Legal Business

The end of A&O’s marathon O’Melveny merger bid reveals the stark choices facing the Magic Circle

The end of A&O’s marathon O’Melveny merger bid reveals the stark choices facing the Magic Circle

This article sits in the news leader slot of our latest issue, but when considering Allen & Overy (A&O) and its epic courtship of O’Melveny & Myers, the defining factor has been the absence of news. Since it emerged last spring that A&O was in merger talks with the Los Angeles-bred firm, there have been bare scraps of information, alongside alternating whispers the deal was/was not on. Finally the resolution came on 2 September, with the pair announcing the end of the talks with the traditional noises about mutual respect.

The reason for the long delay was as much the scale and ambition of the merger as the inevitable complications of bringing 700 partners on side. The looming spectre of a messy ‘no-deal’ Brexit and fresh falls in sterling further strained a delicate situation, probably tipping it over the edge. Not only were the firms aiming for full financial integration upfront – a move never attempted on the scale of a £2.4bn transatlantic union – the aim was to do an immediate merging of governance, leadership and remuneration. Forget vereins and grace periods kicking tricky issues down the road. That all-in approach raised the stakes and logistic issues enormously. Not least it would have involved substantive reform of A&O’s remuneration structure to make it more compatible with a US firm.

Legal Business

The deal is off: A&O and O’Melveny call an end to transatlantic merger talks

The deal is off: A&O and O’Melveny call an end to transatlantic merger talks

Allen & Overy has conceded the ‘compelling synergies’ between it and O’Melveny & Myers were not quite enough to seal a long sought-after tie-up, having today (2 September) said they were calling it a day on merger talks.

The news comes after months of market speculation since a possible merger between the Magic Circle giant and the Los Angeles-bred firm first emerged in spring 2018.

For a potential merger of this kind, the process had been unusually long-winded with few details coming to light along the way, with the need to align A&O’s remuneration to make it more akin to a US structure, as well as culturally assimilating the two firms often cited as profound stumbling blocks to an already complicated deal.

There had also been talk of factions in London between a handful of dissenting influential corporate partners at A&O and management, while disputes partners had been more pro-merger, given the significant strength of O’Melveny’s stateside litigation practice.

The foiled attempt will doubtless have proved a body blow to senior partner Wim Dejonghe and managing partner Andrew Ballheimer, both of whom have had building out a credible US business at the top of their agenda since 2016 when they took up their management roles.

Success would have created an international player with more than 3,000 lawyers and combined revenues of around £2.4bn.

A&O said in a statement: ‘Allen & Overy and O’Melveny & Myers have held discussions about a possible combination and, despite agreeing that there were some compelling synergies between us and that it was sensible to explore a possible deal in some detail, we have mutually decided not to continue these discussions. Both firms have developed a great deal of mutual respect and expect to remain in close contact in the service of our shared clients.’

The firm insisted that building its presence in the US remained the ‘highest priority’. ‘We will significantly increase our immediate focus on lateral individual and team hires, while remaining open to considering opportunities for larger combinations that may arise in the future,’ the statement added.

A spokesperson for O’Melveny concluded: ‘O’Melveny has concluded that the firm’s best course is to continue executing on its strategic plan—which has led to an unmatched culture, deep client partnerships, and record financial performances.’

nathalie.tidman@legalease.co.uk

Legal Business

Taylor Wessing quartet boosts flourishing Goodwin City office as O’Melveny losses stack up

Taylor Wessing quartet boosts flourishing Goodwin City office as O’Melveny losses stack up

The City offices of progressive US firms continue to set the tone for the London lateral recruitment market – a charge most recently exemplified by Goodwin Procter, which has secured a four-partner technology and life sciences team from Taylor Wessing.

Goodwin hired Malcolm Bates, David Mardle, Tim Worden and Adrian Rainey in a move that makes good on the firm’s promise to build out its City technology and life sciences bench. Mardle started in mid-June, while the remainder will join after completing their respective notice periods. Bates was head of the life sciences practice at Taylor Wessing and advises licensing, collaboration and distribution, manufacturing, outsourcing and R&D projects, as well as contract and patent disputes and regulatory matters.

