Merger Talks Fail, but a Deal Still Gets Done

The nation's law firms have been manic to merge for the past decade, but merger attempts have proven bumpy in the past year. Anderson Kill & Olick, a New York firm that specializes in insurance recovery litigation, is the most recent victim.

Reed Smith, a Philadelphia firm that had been negotiating a possible merger with Anderson in order to beef up its New York office, apparently changed its mind today and simply grabbed 55 lawyers from Anderson. That's almost half the lawyers in the 120-member firm. Ouch!

Actually, Reed Smith's press release described it as an "addition." The lawyers, 25 partners, three counsel, and 27 associates, include Anderson name partner Lawrence Kill, a prominent antitrust lawyer, and Jeffrey L. Glatzer, Anderson's president and chief executive officer.

Reed Smith does not mention the failed mergers talks. A dueling press release from Anderson Kill takes up that issue, in a statement from Robert Horkovich, chair of Anderson's insurance recovery group.

"We terminated the merger talks because of conflicts of interest issues," Horkovich said, adding that the parting of the lawyers was amicable, "in a rare departure from how these changes usually occur."

Ward Bower, a law firm management consultant with Altman Weil in Newtown Square, Pennsylvania, said the prospect of large splinter groups defecting once merger discussions go sour "is one of the risks of entering those negotiations in the first place."

He saw the Reed Smith poaching as more evidence of how important it is for firms to have a strong New York presence. Until today, a Manhattan beachhead was a feature that Reed Smith, which boasts that it is one of the world's 15 largest firms, was lacking.

In the latest survey of "profits per partner" by The American Lawyer, Reed Smith ranked 80th, with $940,000 per partner. In terms of gross revenue, however, Reed Smith finished 30th, with $644 million in 2006.

"I'm not surprised because Reed Smith is an aggressive firm, and virtually every firm needs to be in New York," says Bower. Many domestic and international clients won't look twice at firms without a foothold in New York, he adds.

"A firm that doesn't have a credible presence in New York is not considered a serious contender for their referrals or their legal work," Bower says. "There are other firms looking in New York."

But, at least for now, Anderson Kill (whose name will remain the same) claims not to be interested.

"We are not in the market for merging with a large firm," says Finley Harckham, a member of Anderson's executive committee. "We have decided consciously that we do not want to move to a large law firm because it gives us a competitive advantage. They tend to have much higher rates."

The remaining partners plan to focus on its insurance recovery practice, and the firm's clients "didn't see what added value they would get from us in moving to a larger platform and raising rates."

He declined to name rates, but offered the firm's top rates were "at least a few hundred dollars lower" the new gold standard of $1,000 an hour commanded by the partners at large law firms.

The defectors included Anderson's product liability defense group, a large contingent of its bankruptcy group, general commercial litigators and a small group of insurance coverage lawyers.

For the time being, they will remain on one floor of Anderson Kill's office, which Reed Smith will sublease.

Who said lawyers can't play nice?

by Karen Donovan