Benedetti and another v Sawiris and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PATTEN,Lord Justice Patten |
| Judgment Date | 21 July 2009 |
| Neutral Citation | [2009] EWHC 1806 (Ch),[2009] EWHC 1330 (Ch) |
| Docket Number | Case No: HC07C02262 |
| Court | Chancery Division |
| Date | 21 July 2009 |
[2009] EWHC 1330 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand,
London, WC2A 2LL
THE HON. MR JUSTICE PATTEN
Case No: HC07C02262
Mr Geoffrey Vos QC, Mr Joe Smouha QC and Mr Andrew Twigger (instructed by Herbert Smith LLP) for the Claimants
Mr Laurence Rabinowitz QC, Mr Richard Hill and Gregory Denton-Cox (instructed by Kirkland & Ellis International LLP) for the First and Fourth Defendants
Mr Adrian Beltrami QC and Mr Fred Hobson (instructed by Simmons & Simmons) for the Second and Third Defendants
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Para Page
Introduction 4
The First Closing (11 August 2005): purchase of 62.75% Wind 5
The Second Closing (8 February 2006 7
The Witnesses 17
Mr Benedetti 18
Mr Sawiris 22
Mr Abdou 23
2002 – January 2004 24
The December 2002 meeting 24
The preparation of the Acquisition Agreement 27
The 22nd April 2003 meeting 28
The May 2003 meeting 30
Conclusions on the Understanding 31
Other possible investors 33
Project Alizes 34
The November 2003 meeting in Paris 35
The signing of the Acquisition Agreement 38
The construction of the Acquisition Agreement 44
The Brokerage Fee 53
The period from the signing of the Acquisition Agreement to the incorporation of Weather I 54
The IPE Collaboration Framework Agreement 54
The incorporation of Rain 56
The July 2004 meeting in Cannes 57
September-October 2004 59
November 2004 – IPE prepare a draft offer for Wind 59
December 2004: the draft Memorandum of Understanding 62
The 16th December 2004 offer 64
The period leading up to the signing of the SPA 66
The 11th February 2005 offer 66
Due Diligence 69
The 15/16th March 2005 meeting in Rome 71
The transfer of the shares in Weather I 75
The First Brokerage Agreement 77
The March and April 2005 offers 80
Mufasa and Super Mufasa 84
Agreeing the Premium 88
The meetings on 16th to 18th May 2005 90
Weather II 90
The SPA 92
The assignment of the Brokerage and Support Agreements 93
The position after the signing of the SPA 93
The June 2005 e-mails 94
The First Closing 98
The €67 million brokerage fee 98
September 2005 101
October 2005 102
November 2005 102
The January 2006 meeting in Cairo 102
St Tropez: August 2006 105
The October draft agreements 106
The contractual claims 106
Implied variation 106
Abandonment 112
Breach of contract 114
The claim under clause 7.3.1 115
The Hellas and Enel acquisitions 115
Breach of fiduciary duty 116
The Constructive Trust Claim 116
Quantum Meruit 126
Conclusion 139
Introduction
On 26 th May 2005 Enel S.p.A. (“Enel”), the largest energy company in Italy, and its holding company, Enel Investment Holding BV (“EIH”), entered into a sale and purchase agreement (“the SPA”) for the disposal of 62.75% of the issued share capital of its subsidiary, Wind Telecomunicazioni S.p.A. (“Wind”), for the sum of €2.986 billion. The SPA also contained an option enabling Enel to dispose of a further 6.23% of the shares in Wind for €328 million which it subsequently exercised.
Wind (as its name suggests) is a leading Italian telecommunications company. The acquisition of Wind is said to have been at the time it took place the largest leveraged buy-out ever carried out in Europe. The purchase price of €2.986 billion for the 62.75% of Wind was financed by a variety of bank borrowings including a €1.2 billion collateralised loan arranged by Banca IMI S.p.A.; €294 million from Weather Investments II S.A.R.L. (“Weather II”) on behalf of the family of the First Defendant, Mr Naguib Sawiris (“Mr Sawiris”); €206 million from various Middle Eastern investors brought into the transaction by Mr Sawiris following the signing of the SPA; and with a €305 million contribution from Enel in return for 5.2% of the shares in Weather Investments S.r.l. (“Weather Italy”). In addition, some €6.8 billion of Wind debt was refinanced as a term of the SPA by a syndicate of banks made up of Banca IMI, Deutsche Bank and ABN Amro.
