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July 8, 2010 11:10 AM

What's Up with Simpson Thacher's Legal Fees for KKR and Blackstone IPOs?

Posted by Brian Baxter

Wednesday was a big day for news involving two prominent private equity clients of Simpson Thacher & Bartlett.

The Blackstone Group announced that Simpson M&A partner John Finley would become its new chief legal officer in September, replacing Robert Friedman, who joined the New York-based private equity firm in 1999 after 25 years as an M&A partner at Simpson.

And the New York Times detailed the differences in compensation packages to executives in Blackstone's mammoth $4 billion IPO in June 2007 and in the hotly anticipated planned offering by Kohlberg Kravis Roberts & Co. scheduled for next week. Former Simpson M&A partner David Sorkin became KKR's first-ever general counsel in November 2007. Recent SEC filings by KKR show that he earned nearly $4.5 million in 2009.

The gulf in compensation isn't the only surprise found when comparing the two IPOs. When we looked at SEC filings by Blackstone and KKR leading up to their respective IPOs, we noticed some stark differences in the legal fees listed by Simpson for the work done on both offerings. Three years, it seems, makes a world of difference.

According to an SEC filing from June 21, 2007, just before Blackstone came to market, Simpson listed legal fees and costs of counsel related to the IPO at $15 million. The $1 million that Simpson listed in a recent SEC filing as legal costs and expenses for the proposed IPO for KKR pales in comparison. (Another point of comparison: Skadden, Arps, Slate, Meagher & Flom listed legal fees of $14.5 million for its role advising Fortress Investment Group in its February 2007 IPO.)

So did KKR get a downturn discount on legal fees for its IPO? Simpson corporate partner Joseph Kaufman, who is taking the lead on the KKR matter for the firm, and a firm spokeswoman did not immediately respond to requests for comment.

Corporate securities lawyers contacted by The Am Law Daily on Wednesday say the $1 million listed as Simpson's fees for the KKR IPO may be misleading. According to one capital markets partner at a prominent Am Law 100, the SEC's requirements for listing the costs related to a public registration are poorly written and allow lawyers some leeway in determining what goes into fee tabulations.

"It's always possible those [listed fees] are accurate and Simpson chose to do this for a million bucks, but I doubt it," he says. "There's so much discretion in how you pick that number. A lot of firms just plug a number in there, they're not actually adding together invoices."

The securities lawyer says that firms don't want to be too far off when listing legal fees for IPOs, but adds that there's no set "scientific process" for determining what to include in an SEC filing. The legal work related to the SEC registration process alone might account for the $1 million, this lawyer says, but the final figure for legal costs often depends on how much lawyers working on a public listing want to detail in the filing. The cost of preparing the registration typically is just a slice of the overall legal bill.

"When a company comes to you and says, 'We want to go public,' you often tell them they have to get their house in order," the corporate securities partner says. "They'll need an audit committee, a compensation committee, employment agreements for everyone, and changes to the charter. These are all costs related to the registration, but not part of it."

A lawyer handling an IPO for a client might consider the legal costs related to the listing as covering just the registration--a much smaller job--and leave off fees linked to other tasks, while still remaining in compliance with SEC regulations.

"The SEC rule basically lets you define these things however you want," the lawyer says. "It's not helpful."

While Blackstone's IPO was an incredibly complicated process--Simpson corporate partner Joshua Ford Bonnie was named a Dealmaker of the Year by The American Lawyer for leading the IPO, which was scrutinized for its tax-saving structures--KKR hasn't exactly had an easy go of it. (Simpson also represented Blackstone in litigation stemming from securities disclosure issues related to the IPO that was eventually dismissed last September.)

Since KKR had been planning to launch its IPO almost two years ago, only to be stymied by the global economic crisis, it stands to reason that Simpson--among several other firms--have been billing away in the interim.

Another corporate securities lawyer familiar with the IPOs of Blackstone, KKR, and Fortress tells The Am Law Daily that "sometimes the actual preparation of the registration statements is the tip of the iceberg, and sometimes it is the iceberg, it just depends on the nature of the deal and how it's being billed or handled."

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