Benedetti & Anor v Sawiris & Ors, Court of Appeal - Chancery Division, June 15, 2009, [2009] EWHC 1330 (Ch)

Resolution Date:June 15, 2009
Issuing Organization:Chancery Division
Actores:Benedetti & Anor v Sawiris & Ors
 
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Neutral Citation Number: [2009] EWHC 1330 (Ch)Case No: HC07C02262IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONRoyal Courts of JusticeStrand, London, WC2A 2LLDate: 15th June 2009Before :THE HON. MR JUSTICE PATTEN- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Mr Geoffrey Vos QC, Mr Joe Smouha QC and Mr Andrew Twigger (instructed by Herbert Smith LLP) for the ClaimantsMr Laurence Rabinowitz QC, Mr Richard Hill and Gregory Denton-Cox (instructed by Kirkland & Ellis International LLP) for the First and Fourth DefendantsMr Adrian Beltrami QC and Mr Fred Hobson (instructed by Simmons & Simmons) for the Second and Third DefendantsHearing dates: 26th & 27th February and 2nd, 3rd, 4th, 5th, 6th, 9th, 10th, 11th, 12th, 13th, 16th, 17th, 18th, 19th, 20th, 23rd, 24th, 25th, 26th, 27th & 31st March, 1st, 2nd, 3rd & 6th April 2009 and 7th, 8th, 11th & 12th May 2009- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -JudgmentPara Page1. Introduction 47. The First Closing (11 August 2005): purchase of 62.75% Wind 522. The Second Closing (8 February 2006 764. The Witnesses 1772. Mr Benedetti 1893. Mr Sawiris 2298. Mr Abdou 23101. 2002 - January 2004 24102. The December 2002 meeting 24118. The preparation of the Acquisition Agreement 27125. The 22nd April 2003 meeting 28134. The May 2003 meeting 30141. Conclusions on the Understanding 31148. Other possible investors 33154. Project Alizes 34160. The November 2003 meeting in Paris 35169. The signing of the Acquisition Agreement 38191. The construction of the Acquisition Agreement 44222. The Brokerage Fee 53226. The period from the signing of the Acquisition Agreement to the incorporation of Weather I 54226. The IPE Collaboration Framework Agreement 54236. The incorporation of Rain 56239. The July 2004 meeting in Cannes 57245. September-October 2004 59250. November 2004 - IPE prepare a draft offer for Wind 59257. December 2004: the draft Memorandum of Understanding 62264. The 16th December 2004 offer 64272. The period leading up to the signing of the SPA 66272. The 11th February 2005 offer 66286. Due Diligence 69292. The 15/16th March 2005 meeting in Rome 71308. The transfer of the shares in Weather I 75319. The First Brokerage Agreement 77335. The March and April 2005 offers 80354 Mufasa and Super Mufasa 84375. Agreeing the Premium 88382. The meetings on 16th to 18th May 2005 90388. Weather II 90396. The SPA 92399. The assignment of the Brokerage and Support Agreements 93402. The position after the signing of the SPA 93405. The June 2005 e-mails 94421. The First Closing 98422. The €67 million brokerage fee 98435. September 2005 101440. October 2005 102442. November 2005 102443. The January 2006 meeting in Cairo 102455. St Tropez: August 2006 105457. The October draft agreements 106461. The contractual claims 106463. Implied variation 106483. Abandonment 112494. Breach of contract 114498. The claim under clause 7.3.1 115499. The Hellas and Enel acquisitions 115502. Breach of fiduciary duty 116504. The Constructive Trust Claim 116527. Quantum Meruit 126576. Conclusion 1391. Introduction1. On 26th 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. 2. 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. 3. 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. 4. 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. 5. 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. 6. 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 11th August 2005 and 8th February 2006. The 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.7. 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.8. 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. 9. 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. 10. 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).11. 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.12. Enel contributed €305 million cash to Weather Italy in return for shares in Weather Italy. 13. The Middle Eastern Investors contributed approximately €206 million cash to Weather Italy in return for shares in Weather Italy. 14. 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. 15. At this point, the structure and shareholdings in Weather Italy were:16. As can be seen from the above, Weather Italy had by this stage received in total2,005 million in cash:1.2 billion from April, OSH and Cylo;305 million from Enel;294 million from Weather II; and206 million from the Middle Eastern Investors. Weather Italy used1,445 million of this cash to subscribe for shares in ``Pikco'' (Wind...

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