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April 9, 2010 4:30 AM

Dealmaker of the Week: Scott Smith of Covington & Burling

Posted by Julie Triedman

In announcing last Sunday that it will acquire Tulsa oil and gas company Arena Resources, Inc., for $1.55 billion in a stock-for-stock deal, Oklahoma City gas producer SandRidge Energy, Inc., moved closer to realizing its goal of diversifying beyond its recession-battered natural gas base into the still-robust oil sector.

For the company's outside M&A counsel, Scott Smith of Covington & Burling, the deal was also personally satisfying.

The 56-year-old Smith (pictured below), who chairs Covington's 30-partner M&A and private equity practice, has built his professional career in New York, but his family's roots extend back to the Sooner State. His mother's ancestors made their way to Oklahoma in a covered wagon soon after the territory was first opened to settlers in 1893. And one of Smith's grandfathers was an oil and gas "land man" who negotiated and bought mineral rights from landowners so that companies could drill.

ScottSmith-web

Smith himself grew up in neighboring Arkansas and later attended the University of Texas School of Law. More recently, Smith advised Oklahoma City-based energy conglomerate Kerr-McGee Corp. in its 2005 defense of a hostile proxy contest launched by Carl Icahn, which the company repelled with a $4 billion stock buyback.  "I've circled that area for a long time," he says.

He started circling it again last July. That's when Covington landed SandRidge's corporate work following a Oklahoma City pitch session, as we reported earlier this week. The firm and Smith already had a foothold in the area thanks to its work on behalf of Kerr-McGee (that relationship ended in 2006, when Anadarko Petroleum Corp. acquired Kerr-McGee). SandRidge proceeded to tap Covington's corporate team throughout the fall for help in accessing capital markets for an acquisition that preceded the Arena deal. 

A little more than a month ago, SandRidge general counsel Richard Gognat called Smith about the possible acquisition of Arena. Because Arena and SandRidge's producing properties largely overlap in West Texas, the due diligence performed by the companies' respective geologists was much easier than it might have been, Smith says. And Arena, one of the country's fastest-growing companies, has virtually no debt, which made the financial due diligence simpler as well (SandRidge, by contrast, carries roughly $2.6 billion in debt.)

For its own outside counsel, Arena turned to ten-lawyer local corporate boutique firm Johnson & Jones. Negotiations between the lawyers were conducted over the phone, and there was pressure to get to a close quickly. "There was no time to meet in person," notes Smith. "We were worried about leaks." Despite some weather glitches—torrential rainstorms last week meant that everyone but Smith worked on the deal from New York; he hunkered down at SandRidge headquarters—negotiations went very smoothly, Smith says.

Smith flew back to New York Friday, and after a final board meeting Saturday, the acquisition was announced Sunday afternoon. Terms call for SandRidge to issue 40 percent more shares of new stock to cover the deal, with Arena shareholders getting SandRidge stock worth roughly $40 per share--about 17 percent above the stock's trading value as of the Thursday before the announcement. 

"Scott and his team did an excellent job representing SandRidge in this transaction," says SandRidge's Gognat. "We're very satisfied."

The SandRidge deal caps an unusually busy year for Smith and his practice group. He has personally taken the lead on four major public company deals in the past nine months.  "And that's in the worst market maybe in my career," he says.

Strategically, he notes, Covington has managed to benefit during the economic slowdown as a result of its powerhouse regulatory practice, which has helped the firm nab corporate and M&A work in such closely monitored industries as energy, pharmaceuticals, and banking.

Last summer, for example, Smith was tapped by antibody products company Medarex in its $2.4 billion merger with Bristol-Myers Squibb. In the fall, he led the team that advised Procter & Gamble on the $3.1 billion sale of its pharmaceutical business to Warner Chilcott. And in late November, Smith handled commercial finance company Financial Federal's $738 million acquisition by People's United Bank--a deal whose close dovetailed with the start of the SandRidge-Arena negotiations.

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