M & focus AUGUSTA 2005, NO.4

in this issue

DaimlerChrysler Prevails Use of German GmbH Against Kerkorian Challenge Shelf and Shell Companies BY ALBERTO LUZÁRRAGA BY HEINO RÜCK

Discussion of the recent court ruling in the case The (re-)commencing of a business activity brought by Kirk Kerkorian based on statements by a German shelf or shell GmbH is considered made by management of DaimlerChrysler in to be an “economic incorporation,” with the connection with its merger. PAGE 2 consequence that strict rules regarding the contribution of capital in German corporate law are (once again) applied. PAGE 5

“[one of] the top performing The Growing Influence of Hedge Funds BY AZAM H. AZIZ

law firms, ranking by dollar Recent market events and a regulatory change have paved the way for hedge fund managers volume globally” to become increasingly common participants in

—The Wall Street Journal the acquisitions market and to exercise greater April 1, 2005 influence over the management of companies in which they invest. PAGE 8

SHEARMAN & STERLING focus [see back page for details]

Representing Legg Mason, Inc. in Representing Dresdner Bank AG in Representing Citigroup Inc. in the its US$3.7 billion acquisition of the sale of its North American and US$6.6 billion acquisition of Federated substantially all of the worldwide European private equity investment Department Stores, Inc.’s private label asset management business of fund holdings to American and co-branded credit card business. Citigroup Inc. International Group, Inc. Representing Eurazeo S.A. in connection Representing The Permal Group in Representing Hunan Valin Iron & with Eutelsat S.A.’s €2.4 billion leveraged its US$1.386 billion acquisition by Steel Group Co., Ltd. in the sale of recapitalization. Legg Mason, Inc. its 37% interest in Hunan Valin Steel Tube & Wire Co., Ltd. to Mittal Steel Representing France Télécom S.A. Company N.V. in the sale of its 27.3% stake in MobilCom AG to Texas Pacific Group. DaimlerChrysler Prevails Against Kerkorian Challenge BY ALBERTO LUZÁRRAGA | NEW YORK

n April 7, the United States District Court of Following the announcement of the Merger, a Delaware ruled in favor of DaimlerChrysler proxy/prospectus was prepared, filed with the SEC and O AG in the case brought by Kirk Kerkorian mailed to Chrysler’s shareholders with a cover letter based on statements made by management of from Robert Eaton, chief executive officer and chairman DaimlerChrysler in connection with the merger (the of Daimler-Benz, seeking their approval for the “Merger”) of Daimler-Benz AG and the Chrysler transaction. The proxy/prospectus described the 1 Corporation. In dismissing Kerkorian’s claims, the terms of the Merger, the jurisdiction of incorporation court found that the statements did not represent for the new company, the corporate form to be fraudulent statements and, even if they had been utilized and the governance structure. Although the misrepresentations, Kerkorian had not relied on such proxy/prospectus used the term “merger of equals” at statements in deciding to support the Merger. least 13 times, it was never defined. In September 1998, the shareholders of Daimler-Benz Background and Chrysler, including Tracinda, voted overwhelmingly This case represents the final chapter in a tumultuous to approve the merger of these two companies to create relationship between Kerkorian and Chrysler. Their DaimlerChrysler AG. At that time, the media reported disputes appeared to be settled in 1996 when Chrysler the Merger as being a “merger of equals” with Chrysler reached an agreement with Tracinda Corporation, and Daimler-Benz’s shareholders receiving approximately Kerkorian’s holding company, by which Tracinda, 42% and 58%, respectively, of the shares in the new among other things, agreed to maintain its Chrysler company. Under the merger agreement, the chief exec- stockholding below 13.5% in exchange for a seat on utive officer and chairman of Daimler-Benz, Juergen Chrysler’s board. When Chrysler and Daimler-Benz Schrempp, and the chief executive officer and chairman began discussing the proposed Merger in the late 1997 of Chrysler, Eaton, also agreed to share the office of and early 1998, Kerkorian was kept apprised of the chairman of DaimlerChrysler’s board. negotiations given the size of Tracinda’s shareholdings Unfortunately, the Merger did not prove successful. and its history with Chrysler. Kerkorian’s lawyers and In the face of worsening results, a series of changes was advisors reviewed the business combination agreement made to the board of management and administration of before it was executed. On May 6, 1998, however, DaimlerChrysler leading the press to speculate that the while the Chrysler and Daimler-Benz boards executed Merger in reality had been an acquisition not a merger this agreement, Tracinda, Kerkorian, Chrysler and of equals. At that time, Eaton and Schrempp publicly Daimler-Benz finalized and signed a separate stockholder asserted that these changes did not undermine the agreement that, among other things, obligated merger of equals. However, two years later, Schrempp Tracinda to vote in favor of the Merger. told the Financial Times that “the structure we have now with Chrysler (as a standalone division) was always the

