Acquiring a Deferred Prosecution Agreement

In November 2010, Pride International Inc. was one of several companies to resolve a coordinated FCPA enforcement action involving (at least in part) the use of Panalpina services.

As noted in this prior post, the Pride enforcement action included not only Nigeria - Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.

The enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).

The three year DPA (here) imposed on Pride a host of compliance undertakings including reporting to the DOJ on an annual basis (during the term of the DPA) "on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures."

On February 7th, Pride announced (here) a definitive merger agreement by which U.K. based Ensco (plc) will acquire Pride in a cash and stock transaction expected to close in the second quarter of 2011. The release states as follows. "The transaction will create the second largest offshore driller in the world with 74 rigs spanning all of the strategic, high-growth markets around the globe."

So what will happen to Pride's DPA obligations?

A common clause in DPA's is a sale or merger clause.

In the Pride DPA, it states as follows.

Sale or Merger of Pride International

"Pride International agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger or transfer (including the sale, merger, or transfer of unincorporated branches), it shall include in any contract for sale, merger or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement."

Sure enough, Section 5.15 of the "Agreement and Plan of Merger" (here) states as follows.

"Deferred Prosecution Agreement. Effective as of the Effective Time, Parent [Ensco] agrees to be bound, and the Surviving Entity shall continue to be bound, by the obligations of the Company [Pride] set forth in the Deferred Prosecution Agreement, dated November 4, 2010, between the Company and the U.S. Department of Justice, to the extent required thereby."

Pride's FCPA compliance obligations and undertakens may not be the only FCPA-related issues on Ensco's plate.

Ensco has ADR's traded on the U.S. market and "following disclosures by other offshore service companies announcing internal investigations involving the legality of amounts paid to and by customs brokers in connection with temporary importation of rigs and vessels into Nigeria, the Audit Committee of our Board of Directors and management commenced an internal investigation in July 2007."

Ensco's most recent quarterly filing (here) states as follows.

"Our internal investigation has essentially been concluded. Discussions were held with the authorities to review the results of the investigation and discuss associated matters during 2009 and the first half of 2010. On May 24, 2010, we received notification from the SEC Division of Enforcement advising that it does not intend to recommend any enforcement action. We expect to receive a determination by the United States Department of Justice in the near-term. Although we believe the United States Department of Justice will take into account our voluntary disclosure, our cooperation with the agency and the remediation and compliance enhancement activities that are underway, we are unable to predict the ultimate disposition of this matter, whether we will be charged with violation of the anti-bribery, recordkeeping or internal accounting control provisions of the FCPA or whether the scope of the investigation will be extended to other issues in Nigeria or to other countries. We also are unable to predict what potential corrective measures, fines, sanctions or other remedies, if any, the United States Department of Justice may seek against us or any of our employees."