When Intel and Mobileye combined to spur autonomous vehicles
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Morrison & Foerster is currently fighting a protracted battle over driverless car technology on behalf of Uber, defending it against allegations by Waymo, Alphabet’s self-driving car unit, that it stole trade secrets.
That $1.8bn lawsuit has yet to be settled. Earlier this year, however, the firm helped to sell Mobileye, a developer of self-driving vehicle technologies, to Intel — in one of 2017’s most lauded tech deals. A clear negotiating strategy kept Mobileye, self-driving star of Israel’s tech scene, in the driver’s seat throughout the $15.3bn sale, which was the biggest acquisition of an Israeli tech company by value to date.
Jim Tanenbaum, a partner at Morrison & Foerster, had worked with Mobileye for 12 years, shepherding it through increasingly large share placements to raise funds, when he heard that it had a big suitor — Intel, the US chipmaker, which has a $210bn market capitalisation. “In truth it was daunting,” says Mr Tanenbaum. “At Mobileye there were really four people who were principally involved [in negotiations] . . . two founders, chief financial officer and internal counsel. Facing that were an Intel M&A team, CEO, and legal team that was many times larger than that.”
He adds: “When you only have a small cohort of people who are capable of responding you have to set the pace. It’s kind of like a tennis match.”
Mobileye had technology that Intel, a veteran of its industry, was eager to pair with its own computing power. At the same time, however, Mobileye, not looking to be bought, was happy to walk away.
“I’ve been doing this since August 18, 1975, and I’ve never found myself in a situation where a small company has at least equivalent bargaining capability,” says Mr Tanenbaum.
The process was not without drama. “Up until the very end it was far from a foregone conclusion that the deal would proceed,” he adds.
Negotiations between the two companies started, unusually, without a price on the table. “The key terms were all fundamentally discussed with the actual price left open,” says Mr Tanenbaum. This gave Mobileye confidence that Intel was serious and was amenable to Mobileye’s key demands — for instance, keeping the company in Israel.
Other deal features were novel. Investment bankers were kept out, for fear of the deal leaking and damaging Mobileye’s other relationships. Despite the fact that approval had to be sought from competition watchdogs, the companies agreed not to impose an antitrust reverse termination fee, payable by Intel to its target, if the deal was stymied by regulators. Both sides also agreed that, if another company tried to snatch Mobileye with a higher offer, the rival buyer would have to put up 10 per cent more money.
The marriage of the two companies combined the “eyes” of autonomous cars with a “brain”, says Mr Tanenbaum.
Mobileye makes vision-based safety systems, including cameras and chips for vehicles based on its own machine learning algorithms, which can detect pedestrians, other vehicles and traffic signs and help enable autonomous driving. “There are so many times we work on transactions where it’s not crystal clear how it will benefit the rest of the world”, says Mr Tanenbaum. In this case, with so much public and commercial interest focused on both safety and commercial potential for driverless vehicles, “the stars were aligned”.
Another standout deal of 2017 was the one engineered by venture capital firms Social Capital and Hedosophia. More technology unicorns — ventures privately valued at $1bn or more — have begun to shy away from launching initial public offerings. The law firm Skadden, Arps, Slate, Meagher & Flom helped Social Capital and Hedosophia enact a plan to bring a company to market without needing to meet the traditional burdens of IPO. They called it “IPO 2.0”.
It was the first time a so-called “blank-cheque company” — a shell company often used to make an acquisition — was deployed as an alternative to an IPO rather than used in a leveraged buyout.
Skadden worked closely with Social Capital and Hedosophia, but it took some time to match the clients’ vision. “The first version of this . . . literally got crumpled up and thrown away,” says Gregg Noel, one of the lawyers on the deal.
The end result was a “special purpose acquisition company”, called Social Capital Hedosophia. This shell company, which is ultimately intended to buy a tech unicorn, sold 69m units, at $10 apiece, raising $690m — more than had been expected.
“It’s a model that will keep being useful,” says Howard Ellin, another Skadden lawyer.
Deals in which lawyers help add a novel twist are not confined to the tech sector.
In 2016 when Newfoundland-based utility holding Fortis, founded in 1987, wanted to buy ITC Holdings, a Michigan-based power transmission company, it faced a difficult legal challenge. The acquirer wanted to offer its own shares as part of the deal, which valued ITC, then the largest independent electricity transmission operator in the US, at $11.3bn including $4.4bn of debt.
No public company listed solely in Canada had previously pulled off such a feat.
Its in-house legal team worked with outside lawyers in the effort to close the deal. This involved bringing in Singapore wealth fund GIC as a minority partner in the transaction. It also had to secure a dual listing on the New York Stock Exchange, launch a $2bn debt offering, and fulfil regulatory requirements in different US states covered by ITC’s business.
“This was a complicated transaction with a huge number of steps,” says David Bennett, chief legal officer and corporate secretary at Fortis. “There were some long, long hours.”
The deal, announced in February 2016, finally closed in October that year.
Jim Reid, a lawyer at Davies Ward Phillips & Vineberg, who worked alongside the energy group on the deal, says that relatively quick work may have helped avoid a potentially major risk: the election of Donald Trump.
“If this deal had not closed before the US election . . . it could have been a real problem getting it closed,” he says, explaining that the commissioners on the regulatory body which oversees energy are appointed centrally. “There were vacancies on the commission for quite a long period of time following the election . . . everybody is very grateful in hindsight”.
The lawyers eventually marked the acquisition with a celebratory bell-ringing at the New York Stock Exchange, with the Newfoundland flag flying, before a lunch at Italian restaurant Morandi.
“Ties came off, sleeves were rolled up, wine was poured,” says Mr Reid. “It was just joyous.”
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