FORGING A COMPANY – ‘Project Monarch’
Advanced Medical’s Santa Ana HQ: $8.5 million in new offices, labs under way.
By VITA REED
Spinning off Advanced Medical Optics Inc. wasn’t all that hard from where Chief Executive James Mazzo sits.
“We realized we had two distinct businesses,” Mazzo said. “It wasn’t to the point where we had to recreate.”
The lawyers who worked on the deal have a different take. Nestle SA’s April spinoff of rival Alcon Inc. was a breeze by comparison, they say.
“On a scale of one to 10, spinning off Alcon probably was a three,” said Cary Hyden, a partner in Latham & Watkins’ Costa Mesa office and lead lawyer on the Advanced Medical deal. “Spinning off AMO was clearly a 10.”
How tough was it?
“Our legal checklist for overseeing this transaction is in the hundreds and hundreds of pages,we attempted to see if we can patent the darn thing!” Hyden said.
The Advanced Medical legal team spent nearly a year,including weeks of sleepless nights,putting together the deal, Hyden said. The effort spanned borders, time zones and different ways of doing business around the globe. It even took on the feel of a military operation with the code name “Project Monarch.”
The spinoff required 23 corporate reorganizations across the world, Hyden said. The team had to handle the shifting of assets, workers, liabilities and intellectual property to subsidiaries that became part of Advanced Medical, Hyden said.
That wasn’t the case for Alcon, even though it is much larger than Advanced Medical.
Alcon at one time was a standalone company that Nestle bought in 1977. As part of the Swiss food conglomerate, Alcon retained a lot of its own corporate structure. That made a split relatively clean.
The complexity of the Advanced Medical spinoff likely is a factor in the deal’s eye-catching price tag. The company said in a federal filing it expected the bill for separating to come in at $150 to $200 million, including legal and banking fees.
Lawyers, Advanced Medical and Allergan Inc. officials declined to address specific costs of the deal.
Legal fees in such a deal are “very significant because of the complexity of the transaction and the nature of the extensive reorganizations,” Hyden said. “But in the overall scheme of the expenses, we were very efficient and were able to keep our fees a very small portion of the overall expenses.”
Getting Advanced Medical free of Allergan involved analyzing separate corporate, tax, labor and worker benefit laws, according to lawyers.
“The challenge has been trying to complete, in essence, 23 different foreign transactions in time,” said Jonn Beeson, a Latham & Watkins associate who Hyden described as his “first lieutenant” on the Advanced Medical deal.
“What was interesting is that we have a very U.S.-centric view, of course, in our planning and our structuring,” Beeson said.
Even the Internal Revenue Service, which had to rule on the tax-free status of the spinoff, was struck by the complexity of the deal, he said.
“This was the most complex restructuring in connection with a spinoff that they had reviewed, and they were afraid that they wouldn’t be able to keep it straight,” Beeson said. “We had to have our game on from the very beginning.”
Adapting Advanced Medical’s new global units to the different laws where they operate was a big task, lawyers said. One example: corporate disclosure rules in Europe.
European law requires consulting with workers,and getting them to sign off,before a deal is announced, Beeson said.
“We had to juxtapose European rules with our U.S. approach,” Beeson said. “They were telling us, ‘No, you need to have consulted with these employees,completely inform them,giving them a chance to comment on your structure to see if they are happy with it before you make a public announcement.”
That forced the team to structure its unveiling of the spinoff over the Martin Luther King Jr. holiday weekend, in order to have Allergan Chief Executive David Pyott and other executives hold worker meetings on a worldwide basis.
“Quite frankly, we spent a lot of time trying to figure out the tension between the U.S. securities laws and the very pro-employee benefit laws in Europe,” Hyden said.
In Europe, the legal team presented the Advanced Medical spinoff to groups called workers councils, similar to unions in the U.S. The councils often have the power to quash deals.
“You are simply not allowed to go forward in any meaningful fashion with the transaction until that’s been undertaken,” Hyden said.
Latham & Watkins’ Costa Mesa office relied heavily on the firm’s offices in Hong Kong, Paris, London, Tokyo and Germany, as well as hiring “advisers”,outside foreign law firms that helped where Latham & Watkins didn’t have offices, Beeson said.
There were periods where “literally people were not sleeping for three and four days at a time, or would go home, get two hours of sleep and go back to the office,” Hyden said. People “would do that over the course of a week. The only thing I can relate this to would be in the midst of defending a hostile takeover.”
The firm was retained to work on what was dubbed Project Monarch last August. Hyden said that another client suggested Douglas Ingram, Allergan’s general counsel, talk with Hyden. The discussions led to what Hyden called “a three-week telephone interview.”
“Doug would call me up and say, Cary, if you had these facts that you needed to deal with, how would you handle this?” Hyden said.
Then in August, Ingram asked Hyden to come to Allergan’s Irvine campus.
“To my surprise, I was brought up to the conference room,” he said. “There were 26 people in the room, including Allergan’s entire management team.”
The group included Pyott, other executives, investment bankers and accountants, Hyden said.
“What became known as the Project Monarch working team was there,” he said. “I just about fell to the ground. I thought I was meeting Doug. Instead, I realized this was the organizational meeting for a transaction. I ultimately realized that we had a modified big bang theory to close this darn thing.”
