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‘Speed-dating’ Soriot finds his target

It’s with delicious irony that as Brexit inches closer, one of the UK’s most successful companies is chaired by a Swede, run by a Frenchman and has operations predominantly outside the UK. 

But don’t let facts get in the way of a national success story. The UK needs one badly.

Over the weekend AstraZeneca, the Anglo-Swedish drugmaker, delivered. The group announced its biggest acquisition to date, a $39bn takeover of the US-based biotechnology group Alexion, which focuses on treatments for rare diseases.

Line chart of Share prices rebased showing  AstraZeneca has outperformed Alexion in recent years

We were slightly taken aback by AstraZeneca’s decision to announce one of the biggest deals of the year on a Saturday, but DD is told that was partly to prevent leaks and to give chief executive Pascal Soriot time to explain the transaction to investors. 

This is, of course, not the first time we’ve discussed AstraZeneca, the Cambridge-based pharma group, in DD this year.

If you recall back in May, our colleagues dug into how the once struggling drugmaker found its footing — after fighting off a hostile takeover bid from the US rival Pfizer — to climb the ranks of the UK’s FTSE 100 index. 

At one point this year, AstraZeneca became the largest company in the benchmark by market capitalisation. It now sits third, behind Unilever and Royal Dutch Shell, with a value of £101.3bn as of Monday’s close. 

Pascal Soriot, chief executive of AstraZeneca © Charlie Bibby/Financial Times

Those who have followed the dealings of AstraZeneca’s chief executive will know he’s been on the hunt for a target.

Soriot, who one banker told DD enjoys the M&A equivalent of “speed dating”, has been running through his takeover targets all year, touching base with companies including the US drugmaker Gilead

You can catch up with our news story on the key details and this deep-dive on what the Alexion takeover means. Rather than repeating those things, we thought we’d lay out the biggest winners and losers from the deal.

Among the victors are:

  • Alexion’s chief executive Ludwig Hantson, who stands to make $56m from a golden parachute clause if he leaves following the deal’s completion, according to FT calculations;

Ludwig Hantson, Alexion chief executive, centre © Lucas Jackson/Reuters
  • Elliott Management after the London office of the hedge fund headed by Paul Singer had pressured Alexion to sell itself, citing management missteps; 

  • Bank of America and Wachtell, Alexion’s sole advisers on the deal, although law firm Macfarlanes helped on UK legal matters;

  • Evercore and Centerview Partners — which served as AstraZeneca’s lead financial advisers, along with London-based advisory firm Ondra Partners, which offered capital markets advice;

  • Freshfields, which picked up both the UK and US legal mandates, notching a victory in the law firm’s campaign to become a US heavyweight after splashing out huge amounts to hire Ethan Klingsberg from Cleary Gottlieb last year;

  • dealmaking in general — the transaction brings global M&A activity to $1tn in the fourth quarter of this year, according to Refinitiv, the second consecutive trillion-dollar quarter.

And among the losers:

  • AstraZeneca shareholders — for now. The company’s stock fell 5.9 per cent to £76.78 on Monday as investors digested the deal;

  • Goldman Sachs — the press release announcing the deal doled out financial advisory credit to its Wall Street neighbours Morgan Stanley and JPMorgan Chase for working on the AstraZeneca side;

  • Davis Polk, which played a big role in AstraZeneca’s defence from a hostile bid in 2014, is likely feeling sore after Freshfields clinched the US law mandate;

  • Pfizer’s former executive chairman Ian Read, whose failed attempt at a megamerger with AstraZeneca may have left him with some regrets. The US pharma group now led by Albert Bourla could always try to reverse its luck with a run at Alexion . . . or even another tilt at AstraZeneca. 

Big law, bigger salaries

Few things are as controversial among lawyers as pay, and for good reason. In recent years the sums commanded by the world’s top lawyers have soared to levels associated with professional athletes and finance bosses. 

Now the bidding war for those star lawyers could be driven even higher after a string of major firms signalled a move away from traditional “lockstep” pay, including the UK elite firms Allen & Overy and Freshfields as well as Davis Polk in the US, as they compete to advise on big-ticket deals.

Most profitable US law firms

Lockstep compensation, which ties pay to time served, was devised by the revered US firm Cravath, Swaine & Moore in the 19th century. At Cravath it created a cradle-to-grave culture of collegiality that firms across Britain were quick to follow. 

