The Deal: In July 2018, CEE Legal Matters reported that Reff & Associates had advised Dutch shipbuilding group Damen on its take-over of Daewoo Shipbuilding & Marine Engineering Co Ltd.’s participation in Romania’s Daewoo Mangalia shipyard. DSME was advised by CMS. The yard, which was renamed the Damen Shipyards Mangalia, is now operated as a joint venture with the Romanian Government, with Damen assuming operational control. We reached out to both firms for more information.
The Players:
- Counsel for Damen: Georgiana Singurel, Partner, Reff & Associates
- Counsel for Daewoo Shipbuilding & Marine Engineering Co Ltd.: Horea Popescu, Partner, CMS
CEELM: Horea, how did you and CMS become involved with Daewoo Shipbuilding & Marine Engineering Co Ltd. on this matter?
Horea: We were referred to this matter in May 2015 by the highly-regarded Korean law firm Bae, Kim and Lee, LLC, with whom we have a long-standing collaboration. It was a great opportunity to strengthen our relationship with Bae, Kim and Lee and we were happy to jump on board with them on what looked like (and in the end proved to be) a very interesting project.
CEELM: What, exactly, was the initial mandate when you were retained for this project, at the very beginning?
Horea: The client initially wanted to understand the options that were available for an exit, one of them being the sale of the Romanian business.
CEELM: How about you, Georgiana? How did you and Reff & Associates become involved with Damen?
Georgiana: Damen is a traditional client of Deloitte in the Netherlands and Romania, as well as in the other jurisdictions where it is present. Therefore, our involvement occurred in the context of our existing and trustful relationship. We started to assist Damen in the autumn of 2016 together with our colleagues from Deloitte’s tax and financial teams, and our first task was the performance of the legal due diligence of the target, i.e. Daewoo Mangalia Healy Industry SA.
The initial mandate and first stage of our assistance on this transaction consisted of the legal due diligence exercise with respect to the target business activity and its assets.
CEELM: Who were the members of your teams, and what were their individual responsibilities?
Horea: As the process took more than three years to complete, I coordinated a rather large number of our lawyers from several practice areas. The most important one was the transactions team, where Senior Associate Mircea Moraru played a key role. A sensitive topic due to the potential social impact of the transaction was employment – this was coordinated by Senior Associate Marius Petroiu. The matters related to the dispute resolution and insolvency were addressed by Senior Associate Horia Draghici and Associate Andrei Cristescu, working under the coordination of our managing partner, Gabriel Sidere.
Georgiana: I decided to approach a project of such complexity of by setting-up a team of lawyers specialized in M&A, commercial, real estate, competition, state aid, and employment, who were all involved from the initial phase of the due diligence exercise in the various phases or in the entire transaction process. There were approximately 12 lawyers involved in the project and in particular I would point out the contribution of Managing Associates Anca Melinte and Cezara Szakacs, both specialized on M&A, Partner Florentina Munteanu, and Managing Associate Andrea Grigoras, who dealt with employment and competition law aspects, and Partner Irina Dimitriu and Senior Associate Diana Ghintuiala, who covered the real estate aspects, and with whom I closely worked in each and every stage of the project.
After completion of the initial DD exercise led by myself (where Anca acted as coordinating managing associate) the assistance on the transaction structuring, drafting, the initial SPA and negotiation stage were conducted and coordinated by Deloitte Legal in Netherlands, our input being required on the Romanian law aspects and implications. It was a part of the project in which myself, Anca, and Andrea Grigoras were active. As the discussions progressed, Florentina and Andrea began preparing the Competition Council filling. After the signing of the share purchase agreement, the involvement of our entire team of lawyers became again intense and consisted in conducting a confirmatory due diligence, preparation of the closing steps and most of the closing documents, as well as close assistance to the client on various Romanian law issues that appeared after signing, all together in an exercise lasting approximately a year. These were aspects on which I worked particularly with Cezara Szakacs, who helped me coordinate the other team members.
As the target was a 49% state-owned company, our assistance covered the acquisition of the 51% from the Korean shareholder in all stages. However, the acquisition of a majority stake in such an entity cannot take place without discussions, an extensive approval process, and documentation to be executed in connection with the future collaboration of our client with the Romanian government. As legal advisors, we assisted in the initial phase of the process with the Romanian Government in connection with structuring the JVA between parties. However, from one point, the client envisaged consolidating its participation in the target, with the additional acquisition of 2% of the shares from the Romanian state and, in this context another Romanian law firm was involved, with our team focusing on the closing and post-closing assistance for acquisition of the 51% from the Korean shareholder.
