On January 8, 2018, CEE Legal Matters reported that the X5 Retail Group had acquired a supermarket chain operating under the "O’Key" brand in Russia. Later we learned that the acquired supermarket chain was LLC Razvitiye Malykh Formatov. We invited Tatiana Sumarokova, Head of M&A Legal Support Division at X5 Retail Group, to share her thoughts on X5's cooperation with external counsel in the transaction.
CEELM: What system do you usually apply at X5 Retail Group in selecting outside counsel? Did you follow the same steps this time? How and why, ultimately, was White & Case selected?
T.S: X5 Retail Group implemented certain tender politics under which contractors providing goods and services are selected on the basis of price and quality criteria. In determining the quality of each counsel, we rely on recognized rating guides like Legal 500 EMEA and Chambers Europe as well as our own user experience in co-operative work with the counsel, if any. Within a tender process we evaluate, among other things, the counsel's experience in advising on transactions of comparable nature and materiality, the business approach in negotiations, and the flexibility in relation to the time-schedule of a transaction and other terms of engagement. For transactions with a tight schedule, previous cooperation with X5 on similar transactions is a plus because of the adviser’s understanding of X5 standards and awareness of terms and conditions of transactions acceptable to X5. This time we followed the same procedure.
Andrey Dontsov and Nikolay Feoktistov, Partners of White & Case, whom we have worked tightly with, formed a team of high-level professionals able to perform within quite short deadlines. We have been through a number of complicated transactions with this team and are truly satisfied with their work. It is Nikolay’s ability to organize the work which makes the terms of engagement financially attractive to X5. I can give you an example: When we worked under schedule pressure, Nikolay participated in negotiating transaction terms, and simultaneously transferred the agreed positions to another lawyer located next door who incorporated them in the agreement. After that a senior lawyer took a fresh look at the draft. There was no duplication of functions or excessive expertise when it was not needed on their part, and the work was done in time.
CEELM: What specific tasks did you delegate to White & Case on this transaction and which ones did you keep in-house?
T.S: White & Case was involved in negotiations and the drafting of main transaction documents. While the transaction was negotiated together by X5 team and the counsel, the drafting was delegated to White & Case. Due diligence was carried out by another counsel – a Russian law firm. Other work in the project was done by X5 internally. In particular, X5’s in-house lawyers also prepared certain transaction documents, mostly based on Russian law, and all ancillary documentation, prepared a motion and relevant data for the anti-monopoly clearance, as well as coordinating the work done by external counsels, arranging for risk mitigation (where possible), supervising the performance of relevant CPs, and organizing completion of the transaction.
CEELM: Why did you choose a different law firm to carry out due diligence? Which law firm did you select and what selection procedure did you use?
T.S: In order to streamline the process and reduce expenditure on legal fees, X5 usually delegates certain segments of work to different external counsels which offer the best engagement terms (including price) and at the same time are the best specialists in the relevant area of law. With respect to due diligence of Russian companies, it is difficult for international law firms to compete with Russian law firms in terms of fees. On the other hand, Russian law firms, mostly, are not advanced enough when it comes to M&A transactions governed by English law, which is rather popular for structuring deals owing to its flexibility and centuries-old legal precedents. In this case, in selecting a counsel to carry out the due diligence, we followed our standard criteria -- engagement terms, experience in the required practice area, and flexibility in work-schedule -- and decided in favor of Lex Borealis.
CEELM: How is the integration of O’Key proceeding? Are there personnel considerations? Did the retail chain have a legal team, for instance, that’s merging with yours? How is that being handled?
T.S: X5 has substantial experience in M&A transactions, so the integration of acquired assets is mostly a technical process which is carried out internally by X5. As of today, more than half of the acquired stores have already been reconstructed in line with X5 standards.
As for the employee's issue, the in-house team of lawyers and key management of the target company, as contrasted to the acquired stores' personnel, continued their engagement with the O’Key group.
CEELM: What sort of follow-up, post-transaction review of the process did you perform with White & Case?
T.S: In fact, there was no post-transaction review of the process with White & Case. X5’s considerable expertise and knowledge of the market allowed us to negotiate and complete the deal in a time-efficient manner. Yet as the legal team was involved in the transaction almost on a 24/7 basis, especially on pre-signing and pre-completion stages, we managed to cut the overall time usually spent on such a transaction in half. We believe that the deal was completed successfully.