May 8, 2009 5:30 AM

Dealmaker of the Week: David Lakhdhir of Paul Weiss

Posted by Julie Triedman

In 2007 Citigroup tapped longtime outside counsel Paul, Weiss, Rifkind, Wharton & Garrison to help it acquire Japanese broker-dealer Nikko Cordial Corporation. Japan's third-largest brokerage was then plagued by a corruption scandal and Citigroup's then-CEO, Charles "Chuck" Prince, saw the play for Nikko as a step toward establishing a stronger Citi beachhead in Asia.

Within months of the deal, housing markets collapsed, Prince was shown the door, and last fall, facing its own crises, Citi's new leadership once again turned to Paul Weiss to unwind the deal. Under terms announced last Friday, Citi has agreed to sell off most of the brokerage house and related assets to Japanese banking behemoth Sumitomo Mitsui Banking Corporation in a deal worth $7.9 billion.

The carve-out is expected to contribute $2.5 billion to Citi's tangible common equity, and is a welcome infusion at a time when the bank is struggling to raise capital to repay some of its $45 billion in government bailout funds.

The spinoff process has been almost, but not quite, as complex in structure as that initial acquisition, say the lawyers involved. Behind that complex structure is Paul Weiss London-based corporate partner David Lakhdhir, who has often been called upon to work out the trickiest cross-border deals for Citi. "When there's a deal done in some weird place, they think of me," says Lakhdhir laughing. A couple examples: In 2006 he helped Citi acquire a stake in Indian bank HDFC; that same year he advised on Citi's purchase of 20 percent of Turkey's leading private bank, Akbank.

Lakhdhir, 51, is a veteran of the Japanese banking market: Between 1993 and 1997, he led Paul Weiss's ten-lawyer Tokyo office, representing both Mitsubishi and Bank of Tokyo in their 1996 merger. He has handled several Japanese deals since returning to London, advising Sanwa in its 2002 merger with Tokai Bank and Toyo Trust, and Mitsubishi in its megamerger with UFJ in 2006.

On Citi's acquisition of Nikko, Lakhdhir devised a process for Citi to "squeeze out" Nikko's minority shareholders, a nine-month process that netted Citi a 100 percent stake in Nikko Cordial.

Several months after that deal closed, the credit markets collapsed. Soon after, Lakhdhir was approached by Citi. "They wanted to know, 'if we do have to carve out this business, how would you do it?'" he recalls.

Lakhdhir suggested a structure that resulted in three integrated transactions:a $5.5 billion sale of the broker-dealer; a $287 million sale for the stakes and partnership interests Nikko held in client companies; and $2 billion in retained cash and debt payments. Inside the Tokyo offices of Japanese counsel Nishimura & Asahi, Lakhdhir explained the plan to each of the bidders. At first, he says, they were put off by the complex structure, "but in the end, nobody asked to change our structure."

Under Japanese rules, Citi will "de-merge" the chunks of Nikko it wanted to sell, form them into a new company, New Nikko Securities, and then sell that company to Sumitomo. But like an earlier Citi deal to sell a majority stake in its U.S. brokerage unit, Smith Barney, this sale allows Citi to keep close ties with its former subsidiary. Citi plans to sign a formal alliance with Nikko Cordial so that it can market its investment banking products through Nikko's brokerage units. It will also retain Nikko Asset Management and its commercial and investment banking units in Japan.

The auction began in late March, and was largely overseen by Citi's experienced in-house team. In the end, Sumitomo Mitsui was selected because of price, the structure of the deal, and also because it agreed to distribute the U.S. bank's global products over its network, according to news reports.

Lakhdhir, meanwhile, has been banking thousands of frequent flyer miles. After arriving in Tokyo on April 24, his days stretched from 8 a.m. to 2:30 a.m.. Negotiations stretched into dawn, Thursday, April 30, the day before the agreement was announced. That was followed by a brief return to his London office before Lakhdhir flew to New York to start assembling the same team of firms that had helped Citi obtain the regulatory approvals needed to acquire Nikko just 16 months earlier.

A closing is expected in the fourth quarter.

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

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