Special note should be made as our colleagues from Deloitte Tax were continuously involved in the project. I would like to mention the contributions of Partner Tax Pieter Wessel, Director Tax Raluca Baldea, Director Silviu Sandache, and Senior Manager Ana Petrescu.
CEELM: Please describe the final agreement in as much detail as possible: How was it structured, why was it structured in that way, and what was your role in helping it get there?
Horea: The transaction structure changed several times due to the high importance of the shipbuilding yard in the economic and political contexts, from both a national and regional perspective. In the end, our client transferred its entire majority participation to the Dutch shipbuilding company Damen, which simultaneously transferred a minority shareholding to the Romanian state-owned partner – with the latter actually becoming the majority shareholder of the target company. Most of the last six months of the transaction were actually dedicated to implementing a pre-emption right that the Romanian state had based on the privatisation agreement that was concluded in the mid-nineties, while preserving to the largest extent possible the initial concept behind the transaction.
Georgiana: The final agreement is, in a nutshell, a typical M&A share purchase agreement, whereunder our client acquired the majority stake holding of the target company, the other shareholder being the Romanian government. It was structured in two phases: initially the signing taking place between Damen and the seller, and then closing after the fulfilment of the condition precedents (of which the most important were related to the approval of the transaction by the Romanian government, setting the frame for the future cooperation of the shareholders, and having the competition council clear the deal). Although typical from the acquisition perspective between our client and the seller, entrance into a joint venture with the Romanian state is never easy and requires an extensive approval process. Add the additional acquisition of two percent and you get a feeling of the moving sands we sometimes felt that we were walking on.
During the entire almost-two-year process, I personally, together with other members of my team, kept close communication with client and provided continuous assistance in relation to the Due diligence of the target company, the Romanian law transaction matters, structure of the transaction and analysis on the implications of the cooperation with the Romanian state, and assisting with and coordinating the steps for closing. It was a process during which various and complex legal issues has appeared in all phases, that required attention from senior members of our team and assessment from different angles.
CEELM: What’s the current status of the deal?
Horea: Our client completed the exit in July 2018, so from our perspective the deal has been closed. However, a significant part of the post-completion actions concerned the relationship between Damen and the Romanian state-owned shareholder, but we have no visibility on the process. It is, however, fair to assume that the partnership between the current shareholders will be a successful one and that the transaction will bring new opportunities to the shipyard.
Georgiana: The deal is closed (completed).
CEELM: What was the most challenging or frustrating part of the process?
Horea: In our experience, lengthy processes have the risk of decreasing the transactional appetite of the parties and we were worried that this would be the case in this situation as well. Another challenge came from the fact that the Romanian partner is state-owned, and due to the political changes in Romania, the decision-making process at its level was a bit more difficult. In the end, the parties were really committed to do the deal, so we think it’s actually a success story where the drive to make the deal overtook all the difficulties.
Georgiana: First, the project was challenging for me from the perspective of coordinating all the streams implied by this transaction. In consideration of the long duration of the project, it was rather demanding to keep account of all details and parties for approximately two years. Keep in mind that the SPA was signed in 2017, based on a due diligence exercise performed in 2016, and therefore a confirmatory due diligence was needed after the signing. Also in 2017, discussions on the stream of cooperation with the Romanian state commenced, which took almost a year, time in which we were constantly receiving input from the other shareholder, who was focused on enhancing its protection and obtaining the best overall position in its relation with the new shareholder. It was only in 2018 that the transaction was closed.
Note should be made that in the negotiation of the cooperation with the state partner another law firm was mandated, while our assistance was limited to the closing of the transfer of shares.
CEELM: Was there any part of the process that was unusually or unexpectedly smooth?
Horea: We were happy to have the full support of one of the key stakeholders in this process: the employees. Unlike other situations, we found that the people working at the shipyard were keen to assist the transaction as much as they could and they most likely understood that the deal would actually be beneficial to them as well. I also did not expect that a process which, after all, involved three different cultures and business mentalities, would result in a successful transaction. In my view, this was largely due to the parties’ being open and willing to accept and understand the other parties’ cultural differences.
