The sheer size of the Hydro One sell-off means many law firms stand to reap lots of work from the deal, lawyers say.
“I think there will be a fair number of law firms involved because of the size of the deal,” says Michael Barrett, partner and co-head of power and renewable energy at Bennett Jones LLP.
Ed Clark, the former head of TD Bank who recommended the sale of 60 per cent of Hydro One, has denied Bay Street will draw big profit from the transaction, but lawyers say law firms will likely gain a good amount of work from one of the largest public offerings in Canadian history.
Given the size of the Hydro One sale, the bank that will act as the lead underwriter will struggle to singlehandedly find buyers for all 60 per cent of the company, says Barrett.
“It’s likely that whoever is picked as the lead underwriter will syndicate the underwriting task, so there will be a number of investment banks involved in the transaction, each of which will require their own lawyers,” he says.
Barrett says he expects about eight to 12 banks to be involved in the deal. “So I do think there’s an opportunity for work for a number of firms in the area.”
The lawyers who act for Hydro One and the lead underwriter will likely be those who are familiar with the company and its regulatory environment, according to Barrett.
The transactional costs associated with the sale of Hydro One are one of the reasons critics of the deal have said the electricity transmission and distribution company should stay under full public ownership.
In a legal opinion arguing against the sale of Hydro One, Steven Shrybman of Sack Goldblatt Mitchell LLP suggested that lawyers and private investors would be “the immediate winners” of the deal.
“Whether one shares Mr. Clark’s optimism about gains that may ultimately be achieved by privatization, it is clear that the immediate winners will be private investors and the legal and investment firms that will prepare and underwrite any IPO,” he wrote.
“The cost of legal and financial services for the previous attempt to privatize Hydro One, as disclosed by the IPO, was significantly in excess of $100 million. At least over the short term, and perhaps indefinitely, these imbalances between public and private benefits also call into question the reasonableness of any privatization decision,” he added.
That price tag of $100 million is “to me, an awful lot of money,” Shrybman tells Law Times. “I wonder about the influence that may be exerted by those who stand to benefit from the transaction cost on the policy development process of the government,” he says, suggesting there should be full transparency on the process leading to the sale.
Opposition politicians have raised similar concerns. “There seems to be a fair amount of money that people can make in this sale from traders to lawyers,” says Peter Tabuns, the NDP’s energy critic.
“People will be advised on how to write contracts; they’ll be advised on how to structure their holdings,” he adds.
Although the Hydro One sale is novel, the work isn’t necessarily going to be more complex than with other transactions, according to Barrett. If a lawyer or law firm is acting for Hydro One, they’d have to, as with any other initial public offering, describe in the disclosure the nature of business and set out the various pieces of information a prospective buyer of the shares would want to know, such as how much the company pays its executive board and what risks the new owners would face, says Barrett.
For Bay Street, the prospects for legal work may go beyond the sale of Hydro One itself. Part of Clark’s recommendation was the removal of tax impediments to private equity ownership of local electricity distribution companies.
“There has been a lot of policy papers and thought pieces about how we have too many of these [companies] in Ontario and they’re very inefficient,” says Barrett. “The impediment to private equity coming in and buying them up and merging them into a fewer number of larger entities has been the tax treatment involved. There are particular taxation rules that sort of do not favour private equity ownership,” he adds.
If the government removes those impediments and a consolidation does happen, “that is a huge opportunity for lawyers,” according to Barrett.
“Any time there’s a consolidation activity, that’s really a mergers and acquisition transaction and that requires legal advice,” he says.