1 Tracinda Corporation v. DaimlerChrysler AG, 364 F. Supp. 2nd 362

| 2 | S HEARMAN & STERLING LLP | M&A FOCUS | Analysis “Noting Tracinda’s clear In its decision, the court recounted the long history between Chrysler and Kerkorian and then evaluated access to the parties by each of the elements needed to bring claims for common law fraud and violations of Sections 10(b) and virtue of its seat on the 14(a) of the U.S. Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated thereunder. Chrysler board, the court Specifically, the court focused on three broad questions: ■ Did the Defendants use Eaton to make misleading was unable to ignore the statements? ■ Did the statements constitute misrepresentations? sophistication of Tracinda ■ Did Kerkorian actually rely on such statements?

as an investor ...” First, with respect to the statements made by Eaton to Kerkorian, the court found that the Defendants did structure I wanted. … We had to go a roundabout way. not use Mr. Eaton to communicate misrepresentations … If I had gone and said Chrysler would be a division, to Tracinda. The court found that the Defendants everybody on their side would have said: ‘There is no “exercised no control over Eaton or the statements he 2 way we’ll do a deal.’” made to Kerkorian” and noted that the Defendants’ Soon afterwards, Kerkorian filed a lawsuit against knowledge of the communication coupled with their DaimlerChrysler, Daimler-Benz, and Schrempp (the desire for Chrysler’s shareholders to support the “Defendants”) alleging violations of securities laws, Merger did not “establish that Schrempp knew or common law fraud and conspiracy. He claimed that he controlled the substance” of the exchange between was told by Eaton that the proposed transaction would Eaton and Kerkorian. be a “merger of equals,” that the board of management Second, with respect to these statements, the court of the new company would be evenly split and that held that, even if the Defendants were responsible for Schrempp and Eaton would be co-chairmen of the these statements, Tracinda failed to prove that combined company with the Chrysler team playing a actionable, oral misrepresentations were actually made significant role in the new company as equal partners. to Kerkorian. Upon reviewing the testimony, the court Kerkorian cited Schrempp’s statement as direct evidence concluded that the statements made by Eaton were that he and the other Chrysler shareholders were misled “vague, indefinite and that type of general optimism to believe that this transaction was a merger of equals which is insufficient to support a fraud or federal securi- and not an acquisition. ties violation claim.” [cont’d on next page]

2 Financial Times, Oct. 30, 2000

| S HEARMAN & STERLING LLP | M&A FOCUS | 3 | Kerkorian Challenge [cont’d from previous page]