Legal Business

Comment: A&O merger bid risky but US question can’t be delayed forever

Comment: A&O merger bid risky but US question can’t be delayed forever

‘It is an odd couple. I wouldn’t have put them together,’ is one take from a London peer to the news that Allen & Overy (A&O) has sought a $2.8bn union with O’Melveny & Myers. It is certainly a representative view.

Since news of the talks broke in early April, One Bishops Square has gone uncharacteristically coy. However, it is understood that management indicated earlier this year that it was talking to two, then unnamed, US firms. A&O, of course, has to tread carefully – getting a deal through the demanding audience of its London partnership with O’Melveny or any comparable firm is a big ask.

Despite A&O’s peer-leading run over the last decade, its management – which has been sounding out US firms outside New York for at least six years – will know that many of the beliefs of its London partners about potential US partners do not reflect current market realities.

A US marriage for A&O is walking a tightrope – it needs a US firm strong enough to make it worth the industrial amounts of trouble involved in a union but also with enough problems to actually consider it. That leaves a very small pool of suitors.

Realistically there is not a much better conceivable deal on the horizon for the Magic Circle.

O’Melveny is a strong West Coast player that has had a troubled ten years, while A&O is at the top of its respective pecking order. The US firm was the 19th largest law firm in global revenue terms in 2007 – in 2017 it was down to 59th. It was also the second worst-performing practice for revenue growth in our Global 100 table over the previous five years, with revenues shrinking from $779m in 2012 to $725.4m in 2017.

The practice mix is also hardly glove-like. O’Melveny has historically majored on litigation, West Coast corporates, finance and the entertainment industry – not the neatest fit for A&O but acceptable. But it is the cultural challenges – and some believe O’Melveny’s lingering hopes of a union with Willkie Farr & Gallagher – that seem more problematic.

There is talk of a crunch meeting in June to thrash this out, though as Legal Business went to press there were already mutterings about opposition in A&O mobilising. While senior partner Wim Dejonghe wants to secure a US breakthrough before the end of his term, such an outcome is far from a foregone conclusion.

That said, much of the knee-jerk response against such a marriage in London fails to grasp how much the transatlantic tide has turned against the City elite over the last decade. Realistically there is not a much better conceivable deal on the horizon for the Magic Circle. The already-narrowing window to secure a substantive tie-up is closing. The London elite have at best three years – unless the global economy swings dramatically back in their favour – before the only serious deal they can get is being taken over.

It is hard to see how the Magic Circle can leave the US question hanging ominously over them. Either they take decisive steps to Americanise their businesses organically or accept more compromises to secure a high-risk merger. A&O feels that with nearly 400 US-qualified lawyers it is getting there but its expansion has been expensive and the US market is hardly standing still as London firms dither. But the Magic Circle must make key US decisions soon or risk the market taking the matter out of their hands.

alex.novarese@legalease.co.uk

Legal Business

A&O merger bid risky but US question can’t be delayed forever

A&O merger bid risky but US question can’t be delayed forever

‘It is an odd couple. I wouldn’t have put them together,’ is one take from a London peer to the news that Allen & Overy (A&O) has sought a $2.8bn union with O’Melveny & Myers. It is certainly a representative view.

Since news of the talks broke in early April, One Bishops Square has gone uncharacteristically coy. However, it is understood that management indicated earlier this year that it was talking to two, then unnamed, US firms. A&O, of course, has to tread carefully – getting a deal through the demanding audience of its London partnership with O’Melveny or any comparable firm is a big ask.

Legal Business

Comment: Allen & O’Melveny – a research-free, hot take

Comment: Allen & O’Melveny – a research-free, hot take

Hats off to my old shop, Legal Week for a quality scoop on Allen & Overy (A&O) and O’Melveny & Myers doing the come-hither shuffle. As usual, various outfits have lifted it without credit or attempted to imply that they forecast it. I didn’t forecast it and haven’t given it more than a cursory kick-of-the-tyres because – deadlines – so I am just riffing off anorak industry knowledge rather than proper research. But it’s still enough to make a few observations about what it says about the global market and London elite in general and A&O specifically.

