Global M&A Deal of the Year, Russia: Rosneft/TNK-BP
Honorees: Cleary, OAO Rosneft Oil Company, Linklaters, BP plc, Skadden, Akin, Weil, White & Case, AAR Consortium
It’s not easy for Western companies who want to do business in in Russia. For many, the story of BP’s travails epitomizes their challenges. The year 2003 saw the creation of TNK–BP, a joint venture between BP and “AAR,” a consortium comprising some of Russia’s richest men, including Mikhail Fridman, German Khan, Viktor Vekselberg, and Len Blavatnik. The idea was to capitalize on the respective assets and expertise of each, in Russia and Ukraine.
TNK–BP made money, but the relationship between the parties was characterized by a series of disputes. The two low points were memorable. In 2008, saying he felt “sustained harassment” from the Russians, TNK–BP’s chief, Bob Dudley, left the country and tried to run the business from an undisclosed location abroad. Then, in 2011, BP signed a deal with Russia’s state oil company Rosneft relating to exploration in Arctic waters—ruffling the feathers of its AAR partners.
Indeed, AAR filed arbitration proceedings under UNCITRAL, and in March 2011, the Stockholm International Arbitration Court ruled, in effect, that the BP/Rosneft deal would be in a breach of BP’s agreement with its AAR partners that TNK–BP would be BP’s vehicle for oil and gas deals in Russia.
In May 2012, BP announced that it was looking for a way out of its conflict-prone relationship with AAR. Two months later Rosneft announced that it was interested in the BP stake, and an elegant solution seemed imminent. But a spoiler emerged after AAR announced its interest in buying BP’s interests.
In the event, the AAR shareholders decided that they, also, would sell to Rosneft. On account of the different interests of each of the former TNK–BP partners, those deals were structured very differently. AAR received cash, while BP—which emerges as a 20 percent shareholder in Rosneft—also receives Rosneft shares.
For the lawyers, completing the deal meant working through complex Russian law issue, winning regulatory approval wherever TNK–BP had assets (which, by this time, included Venezuela, Brazil, and the European Union), and untangling the web of TNK–BP’s corporate structure, a tangle of BVI holding companies and Russian and international holding companies—several listed on the Russian stock exchange and thus partly in the hands of minority shareholders.
In the event, the three acquisitions, with a total value of $60 billion, were closed within a seven-hour period. At the closing ceremony in Moscow, Bob Dudley, who had risen to become BP’s global CEO, described the orchestration of the deal(s) as being “like a symphony.” Applauding vigorously in the audience was the man Dudley once feared, Russian president Vladimir Putin.