equals” label since Mr. Kerkorian supported the Merger “... the court found that before he had any discussions about corporate governance. Finally, after dismissing these elements with respect to Tracinda entered into the the oral statements, the court addressed Tracinda’s claims that the written statements in the proxy/prospectus stockholder agreement for and accompanying letter from Eaton were false and misleading and thereby constituted separate violations of its own reasons without the U.S. securities laws. Once again, the court concluded that each of the written statements regarding the any fraudulent inducement, “merger of equals,” the composition of the board, the selection of the German AG form and the voting status and, as a result, Tracinda of the management members were not actionable misrepresentations. In addition, the court held that, even became obligated to vote if these statements had been incorrect, Tracinda had not “demonstrated the materiality and reliance elements in favor of the Merger necessary to prove its claims for violation of the securities laws” as these corporate governance points were not prior to the filing of the significant to Tracinda when it decided to agree to support the Merger. On the contrary, the court found proxy/prospectus.” that Tracinda entered into the stockholder agreement for its own reasons without any fraudulent inducement, Third, the court found that Tracinda was not fraudulently and, as a result, Tracinda became obligated to vote in induced to enter into the stockholder agreement and did not favor of the Merger prior to the filing of the rely on the oral representations allegedly made by Eaton. proxy/prospectus. Due to this pre-existing contractual Noting Tracinda’s clear access to the parties by virtue of its commitment, Tracinda was unable to prove that it had seat on the Chrysler board, the court was unable to ignore relied on the proxy/prospectus or other documents in the sophistication of Tracinda as an investor – one that deciding to vote its shares in favor of the Merger. would require written documentation (not just oral In all, the court rejected each of the claims brought by statements) before entering into a transaction. Considering Kerkorian, placing great weight on the sophistication of the totality of the circumstances, the court found that it was Tracinda as an investor, its pre-existing views as to the unreasonable for Tracinda to rely on Eaton’s statements. merit of the transaction and the superior information Moreover, the court found that Tracinda’s decision to enter that was available to Tracinda due to its representative into the stockholder agreement was not guided by the on the Chrysler board and Kerkorian’s relationship with corporate governance considerations and “merger of the principals negotiating the Merger. ■

| 4 | S HEARMAN & STERLING LLP | M&A FOCUS | Use of German GmbH Shelf and Shell Companies BY HEINO RÜCK | MANNHEIM

I. INTRODUCTION Incorporation of a GmbH or AG is considered to The use of shelf and shell corporations – limited liability create a shelf company (a “clean shell”) when at the time companies (Gesellschaft mit beschränkter Haftung, of incorporation the business aim of the company is not GmbH) and stock corporations (Aktiengesellschaft, AG) – yet certain or if it is uncertain when the business activity currently plays an important and much discussed role in will begin. In contrast, one can speak of a shell company German corporate legal practice. Recent decisions of the (a “used shell”) when an existing, formerly active German Federal Court (BGH) dated December 9, 2002 GmbH or AG has ceased to do business but has not (Az.: II ZB 12/02) and July 7, 2003 (Az.: II ZB 4/02) have been terminated. increased the interest in issues concerning shelf and shell corporations. The procedures for incorporation of a II. APPLICATION OF THE RULES GmbH or AG often appear complicated, time- FOR INCORPORATION consuming and tied to considerable risks so that it may Once a GmbH or an AG has been incorporated and very well seem more appealing to begin a new business registered in the commercial register, the rules for activity with an already existing corporation. Such incorporation have no more direct application. Since corporations have been offered on the market for a long 2002/2003, both the initial undertaking of a business time; this is true in particular for the GmbH as a activity by a shelf company and the re-activation of a common vehicle for business activity. shell company with a new business activity are considered to be “economic incorporations” by the BGH, with the “... the initial undertaking of consequence that several central and very strict rules regarding the contribution of capital in German corporate a business activity by a shelf law are (once again) applied to these corporations. company and the re-activation 1. Disclosure to the Commercial Register The fact that a corporation is (re-)commencing a busi- of a shell company with a ness activity – the economic equivalent of a new incorporation – must be disclosed to the commercial new business activity are register. Further, the register requires that the (new) business director (Geschäftsführer) must certify, in considered to be ‘economic accordance with Section 8 Paragraph 2 GmbHG, that the capital contributions pursuant to Section 7 Paragraphs incorporations’ ... ” 2 and 3 GmbHG have been made and are, at the time of the disclosure to the commercial register, still irrevocable at the disposal of the corporation’s management. [cont’d on next page]

| S HEARMAN & STERLING LLP | M&A FOCUS | 5 | GmbH Shelf and Shell Companies [cont’d from previous page]

