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May 15, 2009 5:30 AM

Dealmakers of the Week: Matthew Guest of Wachtell and William Fogg of Cravath

Posted by Julie Triedman

On April 28, results from the government's bank "stress tests" began trickling out in the press. The news wasn't as bad as the market had expected, setting off a rally in bank stocks. So bankers for Wells Fargo & Co., which need to raise some capital, felt the time had come for a major play in the equities market. 

If all went according to plan, it would be the first large public capital raising by a bank. There was no time to waste, as several other banks were lining up their own offerings. "It was important to be one of the first out of the gate," recalls Matthew Guest, 34, a partner at Wachtell, Lipton, Rosen & Katz who represented Wells Fargo on the offering. (Guest was promoted to partner in January.) "There's a finite amount of capital out there to be put into financial stocks."

Cravath, Swaine & Moore's William Fogg, 43, was working alongside Guest, as counsel to underwriter JPMorgan. The two had worked together on a previous offering last November, raising $12.7 billion to help finance Wells' purchase of Wachovia Corporation.

A lot was riding on this new offering's success. "Bankers were very concerned about the effect on the market, and the economy as a whole, if Wells Fargo announced a huge equity deal, and then it didn't get priced," Fogg explains. Adding more pressure to the matter was the upcoming official release of the "stress test" results, scheduled for May 7 at 5 p.m.

Wells Fargo's advisers anticipated a healthy appetite for the bank's stock. But they needed to better gauge the interest before any public announcements. There was a tool to do just that, one that Guest, Fogg, and the bankers had utilized successfully on the November offering: a "wall crossing." 

In a wall crossing, institutional investors, such as large mutual funds and hedge funds, agree to buy large numbers of shares in exchange for securing access to inside information about the deal. For their part, investors agree not to trade the stock until the public sale is finished, which typically occurs less than 36 hours later.

While the wall crossing had been utilized before, applying it to a bank follow-on offering was new. It has since caught on, and the model has been put to use by other banks wishing to float large follow-on offerings as an added level of security.

The timeline on the offering was uncomfortably tight. Due diligence was limited to a single day. One legal team was dispatched to Minneapolis the night of Wednesday, May 6 (less than 24 hours before the stress test results were due). Confidentiality agreements with the major investors had to be drafted within less than a day on May 7, then delivered to investors for their signatures. "It was an extraordinary team effort," Fogg says.

Wells Fargo unveiled its offering May 7 at 4 p.m. An hour later, the government announced that Wells Fargo, which had received $25 billion in the first installment of TARP funds last October, needed to raise another $13.7 billion to meet its new capital requirements.

Despite the government announcement, the $6 billion planned offering netted $7.5 billion the following day, May 8. Wells Fargo’s stock price rose 5 percent to $25.96 by close of business Friday; it has continued to rise since then.


Dealmaker of the Week is published Fridays in The Am Law Daily.

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