April 29, 2010 12:16 PM

Simpson, S&C Take Lead on $6.7 Billion Energy Deal

Posted by Zach Lowe

Simpson Thacher & Bartlett took the lead role advising the power company PPL in its $6.7 billion all-cash acquisition of E.ON U.S.'s power and natural gas unit, according to lawyers on the deal. Sullivan & Cromwell represented E.ON, proving that you don't necessarily lose a client when that client is gobbled up in a merger, as happened to S&C when Germany-based E.ON purchased the U.K. energy company PowerGen in 2002, according to lawyers on the deal.

The deal is required some creative financing, says Vincent Pagano, Jr., who led the Simpson team along with partner Mario Ponce. There is no stock changing hands in the deal; instead, PPL and its legal team obtained bridge financing from Bank of America and Credit Suisse, and the company may also sell some noncore assets to raise more cash, according to Bloomberg and lawyers involved in the transaction. If financing falls through, PPL will have to pay E.ON a $450 million breakup fee, according to a source familiar with the matter. 

The deal will also require both federal and state regulatory approval, lawyers say. PPL will be using a K&L Gates team for antitrust work in Washington, D.C., and it has retained a local firm to deal with regulators in Kentucky, where the two largest units included in the deal are located.

Simpson Thacher has represented PPL for about 80 years, says Pagano, who inherited PPL as a client when another partner retired about 20 years ago. 

Sullivan & Cromwell's relationship with European energy giant E.ON is more recent, says Joseph Frumkin, the lead S&C partner on the PPL transaction. Frumkin and S&C served as the go-to deal lawyers for PowerGen, which E.ON purchased in 2002, according to Bloomberg. As is common, the merger meant the loss of PowerGen as a client for S&C. But after S&C found itself across the table from E.ON in 2006, when E.ON attempted to acquire the Spanish power company Endesa (another S&C client) in a deal that eventually fell apart, their relationship took a new turn. Frumkin was in touch with E.ON folks often on the failed Endesa deal, and the company eventually started sending work S&C's way, he says. 

PPL will also assume $925 million of debt in the deal. 

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