2. Liabilities parties in accordance with Section 11 Paragraph 2 The formal requirements for incorporation and registration GmbHG if one or more shareholders did not agree to with the commercial register are sanctioned by liability begin business operations prior to the disclosure. These rules. Shareholders are liable for the proper contribution liability principles applicable to an activated shelf or shell of capital at the point in time of the disclosure to the GmbH are not dependent on a change of shareholders commercial register of the fact that a corporation is or a modification of the articles of association. They (re-)commencing a business activity. If the nominal apply to every (re-)activation of an inactive GmbH, also capital required by the articles of association is no longer within a group of companies. Essential is only that the intact at such time for whatever reason, in particular corporation has been previously inactive. because business operations have already begun, the shareholders must make up any difference under the III. RISKS FOR SHAREHOLDERS rules developed by case law under the theory of AND BUSINESS DIRECTORS “Differential Liability” for any balance sheet deficiency. The equivalent treatment of a legal incorporation and an Furthermore, anyone acting on behalf of the company “economic incorporation” by the BGH creates before the aforementioned disclosure – in particular the numerous problems and risks. In the case of a shelf business directors – may be personally liable to third GmbH, which has not yet become active, it is not problematic to determine when the underlying “Shareholders are liable business operator first uses the corporation and thereby “incorporates” it economically. In the case of for the proper contribution corporations with a history of business activity, this determination can, in contrast, be difficult. To complicate of capital at the point in matters, it is not certain whether the corporation must have completely ended its earlier business activities or time of the disclosure to whether a significant reduction is sufficient in order to be able to speak of the lack of economic activity turning the commercial register a corporation into a shell company. It is also questionable whether a completely new direction of business activity of the fact that a corporation with a corresponding change of the business purpose is sufficient to give rise to the applicability of the rules for is (re-)commencing a incorporation or whether there must also be a period of inactivity as well. The legal uncertainties resulting from business activity.” these unanswered questions result in business directors

| 6 | S HEARMAN & STERLING LLP | M&A FOCUS | and shareholders of a GmbH whose reorganization may In some cases, the incorporation of a new corporation be interpreted as an “economic incorporation” facing will be simpler and less expensive than using an existing the significant liability risks set out above. shell corporation. Shareholders and business directors are well advised IV. CONCLUDING REMARKS to always carefully examine whether an “economic While the use of shelf and shell corporations is always incorporation” takes place upon the activation of possible (there is no rule that “prudent business persons” corporations. A legal due diligence before purchasing or must establish a new corporation when starting a new using a shelf or shell corporation is essential. Persons business operation and cannot make use of an existing acting on behalf of the company or purchasers must corporation), there are nevertheless numerous dangers ensure that their corporation begins its business operations when (re-)activating a dormant (shelf or shell) GmbH. only after disclosure of the use of a shelf or shell company to the commercial register and that there is no balance sheet deficiency at that time. Furthermore, “Shareholders and business other prerequisites of an incorporation must be observed, e.g., where applicable, the more cumbersome directors are well advised actions required with respect to the raising of capital by contributions in kind as opposed to cash contributions. to always carefully examine Compliance with these obligations and the resulting legal release from subsequent personal liability in most whether an ‘economic cases make the liability risks connected with the use of a shelf or shell company acceptable. The use of shelf and incorporation’ takes place shell corporations, therefore, remains a sensible alternative to the incorporation of a new corporation. ■ upon the activitation of corporations.”