For A&O, a tie-up with O’Melveny would clearly be highly significant – only the second US merger for a Magic Circle firm and just about the largest of its kind nearly 20 years on from Clifford Chance’s disaster-strewn takeover of Rogers & Wells.

That A&O would pursue a firm born outside Wall Street and one whose brand has been so badly on the slide for a decade speaks volumes of the changed realities and loss of status facing the London elite. O’Melveny was the 19th largest law firm in revenue terms in 2007 – in 2017 it was down to 59th. The US firm was also the second worst-performing practice for revenue growth in our Global 100 table over the previous five years, with revenues shrinking from $779m in 2012 to $725.4m in 2017.

The practice mix with this Los Angeles-bred legal royalty is also rough. O’Melveny has historically majored on private equity, litigation, West Coast corporates and the entertainment industry – hardly the neatest fit for A&O but just about acceptable and who wouldn’t want more disputes and sponsors? You can at least trust A&O to have enough sense to not try a half-baked attempt at putting a tech/Bay Area spin on this if a deal proceeds.

Profits line up OK – the compensation models won’t however, and dealing with that could be the chance for A&O to usher in the kind of partnership reform it needs (a chance that will most likely be squandered).

At this point, I don’t have a feel for how likely a deal is to proceed, beyond the bleeding obvious that these things are hard, hard yards. A&O has been scouting around for a US marriage in DC, Houston and California for five years now, having long ago conceded that the odds of a credible New York pairing were slim-to-non-existent.

Even with a decent US institution past its best – the only kind of deal on the table for the London elite – these mergers are a nightmare to pull off due to compensation and accounting issues but even more cultural clashes. London firms have avoided Americanising their businesses to the degree that would have smoothed the path to transatlantic mergers and even faded US brands have a nasty habit of believing they should be the top dog in any union, even a tie-up with the top-performing member of London’s Big Four.

That said, this deal or a comparable one – and personally, I’ve always liked the notion of A&O/Akin Gump – would still carry heft in the global market. A&O is the only one of its City peers that hasn’t spent the last decade looking like a prisoner of its own history. It has kept on advancing and generally shown flair and decent execution.

It has a chance in the next five years of becoming London’s top law firm, and perhaps something more – an extraordinary achievement for an outfit being written off by some in the mid-2000s as a mid-market player.

Yes, a deal like this would only be a fixer-upper but a fixer-upper is the only option that the London elite are going to get before the rapidly closing window on their global ambitions shuts for good (three years at best barring some dramatically favourable changes in the global economy). And if CC had built on its own fixer-upper it could be generating $1bn out of the US now, instead of going backwards. London-based lawyers with an over-developed sense of status may want to remember that even with a tough five years behind it, O’Melveny still generates revenue-per-lawyer levels ranging between 20%-30% ahead of London’s big four Magic Circle firms. And pulling off the deal still would leave A&O trailing the top line of Kirkland & Ellis and Latham.

In short, you cannot imagine a materially better tie-up that the London elite can realistically get for all their pining for Wall Street acceptance. If A&O can grasp that truth and push past it, it has a shot at securing genuine market-leading status. That’s a risky path, and one strewn with immediate dangers but the status quo also promises some treacherous but better-hidden terrain for the Magic Circle. In essence, those two paths are the only options.

alex.novarese@legalease.co.uk

Legal Business

KWM funds architect Blake latest to exit troubled firm

KWM funds architect Blake latest to exit troubled firm

US firm O’Melveny & Myers is the latest to benefit from partner exits at King & Wood Mallesons‘ European arm, as head of funds Jonathan Blake will join the firm.

Blake (pictured), who is considered a pioneer of the legal market for investment funds in Europe, will be assisting O’Melveny in advising private and public funds and institutional investors in private equity.

