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January 14, 2009 11:53 AM

Davis Polk, Wachtell, Cravath on Citi-Morgan Joint Venture

Posted by Zach Lowe

Citigroup and Morgan Stanley must be happy with the representation they've gotten in the tumultuous last few months, because the pair stuck with those same firms when they needed advice on how to combine their brokerage units into a joint venture that essentially replaces Citi's Smith Barney. 

Citigroup hired Davis Polk & Wardwell and Morgan Stanley retained Wachtell, Lipton, Rosen & Katz, the two firms that have helped the limping giants obtain about $55 billion in federal bailout money and, in Morgan's case, aided in the transition from traditional investment bank to bank-holding company. 

Citi's board of directors also retained Robert Joffe of Cravath, Swaine & Moore for advice in the joint venture. 

The venture is to work like this: Morgan will own a 51 percent stake in the brokerage unit after paying Citi $2.7 billion for control of the company, which will be called Morgan Stanley Smith Barney. Citi will control the rest. The new unit will be the biggest brokerage firm in the world, with 20,000 advisors and more than $1.7 trillion in client assets on the books, according to Bloomberg and the Associated Press.

This may be just the beginning of a massive sell-off for Citigroup, which is expecting to post losses of about $10 billion for the fourth quarter--its fifth straight quarter with a major loss, according to the Wall Street Journal. By the time the sell-off is over, Citigroup could look a lot like it did before the 1998 merger between Citicorp (its predecessor) and the Travelers Group, which created the megabank, the WSJ says.

The Am Law Daily contacted the main partners on the deal for all three law firms (the full list is below); all declined to comment. But sources familiar with the deal and the legal arrangements confirm the WSJ story and say the same firms will continue to represent Citi as it seeks to unload other units. 

The full Davis Polk team included the following partners: Randall Guynn (head of the firm's financial institutions practice), George Bason, Jr. (head of M&A), Avishai Shacar (head of tax), John Bick, Carole Schiffman, Arthur Long, Lanny Schwartz and Neil Barr.

For Wachtell: Edward Herlihy, Steven Rosenblum, Stephanie Seligman, David Silk, Richard Kim, Mark Gordon and Matthew Guest (all corporate); Jodi Schwartz and T. Elko Strange (both from the firm's tax group).

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