| S HEARMAN & STERLING LLP | M&A FOCUS | 7 | The Growing Influence of Hedge Funds BY AZAM H. AZIZ | NEW YORK

edge funds are becoming increasingly common returns historically promised and, until recently, delivered participants in the acquisitions market and by hedge funds. Pension plans, endowments and other H are exercising greater influence over the institutional investors also have moved assets to hedge management of companies in which they invest. While funds as conventional securities markets have experienced some view the entry of hedge funds into the acquisition below-average results. In many cases investors have taken market as the natural evolution of hedge fund investment advantage of the low interest rate environment and strategies, others see it as the result of fewer opportunities leveraged their positions in hedge funds. in the arbitrage market and an emerging trend toward The long-term above-average returns from hedge less hedge fund liquidity. Ultimately, whether hedge funds mask a recent period of weakness. In the 16 months funds remain a significant participant in the market ended on April 30, 2005, hedge funds outperformed the will depend on whether hedge funds are able to S&P 500 only by 0.2% on an annualized basis. The generate above-average returns with long-term influx of cash combined with the increase in the number illiquid investments that require significantly more of funds has resulted in many fund managers chasing management experience and attention than traditional similar investment opportunities based largely on hedge fund investments. exploiting short-term market inefficiencies, or arbitrage. However, as an expanding number of managers have The Growth of Hedge Funds attempted to exploit these market inefficiencies, the Hedge funds are private, unregistered pooled investment inefficiencies have evaporated, yielding lower spreads vehicles, frequently organized as limited partnerships and, ultimately, lower investment performance. or offshore companies that invest in securities and commodities through various trading techniques. These Funds Seek New Investment Opportunities investments have historically been liquid, short-term The increased competition for investment opportunities investments. Originally, hedge funds employed complex has forced hedge funds to find alternative methods of hedging and arbitrage strategies that offset long and short seeking market-beating returns. Many managers have positions to cap the potential downside risk (and upside turned to leveraging conventional hedge fund strategies in profits). The number of these funds has ballooned in an attempt to magnify returns. Others have shifted from recent years. It is estimated that, in 1990, there were about traditional short-term strategies to making long-term 600 hedge funds with US$40 billion in assets. Today, there strategic acquisitions in both public and private companies, are more than 8,000 hedge funds with over US$1 trillion a market traditionally reserved for private equity funds. in assets. From January 1990 through the end of April Still others have combined both of these strategies by using 2005, these funds returned an average of 11.6% a year leveraged assets to take long-term investment positions. after fees, compared to 10.4% for the Standard & Poor’s As hedge funds acquire companies as part of a long- 500 index. Wealthy investors have continued to invest in term investment strategy, their portfolios may begin to hedge funds in an attempt to obtain the above-average resemble those of private equity vehicles. Historically,

| 8 | S HEARMAN & STERLING LLP | M&A FOCUS | however, hedge funds have been limited in their ability to interests in the fund within two years of purchasing compete directly with private equity funds for long-term them. As a result, some hedge fund managers are strategic acquisitions because, unlike private equity funds, contemplating adopting a two-year redemption period hedge funds have provided their investors with frequent so that their funds fall outside the definition of private redemption opportunities. This has constrained hedge fund. Hedge funds that adopt a two-year redemption funds’ ability to allocate significant portions of their period should be more suited to managing liquidity capital to illiquid investments. Recently, the influx of cash issues than a traditional hedge fund with more frequent from investors and ample opportunity to leverage assets redemption rights and thus should be more capable of have made it easier for hedge funds to limit redemption taking the risk of acquiring a long-term position in a rights and to utilize capital for strategic acquisitions. single investment. Additionally, a recent change to the rules adopted The flexible structure of hedge funds also has enabled under the United States Investment Advisers Act of 1940 them to develop methods of isolating illiquid invest- (“Advisers Act”) has provided an incentive for some ments on their balance sheets and pass the return on hedge fund managers to impose longer redemption such investments to only those investors that are willing periods on their funds. The changes to the Advisers Act to take the risk of such investments and the concurrent rules will result in some managers of “private funds” losing limited liquidity. Through these “side pockets,” hedge previously relied upon exemptions from registration under funds can maintain a portfolio of traditional short-term the Advisers Act. Managers of private funds that lose investments for investors that prefer to have liquidity their exemption are required to register as investment while at the same time the fund can participate in advisers by February 2006. A private fund is defined, acquisition activity by taking a long-term position in a inter alia, as a fund that permits its investors to redeem company for the benefit of other investors. The sell side has welcomed the increased competition “Hedge funds that adopt a that hedge funds have brought to the acquisition market, although private equity funds will likely face more two-year redemption period competition in their core market. They may now find themselves in a bidding contest with hedge funds, which should be more ... capable of can drive up the price of target companies. A number of private equity firms have embraced the emergence of taking the risk of acquiring a hedge funds as participants in the market. Some, like Blackstone Group, have reportedly invested in hedge long-term position in a funds; others, such as Texas Pacific, have sponsored their own hedge funds. Private equity firm AEA Investors has single investment.” announced plans to merge with the real estate and hedge fund firm Aetos Capital. This transaction has the [cont’d on next page]

