Biglaw, Dewey Ballantine, Law Firm Mergers, Money, Partner Profits

At Least They’re Not Merging With Cheetham & Howe

dewey ballantine orrick herrington sutcliffe merger.jpg
As previously rumored, megafirms Dewey Ballantine and Orrick, Herrington & Sutcliffe are heading for the altar. From Nathan Koppel’s article for the Wall Street Journal:

Yesterday, the executive committees of Orrick, Herrington & Sutcliffe LLP of San Francisco and Dewey Ballantine LLP of New York approved the main terms of a merger. The combined firm, to be called Dewey Orrick LLP, would have more than 1,500 lawyers and rank among the 15 largest U.S.-based law firms in terms of lawyers if the merger is approved by the firms’ partners, who are due to vote later this year.

The merger will probably be approved, although there are some potential snags. From The American Lawyer:

One key issue: how many of the firm’s partners will have full equity status. Combined, the firms now have about 260 equity partners and 155 non-equity, most of those at Orrick, according to figures published in the May issue of The American Lawyer. A shake-up in status will lead some partners to seek other opportunities and could produce a feeding frenzy by legal recruiters.

The media coverage contains some good gossip about both firms. More excerpts and discussion, after the jump.
While we have your attention, we’d like to invite any readers who work at either firm to drop us a line and give us the inside scoop. How is the possible merger being received by your colleagues? Are people excited or apprehensive? Is the other firm seen as a worthy merger partner? Speak now, or forever hold your peace.

The WSJ piece is more gossipy and fun than The American Lawyer article. We discuss below some highlights from the Journal’s coverage.
What’s each firm getting out of the deal?

According to attorneys with knowledge of Dewey, the firm hasn’t been able to keep pace with some competitors’ explosive profit growth in recent years. For Orrick, meanwhile, [Orrick’s Ralph] Baxter says its No. 1 priority was expanding in New York.

Fair enough. How long has this been in the works?

Serious merger talks between Dewey, which has about 550 lawyers, and Orrick, with over 1,000, began earlier this year. Mr. Baxter was particularly interested in Dewey’s mergers and acquisitions practice, run by Morton Pierce, who is now the firm’s chairman. Mr. Pierce, 58 years old, oversees Dewey’s roughly 65-lawyer merger team, which has deep ties to major banks, including Credit Suisse Group and UBS AG. Recent clients include Walt Disney Co. in its $7.4 billion acquisition of Pixar Animation Studios, as well as HCA Inc., which was acquired by private-equity firms for $21 billion in one of the largest-ever leveraged buyouts….

At times, Mr. Baxter says, he tried to lure Mr. Pierce’s group to defect. Mr. Pierce wasn’t willing to jump ship alone.

Ah yes, skim off the cream. That would have been a brilliant move if Orrick had pulled it off. M&A work is super high-margin — a license to print money. You send the client an unitemized bill for several million dollars, and they don’t bat an eye. After all, the lawyers’ fees are tiny, compared to both the bankers’ fees and the transaction as a whole.
Perhaps anticipating a merger, Dewey engaged in the law firm equivalent of a crash diet and liposuction:

Some attorneys… believe Dewey was open to a merger because the firm has slipped of late. In fiscal 2005, the firm’s average partner profits increased slightly to $1.2 million, but Dewey nonetheless fell 10 places, to 32, in American Lawyer magazine’s annual profitability rankings. In 2003, Dewey also terminated 15 partners in an effort to boost profitability, according to a 2005 lawsuit, still pending, filed by one of the fired partners, who claims he suffered age discrimination.

So who will be in the driver’s seat post-merger?

Dewey Orrick was chosen [as the new firm name] because of Dewey’s greater name recognition in corporate boardrooms. Orrick won management control. Messrs. Baxter and Pierce will serve as co-chairs of the firm’s executive committee, according to the plan, but Mr. Baxter will have primary responsibility for day-to-day management.

Oh, and this info was juicy:

Orrick also had to come to terms with Dewey’s unusually generous retirement plan. Until 2003, when it scaled back the plan’s unfunded portion, Dewey had promised to pay a year’s salary to partners who retired after 15 years, in addition to other benefits such as a 401(k). That obligation still amounts to about $90 million, according to two people familiar with the merger talks. Neither Mr. Pierce nor Mr. Baxter would confirm that number, but Mr. Pierce says the obligation will be apportioned fairly.

Wow, that is generous — perhaps to a fault.
Finally, no firm merger would be complete without some potential culture clash:

Dewey is considered more staid and conservative. Founded in 1909, the firm was long run by Thomas Dewey, the three-term New York governor, who was known to chastise colleagues who left the office without hats. Orrick is older but is considered to be more West Coast hip….

“I know several partners at Dewey who I can’t picture wearing anything but a suit to the office, and I know several Orrick partners who I can’t imagine ever wearing a suit,” [says one source]. “There will be education on both sides.”

Do you have any firsthand info on this? If so, please do share. You know where to reach us.
Dewey, Orrick Join Law Firms Setting Mergers [Wall Street Journal via WSJ Law Blog]
Dewey Ballantine and Orrick Move Closer to Merger []

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