oil and gas explorer Petrohawk Energy Corp. on July 15 for $15.1 billion. It's BHP's biggest deal ever and will make it one of the top 10 natural gas producers in the world.
BHP has long had lofty ambitions: Six years ago it was thought to be bidding for Unocal Corp., which was ultimately won by Chevron Corp. for $18 billion. It was unsuccessful last year with a $39 billion bid for Canadian fertilizer producer Potash Corp. and twice failed to conclude deals with Rio Tinto Group. All the while shareholders have been urging it to do something with its $12 billion cash hoard.
"One of my predecessors used to say, 'We want to be on every aisle of the energy supermarket,' and this is an unchanged ambition," BHP CEO Marius Kloppers told a press conference.
Again, Barclays grabbed the business, with Carlos Fierro, Greg Pipkin, Chris Watson and Giles Taylor advising BHP, along with Scotia Waterous' Adam Waterous, David Cecil, Doug De Filippi and Patrick Wagner. In February, Fierro, Pipkin and Watson advised BHP on its purchase of Chesapeake Energy Corp.'s Fayetteville Shale gas assets in Arkansas for $4.75 billion. Pipkin also helped Petrohawk sell half its KinderHawk Field Services LLC to Kinder Morgan Energy Partners LP in May for $855 million. Scotia Waterous' Cecil advised Petrohawk on its $1.6 billion merger with KCS Energy Inc. in 2006 when he was with Harris Nesbitt Corp., now part of BMO Capital Markets.
BHP's legal advisers are Sullivan & Cromwell LLP's James Morphy, Krishna Veeraraghavan, Janet Geldzahler, Matthew Friestedt, Henrik Patel, Ronald Creamer and John Estes, and Morgan, Lewis & Bockius LLP's David Asmus, Michael King, Steve Navarro, Amy Kelly, Stan Lechner, Mark Haskell, Harry Robins, Chris McAuliffe, Tom D'Ambrosio, Jeannine Bishop, Dan Hogans, Maxine Woelfling, Stephen Mahinka and Sean Duffy. Asmus also worked on Petrohawk's sale of its Fayetteville properties to Chesapeake.
Petrohawk turned to Goldman, Sachs & Co.'s Michael Carr, Peter Brundage and Cynthia Walker, and Simpson Thacher & Bartlett LLP's Lee Meyerson, Eric Swedenburg, Daniel Layfield, Viktor Sapezhnikov, Andrea Wahlquist, Samantha Shipp, Nancy Mehlman, Anthony Minervini, Adeeb Fadil, Andrew Calder and Jay Blackman. Blackman joined Simpson Thacher's Houston office from Vinson & Elkins LLP in June.
Finally, ConocoPhillips Co. announced July 14 that it will spin off its refining and marketing business into its own publicly traded company. The company enlisted Wachtell Lipton Rosen & Katz as legal counsel with a team led by Martin Lipton and Andrew Brownstein and including Gregory Ostling, Nancy Greenbaum, Deborah Paul and Jeremy Goldstein. Brownstein is also advising Clorox Co. on a $10.2 billion buyout offer from Carl Icahn's Icahn Enterprises LP. -- Claire Poole