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— Dealmakers —
"Campuses, motorcycles, I wanted to be there," he says of a move some of his friends found puzzling. But Servan-Schreiber, 53, was no self-destructive renegade on a motorcycle. Once in New York, he decided to sit for the state's bar exam because it would be a credential rare among his counterparts in Paris, and he got a job as an associate at New York law firm Donovan, Leisure, Newton & Irvine.
Despite his affinity for the U.S., he says, "I'm more French than American, and I wanted my kids to grow up in France." So he moved back to Paris and started his own shop with four other young lawyers. In 1991, Servan-Schreiber went to the Paris office of Sullivan & Cromwell LLP, where he became the firm's first European partner in 1998, and in 2000 he moved to Skadden, Arps, Slate, Meagher & Flom LLP on the tony rue du Faubourg Saint-Honoré. The partners at the firm Servan-Schreiber helped found remain at French firms, he says, "which I think proves why I split to go to S&C, because I really was more programmed to work in a truly international environment in English." Servan-Schreiber brought a distinguished pedigree to the U.S. firms. His grandfather, Robert Schreiber, in 1908 founded Les Echos and teamed with his younger brother, Emile, to build it into France's leading business daily. Robert's oldest son, Jean-Claude, joined the business in 1949, followed by Emile's oldest son, Jean-Jacques. In 1953 Jean-Jacques started L'Express, the first French newsweekly, which he modeled on Time magazine but imbued with a more liberal political bent. The tension between the two cousins led the family to sell Les Echos in the mid-1960s. Jean-Jacques remained politically engaged for the rest of his life -- he is most famous for his bestseller "The American Challenge," about U.S.-French competition -- but Pierre says his generation has steered clear of journalism. Instead, Servan-Schreiber has built one of the leading legal practices in Paris. In 1999, he represented Société Générale SA as it first tried to craft a merger with rival French bank Paribas and then had to fend off a hostile approach from BNP SA, which bid for both banks and ended up buying the latter. Servan-Schreiber continues to work for SocGen and is defending the bank in class actions arising from €4.9 billion ($6.5 billion) in trading losses it allegedly suffered in the Jérôme Kerviel trading scandal. The lawyer also represented steel company Arcelor SA in its 2006 merger with Mittal Steel Co. NV, one of the highest-profile hostile cross-border deals in the past decade, as well as advising Air France in its joint venture with Delta Air Lines Inc. and French automaker Renault SA in partnerships with Russia's JSC AvtoVaz and China's Sanjiang Space Group. Servan-Schreiber met with The Deal in April in Paris to discuss French M&A. The Deal: What's the M&A climate like in France right now? What do you expect for the rest of the year? Servan-Schreiber: We're working almost nonstop on possible M&A transactions, only a few of which will reach the finish line. We're constantly being asked to look at targets for buyers. It's a buyer's market. They're hard on the price because they have a fundamental insecurity about the value of what they're buying. Could you describe the course of the M&A market over the past year? It's been a gradual downhill path since February of last year, with a cliff in October, but financing has dried up like water in Ethiopia. Only companies that still had cash and no need for financing were looking at how best to use their cash in sort of a 2005-2007 mentality between February and September of last year. After that, no one was thinking about doing anything except those who actually needed to do something, like banks, and those who had a strong strategic interest in a deal. One of those materialized, Meetic SA's purchase of the European operations of Match.com LLC, in which we represented Match. The level of interest has not declined any further. It's very hard for anyone to guess where we are. I feel we're at a plateau. Whether that's the bottom of the curve or there's another cliff ahead, I don't know. I get the sense that there is less of a feeling of "we're doomed." If indeed there is a sense that various key markets -- stock, debt, oil, currencies -- have stabilized, then I can see a situation where mergers and acquisitions, in particular in the form of exchange offers, could come back strongly. Some of the companies are now so cheap that you can't help but think it could be the deal of a lifetime. As soon as there is stability, people start thinking again. Exchange offers could be favored because they're simple and you don't need financing. The biggest hurdles that existed to doing cross-border deals have been reduced due to harmonization of the laws, in particular because European regulations and laws have become more similar to those in the U.S. What role has the French government played in merger activity? We've had some work linked to that, both in the banking and automotive sector. It generally felt like the company was more reacting to suggestions, strong suggestions by the government, but sometimes it was in consideration for loans or other help from the government that made them palatable. Not all of them happened. We were working on the potential sale of an insurance company by one of the large French banks that didn't happen, but clearly there was the strong suggestion that that was the right thing to do. Last November, Nicolas Sarkozy announced a €20 billion commitment of government money to a fund that state-controlled Caisse des Dépôts et Consignations would manage. What has happened to that fund? They've gotten 44 requests for investments. They've made several so far. Apparently, Thomson and Areva SA have asked for investments from the [Fonds Stratégique d'Investissement, or Strategic Investment Fund]. The goal will be to help those French companies that are worthy of it -- meaning how many jobs are involved, the technology at stake and how important they are in the French industrial landscape and whether such investment can help them rebound. What I've seen from work in the banking industry is how the government is intervening there. A company that needs help in renegotiating financing and credit lines with French banks may ask René Ricol, the credit mediator appointed by President Sarkozy, for help. It seems that such intervention is pretty efficient, with the mediator and his team being very well prepared and not taking "no" for an answer from any bank. Any difficulty raised by a bank seems to be very quickly resolved by the mediator, sometimes with a couple of phone calls only. In consideration for the help of the government, the government expected the banks to behave similarly vis-à-vis their own debtors, which I think is a good thing, because that's one of the ways you avoid systemic bankruptcies. U.S.-style bankruptcy practice hasn't traditionally been important in France. Has that started to change? Yes, I believe that things have started to change. The actors have started to change, because there are funds that are interested in ailing companies. That's kind of a novelty. The law has changed very recently, and it's considered to be very favorable to the debtors, and the mentality has evolved. Until recently, there was a mentality that bankruptcy meant you could not be trusted, you had defaulted on your commitments. Before now, it was black or white -- the company was doing well, or there was nothing else you could do. Has French banking stabilized? I think it has stabilized. The situation of the French banks is not as bad as some other countries, including the U.S., England and Switzerland. Generally speaking, France is less dependent on its financial sector than those other countries. Because the banks have followed a pretty diverse business model relying quite heavily on investment banking, but also retail, consumer credit, commercial financing, etc., there is no sense of immediate danger for the vast majority of them. All of the large French banks have become very international, with subsidiaries everywhere in the world, which is why the concern is that of a global failure of the system. The remaining concerns center on the systemic Armageddon of the financial services industry. This being said, the prospect of a systemic Armageddon has receded, thanks to the measures taken by the main governments and central banks in a coordinated way.
