Law: The transatlantic merger that is making waves
City law firm Clifford Chance's merger with both a German firm and a New York firm has sent shock waves through London - who is next? Is this radical development about to become a trend? By Jonathan Ames
Tuesday 27 July 1999
But whether those waves will translate immediately to a rush for transatlantic mergers remains doubtful. Many counterparts in the City admire Clifford Chance for its sheer muscle and tenacity in being able to pull off what has been contemplated and discussed furtively for years, but until now never chanced. And indeed, the result - the creation of the biggest law firm in the world - is not to be sniffed at.
For its part, Clifford Chance has taken an almost lofty stance since the announcement. Says Peter Cornell, the firm's managing partner in Europe: "The general reaction underlines that being first into a market provides distinct advantages. It also shows that the rationale for international firms to develop a global capability is compelling." As far as the future is concerned, Mr Cornell is clear: "What we are likely to see is other law firms accelerating their responses to meet the same client needs we have responded to."
Outwardly, however, the senior figures at Clifford Chance's main City rivals are playing their cards close to their chests. "We are not rushing to follow suit," says Alan Peck, chief executive at Freshfields. He continues guardedly: "We are concentrating on building our European network with an emphasis on integration and quality."
Likewise, another member of the City top five, Linklaters, appears to be taking a cautious view. It has been speculated that the Clifford Chance merger could hasten Linklaters' own plans for a more formal partnership link with the now six members of its year-old, European-based Linklaters & Alliance. And indeed, only last week, the alliance added its most recent member, Rome-based Gianni Origoni & Partners.
But Terence Kyle, the chief executive at Linklaters, is circumspect: "The [Clifford Chance] merger is a new element in the arena of competition among City law firms. But it is not going to impact on Linklaters & Alliance significantly in the short term. It certainly doesn't mean that we will be charging off looking for people to marry in North America." Having said that, Mr Kyle acknowledges that to retain global influence, City firms must not ignore the importance of the US market. "We have known for some time - indeed, well before the Clifford Chance merger announcement - that we will have to increase significantly our capacity in North America."
Mr Kyle is reluctant to speculate as to how other members of the top 10 club in the City will react. "Generally, I don't know what my competitors are thinking," he says. "However, the merger might well lead to other transatlantic combinations in the next year or two. But each firm will have to decide how best to pursue its own strategy in its own best interests."
Richard Tyler, the chairman of the European group at City firm Cameron McKenna, known as CMS, agrees. He says the merger will have "focused everyone's mind on the US". CMS has just closed its San Francisco office after a one-off two-year project and consolidated its US practice at its Washington DC office.
And the comments from another leading City player, Allen & Overy, highlight the increasing atmosphere for possible mergers at the top end of the legal marketplace. "We have had many approaches from leading US and European firms over the last two or three years which would comfortably have matched what Linklaters and Clifford Chance have achieved," says Allen & Overy's managing partner, John Rink. None the less, A&O remains adamant that it is not imminently going to be involved in a transatlantic merger, although it concedes that it has been having discussions with the Dutch firm Leoff Claeys Verbeke.
Privately, lawyers in the City are still unsure about the short-term effects of the Clifford Chance merger but they are more candid in their speculation. There is a consensus that Clifford Chance has caught the mood of international corporate clients in as much as there is strong enthusiasm for a transatlantic one-stop-shop for legal advice. But one factor that could give others in the City pause for thought is the limited field of work available for that sort of firm.
City lawyers point to mergers and acquisition, project finance, securities and competition - or anti-trust, as it is known in the US - as a more or less exhaustive list. Indeed, some speculate that one of the motivating factors behind the Clifford Chance merger could be the City firm's desire to benefit from Rogers & Wells' leading reputation in anti-trust work. Especially at a time when its own name in that arena has taken something of a beating in the media following the referral to the Competition Commission of the bid by brewers Whitbread - a Clifford Chance client - for Allied Domecq's pub estate.
Another by-product benefit of the merger to Clifford Chance is the new- found status in the US as a limited liability partnership, by virtue of Rogers & Wells's LLP position.
However, City commentators say the LLP factor appears more important than it is in practice. They point out that City law firms already carry significantly higher top-up insurance cover than their large US counterparts. Also it is anticipated that lobby efforts to have the Government legislate to allow UK law firms to adopt LLP status will be successful relatively soon. And perhaps most importantly, so far UK law firms have not generally been the targets of large negligence claims on anything like the same level as has afflicted accountancy firms. "The LLP factor would not have been a driver behind the merger, simply a bonus," says Cameron McKenna's Mr Taylor.
Mr Taylor goes on to point out what he describes as a significant disadvantage to forming a transatlantic merger: "By tying up with one firm you cut off referrals from all the rest of the firms in the US. The US is a vast country and there are very few national firms. So merger with a New York firm means you really can't accept referrals from firms in San Francisco or Kansas or anywhere else. If you've got a niche practice, that might not be so important, but for a full-service practice it is a factor."
That does not mean the Clifford Chance venture is doomed, emphasises Mr Taylor. "The market for international business lawyers is continuing to grow and there will be a number of different animals in the jungle. There will be several models - one will be the Clifford Chance model... but there will be others that range from being purely a domestic firm to those that involve seeing Europe as the strategic priority."
Jonathan Ames is deputy editor of the `Law Gazette'
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