Fordham Law

Arnold & Porter Has Ties to Both Sides of This Year's Biggest Bank Merger

Bruce Green in The Am Law Daily, August 30, 2012

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When M&T Bank announced earlier this week that it had agreed to acquire Hudson City Bancorp for $3.7 billion, it was Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz that grabbed the lead outside counsel roles on the biggest M&A transaction in the banking sector so far this year. But they weren't the only Am Law 100 firms involved in the matter.

Working in tandem with S&C is an Arnold & Porter team led by partners W. Edward Bright and Robert Azarow, who are advising Hudson City on all relevant aspects of its proposed merger agreement with M&T. A&P also reviewed and commented on how the merger could affect executive compensation arrangements and employee benefits plans, as well as "some difficult issues regarding the [employee stock ownership plan]," according to an email from Alan Dee, an outside spokesman for the firm. The A&P lawyers also helped prepare disclosure schedules to support representations and warranties and collaborated with the S&C team on the structuring and documentation of the transaction, Dee said.

The assignment is the latest in a long-running relationship between Hudson City and A&P, which Dee said has served as primary outside counsel to the Paramus, New Jersey–based bank for 13 years. During that time, Bright and Azarow have handled all of Hudson City's corporate, securities, regulatory, buy-side M&A, and executive compensation and employee benefits matters. Azarow, who is based in New York, advised Hudson City on its landmark $3.9 billion stock offering in 2005, the largest-ever share sale for a U.S. bank.

Dee said A&P has also served as the bank's lead regulatory counsel for the past two years, specifically in connection with enforcement actions, through financial services partner Brian McCormally in Washington, D.C. (Hudson City does not currently have a general counsel.)

As it happens, M&T's proposed acquisition of Hudson City comes some two months after A&P financial services partner John "Jerry" Hawke Jr. joined the acquiring bank's board of directors, effectively putting lawyers from the firm on both sides of the deal.

Hawke—who served as U.S. Comptroller of the Currency for six years during the Clinton and Bush administrations and chaired A&P for eights years until departing in 1995 to become undersecretary for domestic finance at the U.S. Department of the Treasury—told The Am Law Daily on Thursday that he has recused himself from voting on the acquisition, which must still be approved by shareholders and regulators before an expected closing in the second quarter of 2013.

Hawke says he has known M&T chairman and CEO Robert Wilmers for years and notes that A&P has handled various legal matters for the bank over the past two decades, including what was M&T's largest-ever acquisition until the Hudson City deal: a $3.1 billion merger with Allfirst Financial in 2002. He declined to comment on whether A&P would continue to advise M&T once the Hudson City merger is complete. As a result of removing himself from the particulars of the deal between the two banks, Hawke says he's unsure whether A&P obtained client waivers from either party to advise on the proposed transaction.

A spokeswoman for Hudson City confirmed that its in-house legal functions are handled by A&P, but declined to comment further on the bank's relationship with the firm. A&P itself did not respond to a request for comment about how it reconciled its longtime role for Hudson City with Hawke's position on the M&T board.

Bruce Green, a professor specializing in legal ethics at the Fordham University School of Law, says Hawke's position on the M&T board shouldn't be an issue since both M&T and Hudson City would likely waive any potential conflict when informed about A&P's relationships with the two banks.

Several other legal ethicists contacted by The Am Law Daily echo Green's view, citing the nonhostile nature of the proposed merger.

Stephen Gillers, a legal ethics professor at the New York University School of Law, says A&P must have informed Hudson City about its previous relationship with M&T, as well as Hawke's position on the board of the potential acquiring bank.

"[Hawke] has a fiduciary duty to the bank, so it's best that he abstain from this [deal] entirely," Gillers says. "Firms like their lawyers serving on client boards because it often yields work for the firm and cements the client relationship."

Geoffrey Hazard, another veteran legal ethics professor currently at the University of California's Hastings College of Law, says S&C's involvement in the negotiations as Hudson City's independent counsel alongside A&P mitigates the risk of any potential conflict.

"Once you implant separate counsel on both sides, that means you've handed off all relevant tasks," says Hazard, who was more intrigued by A&P's longtime relationship with Hudson City given that cost concerns have prompted most clients to scrap the practice of using outside counsel to handle internal legal matters. "There may have to be some internal screening [on access to files and other information] with [Hawke], who sits on the board."

S&C confirmed to The Am Law Daily this week that it was brought in by Hudson City as M&A counsel to handle the direct negotiations on the terms of its sale to M&T Bank. It is the first transaction S&C has handled for Hudson City, according to our previous reports.

The deal will dramatically increase Buffalo-based M&T's presence on the East Coast, specifically in the New York City metropolitan area, while creating one of the nation's top 25 largest banks in terms of total assets. While M&T Bank has weathered the economic recession fairly well, Hudson City has struggled in recent years from losses related to its large mortgage portfolio, according to a report this week by The Wall Street Journal examining the circumstances surrounding the proposed merger.

Wachtell, which is representing M&T on the Hudson City transaction, previously advised the acquiror on its $351 million acquisition of the Wilmington Trust Company in 2010 and its $401 million purchase of Provident Bankshares the year before.

Through a spokesman, M&T general counsel Drew Pfirrman declined to comment on the bank's relationships with its outside lawyers, including A&P. Pfirrman joined M&T Bank in October 2009 after working as senior deputy general counsel of PNC Bank. Pfirrman previously served as general counsel of Fleet Bank.