| S HEARMAN & STERLING LLP | M&A FOCUS | 9 | Growing Influence of Hedge Funds [cont’d from previous page]

potential to combine the flexibility of a hedge fund firm the credit derivatives markets or even influencing the and its ability to act quickly in selling and buying with potential reorganization if the borrower defaults. the research and operating skills of a private equity firm. This trend has now extended to taking significant equity positions in public companies. The strategy Hedge Fund Activism appears simple enough: locate a company experiencing Hedge funds also are exercising greater influence over financial or other difficulties, use the hedge fund’s the companies in which they invest. As hedge fund resources to purchase a large block of stock, and either managers build positions in possible acquisition targets, threaten action if shareholder value is not “enhanced” or managers often become more active in portfolio support another activist shareholder or potential bidder company management in an attempt to further enhance in an attempt to change company behavior or sell the returns. For years, distressed debt hedge funds have company to the highest bidder. These tactics are not pursued this strategy through which they acquire large unlike the 1980s style raids that forced target companies portions of defaulted obligations with a view to ultimately to repurchase large blocks of stock from the “greenmailer” control the reorganization of the obligor and acquire at a substantial premium to prevent a takeover. Hedge equity positions in the reorganization. Recently, some fund managers realize that, with nearly US$1 trillion in hedge funds have become active in the commercial loan assets, they are in a position to acquire substantial stakes market, frequently with a view to hedging such loans in in companies and influence management to create value or, at least, short-term profits. “The sell side has welcomed For example, hedge funds were involved in the recent, highly public battle for three seats on Blockbuster’s the increased competition board. Carl Icahn, the hostile takeover specialist and significant shareholder of the Blockbuster video chain, that hedge funds have won a seat on the board of directors for himself and two other dissidents with the support of hedge funds. Icahn brought to the acquisition and his slate received 77% of the vote. The Wall Street Journal reported, “Icahn’s victory starkly demonstrates market, although private the growing willingness of hedge funds to wield clout in corporate boardrooms….” (Martin Peers, Dissident Icahn equity funds will likely Wins Board Seats at Blockbuster, Wall St. J., May 12, 2005, at A1). Eminence Capital, a hedge fund with 3.8% of face more competition Blockbuster’s stock, supported Icahn and his proposed changes to the company. in their core market.” This activity is not limited to the United States. In Germany, a UK-based hedge fund dissatisfied with the