But the system has been pushed to breaking point due to fierce competition from US rivals with more freewheeling compensation systems that allow for hefty pay packets for new hires or star young partners. 

The UK’s “magic circle” firms have lost a steady trickle of top lawyers in recent years to deep-pocketed rivals including Latham & Watkins and Kirkland & Ellis.

The UK’s ‘magic circle’ firms have been losing top lawyers in recent years to deep-pocketed rivals

Freshfields, under new managing partner Georgia Dawson, and Allen & Overy have both come under pressure to add more of a merit-based element to their payment systems to keep partners from leaving and lure top recruits. 

Both firms have previously tinkered around the edges of their once rigid lockstep systems, but the new plans mooted by both firms will put another nail in the coffin of a pay structure that came to define the culture of UK private law. 

As one recruiter puts it: “Lockstep, as we’ve historically known it, is dead . . . ” 

Strength in numbers: bourses crunch the data

It’s been a banner M&A year for the exchanges and data providers that power daily trading on financial markets. S&P Global’s $44bn deal for IHS Markit illustrates how a handful of predominantly-US companies are beginning to tighten their grip

The trend is also a highly lucrative one for the dealmakers behind the curtain — just last week we revealed advisers and financiers working on London Stock Exchange Group’s planned $27bn purchase of Refinitiv will take home a whopping £835m (or $1.1bn), one of the largest paydays DD has ever seen.

Chart showing that large exchanges have been snapping up data, financial services and trading companies

At the heart of consolidation is the aim to leverage their business models as utilities. Investors find they can’t do without the information and competitors find it difficult to fully replicate the complicated networks that facilitate buying and selling assets.

Chart showing that exchanges have been drawn to data and services that power global markets

Exchanges want to take a sliver of all aspects of trading, from supplying analytics to hosting the deal and managing the risk. Data providers generate more value by generating their own intellectual property.

Chart showing that the big five exchange groups have grown increasingly powerful

The lines between data provider and exchange are blurring, as exemplified by EU regulators’ concerns that the LSE/Refinitiv deal would create “significant market power” in terms of both trading and clearing. They have until January 21 over whether to approve the combination. 

Job moves

  • Miles Grimshaw has joined venture capital group Benchmark as a general partner after Bill Gurley stepped back from the five-person partnership. Grimshaw was previously a general partner at Thrive Capital, where he made investments in companies such as Airtable and Monzo.

  • Clifford Chance has hired Michael Welch as counsel in its US structured finance team. He joins the firm’s Washington, DC office from Chapman and Cutler.

  • Sidley Austin elected 28 new partners.

  • Dignity finance director Steve Whittern and corporate services director Richard Portman will exit the UK funeral provider in a few weeks, following the departure of chief executive Mike McCollum. More from Lex.

Smart reads

IPO, extra foam Bubbly listings from Airbnb and DoorDash have left investors and aspiring public companies (see: Robolox, Affirm) alike wondering whether the stock market is safe to enter. Other recent debuts by the likes of Snowflake, Palantir and electric vehicle companies also look frothy and valuations are historically high relative to meagre or non-existent revenues. (WSJ)

Controlling the narrative Peter Thiel isn’t the only one in Silicon Valley who has had a sore spot with Gawker. The defunct blog’s second act as an Apple TV+ programme was halted by Tim Cook, Apple chief executive and victim of the site’s salacious gossip, highlighting Big Tech’s tightening grip on Hollywood. (NYT)

Languishing lenders Private credit funds such as KKR, Alcentra and Pemberton are beginning to inherit the financial burdens of high street companies as shops plunge into insolvency without the safety net of large central banks. (FT)

News round-up

EY fraud unit found ‘red-flag indicators’ at Wirecard in 2018 (FT)

ExxonMobil promises emissions cuts after investor pressure (FT) 

Reddit scoops up TikTok rival Dubsmash (FT + Lex)

Adidas earmarks underperforming Reebok for potential sale (FT)

Electronic Arts makes £945m counter-offer for Codemasters (FT)

US regional banks: urge to merge (Lex) 

German audit watchdog chief suspended over Wirecard trading (FT)

LG faces opposition to spin-off from activist hedge fund (FT)

Tata expected to swoop for lossmaking Air India (FT) 

Tottenham Hotspur owner Joe Lewis lists Florida home for $14.95 million (WSJ)

NYC’s iconic 21 Club to shut down (New York Post)

China to prosecute rating agency manager over ‘massive’ bribes (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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