O’Melveny’s head of investment funds John Daghlian said: ‘Jonathan helped define the private equity industry. I know that his dedication to client service, his energy, and his extensive market knowledge will be a tremendous asset for the firm, and a great addition to our team.’

Formerly senior partner at KWM’s European arm, Blake was the architect of the firm’s pioneering move into private equity funds and lead the firm through the traumatic post-2008 period.

In his role as senior partner he initiated legacy SJ Berwin’s merger deal with a funds counterpart at King & Wood. Stephen Kon, who replaced Blake as senior partner in 2012, executed the deal with then managing partner Rob Day.

Influential funds partner Michael Halford, whose resignation along with several other heavyweights late last year halted the firm’s recapitalisation plans, was considered Blake’s protégé.

Since Halford’s resignation and the firm’s failure to recapitalise the business the legacy SJ Berwin practice has filed a notice to intention to appoint administrators. Quantuma is expected to replace AlixPartners as proposed administrators.

On Tuesday, legacy SJ Berwin filed for an extension to appoint administrators after the previous notice has expired. It had been valid for ten working days since 22 December when it was filed.

The new extension will give the firm’s various suitors more time to finalise deals to take on parts of the legacy business, including agreements about work in progress within already announced team moves such as those going to DLA Piper, Greenberg Traurig, Baker & McKenzie, Reed Smith and KWM’s Chinese arm.

However, the second notice may not necessarily last for another ten days, as such notices can be halted at any point by the firm or its creditors.

Meanwhile, staff at the firm will go without pay following the breakdown of negotiations with Barclays.

Earlier this week KWM Europe and Middle East managing partner Tim Bednall sent a memo to all staff confirming the firm would no longer be able to pay any salaries.

tom.baker@legalease.co.uk

Legal Business

Latham acts on long-time client Siemens $4.5bn software buy

Latham acts on long-time client Siemens $4.5bn software buy

Latham & Watkins and O’Melveny & Myers have won roles on German engineering group Siemens’ $4.5bn acquisition of US based software provider Mentor Graphics.

Siemens is to acquire Mentor for $37.25 per share in cash, with a total value of $4.5bn. This represents 21% more than Mentor’s closing price on 11 November, the last trading day prior to the announcement. Oregon-based Mentor has over 5,700 employees in 32 countries and last year generated $1.2bn revenue.

Latham & Watkins advised Siemens with a 15-partner strong team, led by New York corporate partners Adel Aslani-Far and Eli Hunt, alongside New York partner Jim Gorton and Munich partner Rainer Traugott. London employment and pensions partner Catherine Drinnan also acted on the deal.

O’Melveny was instructed by Mentor Graphics, led by global head of M&A and private equity (PE) Paul Scrivano in New York. The transaction pends customary approvals and is expected to close in Q2 of 2017.

Latham has had a long-standing relationship with Siemens. The German firm enlisted Latham in its $7.6bn acquisition of Dresser-Rand back in September 2014, as well as in November 2013 when Siemens sold parts of its water business to AEA Investors. However in August 2014 when Siemens sold its hospital IT business to US provider Cerner for $1.3bn, Clifford Chance advised Siemens whilst Latham was instructed by Cerner.

In the UK, Siemens instructs Eversheds, Osborne Clarke and Addleshaw Goddard. The three firms were appointed to Siemen’s UK legal panel after a review in March. Reed Smith missed out on the panel, which took effect from March 2016 last year.

georgiana.tudor@legalease.co.uk

Legal Business

Revolving doors: Mishcon loses City funds chief to OMM as firms bulk up in Asia

Revolving doors: Mishcon loses City funds chief to OMM as firms bulk up in Asia

O’Melveny & Myers (OMM) made a strategic move last week as it continues to ramp up its City office with the hire of Mishcon de Reya’s co-head of funds and financial services while Eversheds also looked to bolster its London presence. In Asia, Morrison & Foerster made a high-profile hire when it recruited Winston & Strawn’s Asia head of litigation.