| 10 | S HEARMAN & STERLING LLP | M&A FOCUS | “As hedge fund managers provides the opportunity for hedge funds to become even more activist. For example, in the recent takeover place long-term bets on of Manchester United by Malcolm Glazer, hedge funds went further than simply supporting his bid or acting as single name investments, risk arbitrageurs. According to published reports, three funds financed the bid through the purchase of preferred their performance will securities that give these hedge funds the right to acquire a significant equity stake and proportionate representation be tied ever closer to the on the board. This hybrid instrument represents a cross between the roles traditionally played by banks, mezzanine performance of those funds and private equity firms. Its “custom tailored” nature may foreshadow a future role for hedge funds in investments ...” acquisition transactions as the financier assuming risks that do not fall clearly within the guidelines of other performance of Deutsche Boerse AG led the effort to more traditional sources of financing. block its bid for the London Stock Exchange on the grounds that the bid was too expensive and that any The Long-Term Effect of Hedge Funds available funds should instead be returned to shareholders. The question that remains to be answered is, what will be Other hedge funds joined the campaign, ultimately the long-term effects of hedge funds on the acquisition leading to a change in Deutsche Boerse’s management market. Many hedge fund managers are not experienced and the removal of most of its supervisory board, in managing the operations of individual companies on including Rolf Breuer, its chairman. a day-to-day basis. As hedge fund managers place Thus far, hedge funds have been successful only in long-term bets on single name investments, their limited situations where a central coordinating figure, performance will be tied ever closer to the performance such as Carl Icahn, could be rallied around, or a target, of those investments and the managers’ ability to create such as Rolf Breuer, could be rallied against. Without a value out of their acquisitions. The hedge funds’ strategies coordinating figure, hedge funds have not been also will be tested in any market downturns if their ability completely successful in reversing board decisions. For to maintain leverage is disrupted. example, hedge funds failed to alter MCI’s board’s Ultimately, if hedge funds are able to sustain decision to sell the company to Verizon rather than the market-beating performance, the trend towards greater higher-bidding Qwest. involvement in acquisitions and company management will Hedge funds’ great flexibility to pursue innovative likely continue. Given the inherent adaptability of these investment transactions and to assume high levels of risk funds, it is unclear what form this involvement will take. ■

For citations, please contact Harry Li.

| S HEARMAN & STERLING LLP | M&A FOCUS | 11 | M &A SHEARMAN & STERLING focus ABU DHABI In New York, Shearman is representing Legg Mason, Inc. in its US$3.7 billion acquisition of substantially all of the worldwide asset management business of Citigroup Inc. in exchange BEIJING for Legg Mason’s brokerage and capital markets units plus Legg Mason stock valued at approximately US$1.5 billion and US$550 million in cash. The transaction is expected to BRUSSELS nearly double its assets under management to more than US$800 billion.

DÜSSELDORF In Paris and New York, Shearman is representing The Permal Group in its US$1.386 billion acquisition by Legg Mason, Inc. Legg Mason will acquire an 80% interest in Permal at closing. Permal is one of the world’s largest funds of hedge fund FRANKFURT managers with approximately US$20.4 billion of assets under management.

HONG KONG In Germany, Shearman is representing France Télécom S.A. in the sale of its 27.3% stake in MobilCom AG to Texas Pacific Group. Following the €265 million sale, France Télécom LONDON S.A. will continue to own 1% of MobilCom AG, which is a leading telecommunication company in Germany. MANNHEIM In London, Shearman is representing Dresdner Bank AG in the sale of its North American MENLO PARK and European private equity investment fund holdings to American International Group, Inc., the world’s leading international insurance and financial services organization. MUNICH In Beijing, Shearman is representing Hunan Valin Iron & Steel Group Co., Ltd. in NEW YORK the sale of its 37% interest in Hunan Valin Steel Tube & Wire Co., Ltd. to Mittal Steel Company N.V. for RMB 2.6 billion. Hunan Valin is one of the largest steelmakers in PARIS China. Mittal Steel Company N.V. is the largest steel producer in the world.

ROME In New York, Shearman is representing Citigroup, Inc. in the US$6.6 billion acquisition of Federated Department Stores, Inc.’s private label and co-branded credit card business. The SAN FRANCISCO proposed transaction contemplates multiple closings, the first of which is expected to occur in the third quarter of 2005 and the last of which is intended to occur upon consummation of SÃO PAULO Federated’s pending merger with The May Department Stores Company.

In Paris, Shearman is representing Eurazeo S.A. in connection with Eutelsat S.A.’s SINGAPORE €2.4 billion leveraged recapitalization. Eutelsat S.A. is one of the world’s leading satellite operators and the leading operator in Europe. TOKYO

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