Georgiana: I cannot find anything unexpectedly smooth in the transaction. But, if it is something worth mentioning, I’d say that the relation with the client was faultless. Rarely you work with people so human and at the same time so professional as our contacts in Damen. This definitely raises standards, because I wanted my team to be at its best in front of the client.
CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?
Horea: I always thought that the process was going to lead to a transaction, so I think it’s fair to say that in the end the mandate was in line with our initial anticipation. What I did not expect was that it would take more than three years to complete it, so in a way the mandate did change quite a bit throughout the process. Also, the Romanian state-owned partner decided quite late in the process to exercise its pre-emption right for a minority shareholding, so parties had to put significant amount of effort into finding the best solution for accommodating the effects of this right with the deal that was agreed between DSME and Damen.
Georgiana: Our initial mandate was supposed to consist in the due diligence work and Romanian law input on the transaction documents. For the transaction process a smooth closing was expected, with limited involvement of our team for Romanian law matters only. But as the complexities escaladed, our role became more and more substantial and we provided assistance continuously for almost two years. I am proud of my team for closing a deal which – in many respects and in so many moments – seamed unattainable.
CEELM: Horea, what specific individuals at DSME directed you, and how did you interact with them?
Horea: There were several persons at DSME that were highly involved throughout the process, both in Korea and locally. We found them to be excellent professionals that were dedicated to the deal despite the various setbacks and it was for us a great opportunity to be exposed to a rich, but rather different culture. We enjoyed working alongside them and a significant part of the success of this transaction has to be attributed to the DSME team. We felt that we built a close relationship with the client throughout the process and it was very interesting to me and to the other team members to see how helpful it was to be alongside persons that were totally open and committed to this process.
CEELM: What about you, Georgiana? Who did you work with at Damen?
Georgiana: I and my team received instructions and kept in close communication by all means (phone, correspondence, meetings) mainly from Emile Poot (Head of Business Development (M&A, Damen) and Saskia Michiels (Legal Counsel, Damen). Also, Frank Eggink (CFO, Damen) was involved in the essential steps of the transaction and had meetings and discussions with us on the key points. Another member of the Damen team with whom we worked on the deal was Frank Bosman (Analyst Business Development (M&A)).
CEELM: How would you describe the working relationship with Reff & Associates on the deal?
Horea: We were quite familiar with the team from Reff & Associates from several previous transactions and we maintained the same good relationship throughout this deal. Rather less typically for multi-jurisdictional transactions, we had a relatively large number of meetings and I think both parties encouraged a more personal approach, so e-mails and phone calls were almost kept to a minimum. Particularly in the final stages of the transaction there were a few weeks with several full-day meetings, but it was clear that both DSME and Damen were committed to the deal so these were more fruitful that one could expect.
CEELM: And how would you describe your relationship and interaction with CMS, Georgiana?
Georgiana: The interaction with the lawyers from CMS took place mainly during the meetings for preparation of closing and the closing meeting. In the initial phases of the transaction, the parties attended in person a number of meeting either in Seoul or in Amsterdam, the results of which were only communicated to us.
The closing of transaction was scheduled several times between signing and July 2018, and each attempted closing meeting ended up with the negotiation of documents and discussions of sometimes new and other times just unaligned matters. Basically, each closing attempt and the final closing required a few days of meetings between parties and lawyers. For the actual closing in July 2018 we had a good collaboration with CMS lawyers headed in the process by Mircea Moraru.
CEELM: How would you describe the significance of the deal to Romania?
Horea: The Mangalia shipyard is the largest one in Romania (nearly one million square meters) and it is particularly significant for the area where is located because it employs directly or indirectly most of the active force in the region. As it is suited for building and providing maintenance services to large ships, including military ships and large maritime vessels and structures, it has a high strategic importance for the Romanian state. It is also the largest of the Damen shipyards, which shows that the transaction was of particular importance to the buyer.
Georgiana: Association of the Romanian state with one of the leading builders of workboats and fast crafts in the world in a company operating the biggest shipyard in Romania, with Damen having the operation control of the shipyard, should contribute to the revitalization and relaunch of the target’s activity with a positive impact on the overall economic and social environment. It secures employment for some thousands of people at a time when the future of the target was definitely under a question mark. And with Damen’s enthusiasm over the new shipyard and its plans to expand production, we are sure that it brings hope for a sustainable and long-term growth of the community.
This Article was originally published in Issue 5.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.