Mergers & Acquisitions

Some legal deals are so complex that even lawyers resort to simplifications to describe them. When Irvine-based semiconductor client Broadcom Corp. asked its legal team at Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates to structure its acquisition by Avago Technologies Ltd., it was not only the top technology transaction to date, at $37 billion, but also one of the most complicated.

So Skadden partner Kenton J. King turned to a rarely used construct known in legal shorthand as the "Burger King" structure. And no, it's not based on King's name or on that of one of his Skadden colleagues, Leif B. King, who worked with him on the deal. "It's called that because Burger King was the first corporation to use it" in a 2010 leveraged buyout, Ken King said. "It is stacked up with all sorts of technical requirements involving taxes, something like a burger with cheese and onions on top."

Broadcom's founders, who owned a majority of Class A shares and as a result held veto rights over the transaction, insisted on receiving tax-deferred merger compensation. But Avago refused to accept an all-stock deal. Another layer of complication was that Avago is based in Singapore, with its separate set of laws.

There was uncertainty under the tax laws of both the U.S. and Singapore whether receipt of shares would be treated as a tax-free exchange.

The structure King devised involved the formation of multiple holding companies and multiple sequential mergers to implement the transaction. One such holding company would be in the form of a partnership, which would issue units designed to be the economic equivalent of stock and could not be sold, transferred or hedged for a designated period.

"If you did the deal in cash, that's fully taxable," King said. "The stock is worth billions of dollars, and that's a lot of tax. But if structured in the right way, so that you get shares in exchange, there's no tax, just swapping. That's the way the rules work."

The combined company is valued at $77 billion and is the third-largest chipmaker in the world. The one-of-a-kind mega-transaction had no real precedent, and virtually every step had to be handled with no roadmap. King called it one of his most complex deals in a career defined by complex deals.

It took a lot of lawyers to pull it off. Beside the two Skadden Kings were the firm's corporate counsel, Jonathan B. Ko, Jason R. Tomita, Sonia K. Nijjar, Joseph K. Halloum, Charles Rogerson and Naoko Watanabe; tax lawyers Nathan W. Giesselman and Su Da; specialists in executive compensation and benefits Joseph M. Yaffe and Kristin M. Davis; litigation attorneys Amy S. Park and Richard S. Horvath Jr.; labor and employment lawyers Karen L. Corman and Ryne C. Posey; intellectual property and technology attorney Carrie LeRoy; and banking lawyers K. Kristine Dunn and Jan C. Nishizawa.

The team came up with an intricate election mechanism in which all shareholders would have the option to receive stock, cash or units, subject to a pro-ration rule so compensation paid per Broadcom share would comport with the consideration Avago would offer.

That achieved what some thought impossible, King said: tax-deferral for those shareholders who wanted it while treating all shareholders identically.

The deal was signed in May 2015 and was finalized Feb. 1 after a long period preparing disclosure documents and explaining it all to shareholders. "Our other major workstream was getting antitrust clearance in the U.S., Europe and China. China was the long pole in that tent," King said. "It was a challenge to get it all together."