When deals go bad, how much of the blame lies with the legal team?

December 25, 2011

When AT&T announced in March a controversial bid to buy T-Mobile — a $39 billion deal that crumbled last week in the face of government opposition — the wireless giant hired some of the best lawyers money could buy, led by Washington’s Arnold & Porter.

Richard Rosen, who led Arnold & Porter’s antitrust and telecom team, is widely regarded among colleagues and competitors as a smart, analytical lawyer who knows mobile mergers inside and out. Rosen has been AT&T’s go-to outside counsel for years, and he has put together major deals for AT&T and its predecessor SBC, including Cingular’s $41 billion acquisition of AT&T Wireless and AT&T’s acquisition of Dobson Communications, Centennial Communications and other wireless properties. T-Mobile’s legal team was led by George Cary, a top antitrust lawyer at Cleary Gottlieb Steen & Hamilton.

Yet the deal collapsed anyway, and some of the backlash has been aimed at the attorneys advising the transaction. Some Wall Street pundits were quick to point fingers, particularly now that AT&T will have to cough up a $4 billion breakup fee.

“This is a wakeup call to all the lawyers who were about to give you bad advice that says you can merge no matter what,” CNBC commentator Jim Cramer said in a segment last week, which was among his tamer remarks.

Cramer is no stranger to the legal world. His biography online said he helped Steve Brill launch American Lawyer magazine.

AT&T spokesman Brad Burns said the telecommunications giant was proud of its legal team’s work.

“Some of the nation’s top antitrust attorneys and experts determined that, based on precedent and the many customer benefits, the upside of doing the transformative deal outweighed the risks,” Burns said. “The same great legal team that worked on this transaction also has helped us get 11 major deals completed, valued at more than $200 billion. We certainly value their contribution.”

Rosen did not return a request for comment, and an Arnold & Porter spokesperson declined to comment.

Some antitrust experts said the deal failed more in the face of staunch regulatory opposition than legal missteps. Rosen and Cary are among the country’s most well-respected deal makers, known for doling out straight-shooting advice that has moved many multibillion-dollar acquisitions forward.

“Sometimes, no matter who you have as your counsel or how many you have, you just can’t beat the politics,” said Ivan Adler, a principal at the McCormick Group’s law and government affairs practice. “Even though you have King Kong, you’re not going to get all the bananas. But if you have the money, you sure can try.”

Steve Newborn, co-head of the antitrust practice at Weil, Gotshal & Manges, has known Rosen and Cary for years and has worked with both at the Federal Trade Commission.

“[Rosen] is a highly analytical lawyer and not someone to press his clients into doing anything in which he doesn’t believe,” Newborn said. “I strongly believe he advised his client of the difficulties they faced. . . . Both [lawyers] would accurately present probabilities of success to their clients.”

Problem was, many analysts regarded the probability of success as low from the start.

“From the beginning, obtaining antitrust approval was an uphill battle,” Newborn said. “Under these circumstances, assigning blame for not getting this deal through seems rather unfair.”

Newborn added: “My initial reaction in seeing the extraordinarily high breakup fee in a case like this was: ‘What was management thinking?’ ”

“If a law firm identifies there’s any risk, and one has to assume a law firm here did, it’s up to the company to decide whether it wants to take that risk,” said Simpson Thacher partner Kevin Arquit, who counsels companies in antitrust and transactional issues.

“The Department of Justice cut short that process,” Arquit said. “It’s hard to put that at the feet of the law firm.”

Catherine Ho covers law and lobbying for Capital Business, which she joined in 2011. She was previously a reporter at the Daily Journal in Los Angeles, covering LA civil courts and labor and employment law.
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