Weather Italy became the ultimate holding company of Enel's 62.75% of Wind acquired under the SPA and also of the remaining 37.25%: i.e. the 6.23% sold under the option and a further 31.02% which (as explained below) Enel exchanged for a total stake of 26.1% in Weather Italy. It was also used in the acquisition structure as the investment vehicle which accommodated the interests of the Sawiris family, the third party Middle Eastern investors and Enel itself in a 50.1% majority interest in Orascom Telecom Holding S.A.E. (“Orascom”) which was transferred by the Defendants into the structure as part of the acquisition arrangements.
Orascom is an Egyptian company owned and controlled by members of the Sawiris family including Mr Sawiris. It operates a mobile telecommunications business concentrated in the Middle East, Africa and South East Asia. At all material times Mr Sawiris was the chairman and CEO of the company. Orascom is quoted on the Egyptian Stock Exchange and (through Global Depositary Receipts) on the London Stock Exchange. References later in this judgment to its shares should be read as including the GDRs.
At the time of closing Mr Sawiris had a personal holding of 4.1% in Orascom through his BVI registered company, Cylo Investments Limited (“Cylo”). The remainder of the shares were held by two Cayman Island companies, April Holding (“April”) (34.6%) and OS Holding (“OSH”) (17.7%), on behalf of two trusts for the benefit of members of the Sawiris family, with 43.6% of the shares being publicly held.
The transactional arrangements for the acquisition of Wind under the SPA are complicated and involved a series of transfers and payments through a network of companies set up for the purposes of the acquisition which were spread over two closings held on 11 th August 2005 and 8 th February 200The explanation for the transactions used and the companies set up to carry them out is partly fiscal. For the purposes of this introduction it is unnecessary to go into the precise details of each of the transactions involved but, since a number of the issues in the action appear to centre on the complexity of the banking and other arrangements which were required to be put in place in order to carry out the acquisition, some account needs to be given of what took place. For this purpose the parties have very helpfully provided me with an agreed statement of the transactional steps taken at the first and second closings. Largely based on that document they can be summarised as follows.
The First Closing (11 August 2005): purchase of 62.75% Wind: April, OSH and Cylo sold GDRs in Orascom, representing 50% + one share (“the Orascom stake”) to a Luxembourg company, Weather Capital S.A.R.L. The Transfer Agreements provided that the proceeds of the sale were to be used to subscribe for shares in Weather Italy.
The stated consideration payable by Weather Capital was €3.5 billion, made up of:
(a) €1.2 billion paid in cash, which was obtained by Weather Capital from various lenders (with Banca IMI as arranger) by way of collateralised loan secured over the whole Orascom Stake (and over shares in Weather Capital). The €1.2 billion loan was also guaranteed by Weather Italy and there were provisions restricting changes to Weather Italy's interest in Wind and Enel's interest in Weather Italy. (In fact the cash raised was paid directly to Weather Italy as part of the capitalisation of Weather Italy); and
(b) €2.3 billion by way of subordinated loan granted by April, OSH and Cylo to Weather Capital.
April, OSH and Cylo contributed to Weather Italy, in return for shares in Weather Italy:
(a) €1.2 billion in cash (paid directly to Weather Italy by Weather Capital as described in 8(a) above); and
(b) Their interest and rights as lender under the subordinated loan, which were assigned to Weather Italy.
The number of shares in Weather Italy received by April, Orascom and Cylo as a result of these contributions was determined on the basis of the agreed value for the Orascom Stake of €5.05 billion; the equivalent in May 2005 of about US$58 per GDR (i.e. not on the basis of the €3.5 billion formal sale price).
Weather II on behalf of the Sawiris family contributed approximately €294 million to Weather Italy in return for shares in Weather Italy. This investment was funded (at least in part) by OS Ventures, a subsidiary of OSH, which had entered into a derivative agreement with Bear Stearns in June 2005 involving a portion of OSH's shares in Orascom.
Enel contributed €305 million cash to Weather Italy in return for shares in Weather Italy.
The Middle Eastern Investors contributed approximately €206 million cash to Weather Italy in return for shares in Weather Italy.
As part of the continuous sequence of transactions, April, OSH and Cylo contributed their shares in Weather Italy to Weather II, in return for shares in Weather II.
At this point, the structure and shareholdings in...
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