Doran Doeh Managing Partner of SNR DentonManages the Moscow Office and coordinates the CIS Practice

25th NovemberHow he developed commercial awareness over his career.

How the City WorksGraham Price, CAS Editor of

NewsletterBen Doeh, CAS Head of Events

Entering the City

Your First Deal!

Basic overview of different areas of City finance and how lawyers are involved.

The Basics

Initial Public Offerings or IPOs Equity Finance, and Debt Finance Investment Banks’ role in Equity Finance Sovereign Debt, and Bonds Derivatives Asset Finance Mergers and Acquisitions Private Equity

What We’ll Cover

A public company allows members of the public to buy its shares.

A small but significant minority (BP, Vodafone, Marks & Spencer) are listed,

allowing their shares to be publicly traded on stock exchanges. A private company is any company that

is not a public company.

Public v Private Companies

Equity◦Shares (capital growth / loss)◦Dividends (discretionary share of profit)

Debt◦Loan / Bond (return of principal)◦Interest (set rate)

Only two types of money

Raising money through the issuing of shares Equity is risk capital.

◦ If the company goes bust, investors lose what they put in.

Additional equity can be raised through a further rights issue.

A rights issue is often underwritten by an investment bank.

The first offering of shares to the public is called an IPO.

Equity

‘Going Public’, ‘Floating’, ‘Doing a flotation’, ‘Listing’ ‘Doing an IPO’

◦ Terms for when a private company decides to list on a stock exchange.

A stock exchange is a market where companies list shares to be bought and sold.

In an Initial Public Offering, companies issue new shares to raise money on a stock exchange.

Initial Public Offerings or IPOs

The Old London Stock Exchange

http://www.glencore.com/

The bread and butter of corporate work! A company can grow by taking over another

company. This is called an acquisition.◦ SAB Miller is acquiring Foster’s.◦ Microsoft has acquiring Skype.

The company (the bidder) will make an offer for the target company, persuading the target shareholders to sell their shares.

When two firms decide to merge, obviously that’s called a merger. ◦ E.g British Airways & Iberia = IAG

Mergers & Acquisitions

If the Company (the Board) does not want to be taken over, the bid is hostile (contested).

Offer put directly to shareholders The takeover will be judged by the City

Takeover Panel. Companies often perform rights issues to

raise money for a takeover.◦ E.g. Kraft and Cadbury

Hostile Takeover

Private Equity is a deal where the bidder is not a company but a fund.

This money is put together by an investment bank or specialist private equity house.

Private equity houses can buy shares in a public company, causing it to become private again.

These are public-to-private deals, done by private equity lawyers.

Private Equity

The traditional way of raising finance! Debt finance is usually taking out an overdraft

or a loan. Often, companies get a bi-lateral loan from

the bank. The bank is lending the company money (bi-lateral between one bank and the company).

Bond transactions can also be made to raise debt finance (see later).

Often where companies are highly leveraged, it’s for tax purposes.

Debt

The banks that underwrite share issues are called investment banks (although they don’t actually invest themselves).

Commercial banks lend money.

Banking lawyers advise on loans.

Commercial Banks v Investment Banks

Governments also use debt finance.

They can’t issue shares so they can’t raise

equity finance. Tax and borrowing is

how they raise money. Sovereigns borrow from

international capital markets.

Sovereign Debt

Governments also raise money by issuing bonds (a debt instrument).

A bond might be for say £1 billion, repayable in 20 years, paying 4% interest.

Bonds are broken into small tradable amounts.

Capital markets lawyers work in this area.

Bonds

Derivatives are financial instruments (swaps, options, futures) derived from equity and debt.

Options (shares) and bond futures (debt) can be traded.

Don’t panic – we’ll explain this in more detail later in the year.

Derivatives lawyers deal with this.

Derivatives

Project finance uses debt to fund infrastructure projects

E.g. In energy, health, transport and education.

Building pipelines, hospitals, railways and schools.

Many of these deals are PPPs (public-private partnership) or PFIs (private finance initiatives) because they are public sector projects funded in the private sector.

Project Finance

Asset Finance is when banks buy something and lease it to a company.

E.g. A big ship of aircraft. It’s cheaper than borrowing by a loan as the

bank owns the asset so it feels more secure.

Asset Finance

Advising and assisting the company e.g. Due Diligence. Due diligence is making

sure that statements a company makes about itself are true.

Advising on underwriting agreements. This work is carried out by Corporate

Finance lawyers.

Our Role

The End!