Cross-border M&A in Europe has long been a challenge for political reasons. How do you expect that to develop, given competing pressures from companies in need of capital and voters who fear job losses? Cross-border M&A will come back when things stabilize for long enough. The need for consolidation is almost obvious. In that context, there will be friendly deals, there might be hostile deals, and the governments will look at them closely. Some of those deals could be beneficial to the companies concerned, so that has to be taken into account, as well as the number of redundancies. Governments, if anything, will feel a lot less shy about intervening in M&A. They used to do it as much under cover as they could, but now it will be in the open, with the support of public opinion, where there's clearly the perception that government will have a say in many sectors of the economy. When you talk about groups in aeronautics and weapons, then clearly governments will be involved, as these are strategic industries, but Danone was also considered by the French public opinion as a strategic asset when Pepsi started to circle around it. On one hand, governments may be tempted to use the current situation to intervene more directly to "maintain a certain order" in the marketplace; on the other hand, if the target is neither strategic nor on the verge of a possible bankruptcy, and if the government did not invest any money in the sector, it could still be challenged, notably by Brussels. Do you expect more banking consolidation in Europe? Absolutely. There's no question about it. There needs to be consolidation. It had begun before this started with the acquisition of ABN Amro NV, but it all collapsed. But the need is still there. I think it will happen in three to five years, if not before. I could even see that starting to happen next year. Why will consolidation be palatable to the governments? Fewer banks would be easier to monitor. One of the inevitable consequences of the current crisis is that there will be more regulation and scrutiny by regulators. Most of the European banks are criticized for having been unable to anticipate what happened. So there's this perception that the banking sector was under self-regulation but that this was insufficient protection of the public interest. So I can see the governments being favorable to bank mergers to facilitate the job of the banking regulators and to strengthen their capital. But that will demand at least some cross-border regulation. Absolutely. The current regulation determines who's going to be the regulator for which banking group. That works out perfectly except that you have political sensitivity about who the regulator is going to be. When there have been discussions about cross-border bank mergers, that issue has come up when you're talking about a merger of equals. Say you had a proposed merger between a Spanish or a German bank and an English or a French bank. There would be a serious discussion about who would regulate the combined bank. If you ask me, that makes no sense. I trust the German or English or Dutch regulator as much as the French one. It's amazing how the mentality of politicians has not changed that much. Despite harmonizations of the laws, the mentality of politicians is very domestic, and I'm not sure it reflects public opinion. I don't believe that French public opinion gives a damn whether a merged Franco-German bank would be regulated by the French or Germans as long as people can get their money out when they need it.
What are private equity firms doing in France right now? How will their business change over the next three to five years? Right now, they're not doing much. A number of them are concerned with what's happening with their current investments and whether they're going to meet their covenants. As far as I know, there are only three LBOs pending in France. I don't think PE is going to disappear. The general business model was to buy a company on a very highly leveraged basis, do a couple of things that were obvious to us to create value and sell it. I think there's going to be a model where the PE fund turns the company around significantly enough that they create value. There's going to be a gentrification of the whole thing. PE firms will look more and more like investment banks and hedge funds like PE funds. There is a role for hedge funds that essentially play with the inefficiencies of the market. The excesses won't be tolerated anymore. There will be more conservative behavior from these entities. How is all of this affecting the law firms in Paris? Do you get the sense that any of the U.S. or U.K. law firms are re-evaluting their strategies not just in France, but on the Continent as well? I think this crisis will fundamentally change the model of some firms, in particular those that were not deeply rooted locally or whose profitability was rather low. This crisis could affect their presence in certain countries or even their partnership rules. For the first time, you are seeing partners being asked to leave in France and elsewhere. Most of the large international firms now get more revenues from advisory than litigation, and therefore their models resemble that of other service professionals such as banking, accounting and advertising, and therefore they follow the same pattern -- when you need to downsize, you downsize, including top executives. For the first time in the history of law firms, partners are considered as executives and not partners. Clients are asking for other ways of billing. Typically, they want cheaper rates, to which sophisticated firms like ours respond by saying, "Let's try to be more clever than that." I don't think any firm can ignore that more of our clients are having more difficulty than they used to, and we have to help. It may be the beginning of the end of the hourly rates. At the end of the day, I think the best firms will not only survive but come out as still the best firms, and those that are further behind will suffer more and some will disappear. |
The 1969 film "Easy Rider" has rarely led young viewers to join large U.S. law firms, but such is the case for Pierre Servan-Schreiber. As a teenager in Paris, Servan-Schreiber fell under the thrall of such films and the image of the U.S. they projected, and after graduating with a degree in law from the Sorbonne in 1978, he headed to Columbia Law School for an LL.M., the first time he'd traveled to the U.S.
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