Eve Ellis re-joins OMM, having previously been counsel in the firm’s investment funds group. She left the firm in 2010 to make partner at Charles Russell and then moved to Mishcon in May last year. Focused on UK and EU regulatory matters affecting funds and financial institutions, Ellis’ client base revolves around private equity but also covers real estate, hedge and emerging market funds, and institutional investors.

The second recruit to the firm’s London office, she will join new European corporate head and private placement specialist Andrew Weiler, who also starts today (3 August), from White & Case.

Eversheds, after having seen a swathe of real estate partners exit to King & Wood Mallesons following William Naunton and Clive Jones, has also expanded in London, improving its planning offering with the hire of a partner and three associates.

Morag Thomson, who was senior partner at Marrons before its merger with Shakespeares in 2013, joins the firm as partner along with a senior associate. Eversheds has also recruited a principal associate from Bircham Dyson Bell, Richard Marsh, and a senior associate from Forsters, Matt Nixon. Thomson covers both contentious and non-contentious work and specialises in major projects and infrastructure developments.

Meanwhile, MoFo boosted its Asia practice with Winston & Strawn’s regional head of litigation Adrian Yip.

Yip, who had been with the Chicago-bred firm for five years, has a broad range of experience in Hong Kong and Greater China, covering arbitration, criminal prosecutions, competition law and corporate investigations. He joins with 3 associates as the US firm looks to build up its Hong Kong disputes team – to that end it has also relocated Craig Celniker, chair of its disputes practice from Tokyo in 2013.

The move mirrors Yip’s arrival at Winston & Strawn, which he joined in 2010, also with three associates, after five years at Orrick, Herrington & Sutcliffe.

Ashurst joined MoFo in building up its Asia offering with the addition of Andrew Digges in its Singapore office. Digges, who makes partner in the move, joins from Allen & Overy where he was a foreign legal consultant at the Magic Circle firm’s associated office in Jakarta, Ginting & Reksodiputro.

Digges will join the firm’s resources and infrastructure team with 15 years’ experience garnered on South East Asian project work, in particular advising on Indonesian power deals.

The firm’s head of resources and infrastructure, Mark Elsey, commented: ‘Resources and infrastructure is an area of key strategic focus for the firm. Andrew is a seasoned and highly regarded practitioner who will add significant depth to our offering in this area in the Asia region as well as further enhancing our market leading global platform.’

michael.west@legalease.co.uk

Legal Business

O’Melveny hires new European corporate head from White & Case as it makes moves in burgeoning private bond market

O’Melveny hires new European corporate head from White & Case as it makes moves in burgeoning private bond market

With €31bn in debt having been issued through private placements (PP) in Europe in 2014, O’Melveny & Myers has made a strategic move in the sector by hiring White & Case PP specialist Andrew Weiler to heads up its European M&A and corporate finance practice. 

Weiler was a key part of White & Case’s PP offering in the City and joins O’Melveny with 15 years of experience in the cross-border market. He also advised both multinationals and private equity firms on M&A and joint venture deals.

Dual-qualified in New York and England and Wales, Weiler joined White & Case in 1993 and worked in the firm’s New York, Stockholm and Helsinki offices prior to moving to London. He was made partner in 2003 and comes recommended in debt capital markets by The Legal 500, for which White & Case is ranked second tier.

Some of his recent work includes advising Coca-Cola on its formation of a Nordic joint venture with Carlsberg and its restructuring of a global joint venture with Nestle; and acting for De’Longhi on its €214m perpetual licensing of the Braun household products brand from Procter & Gamble.

The hire comes as O’Melveny looks to boost its international M&A and finance offering – though the firm lost private equity partner Daniel Oates after less than a year in its City office to Fried, Frank, Harris, Shriver & Jacobson in January. Weiler said: ‘O’Melveny is well known for its entrepreneurial and client-centred culture. I am excited to be part of the continued growth of the firm’s transactional practices, and I look forward to working with my new colleagues to serve our clients.’

A White & Case spokesperson said: ‘We can confirm that Andrew Weiler has left White & Case. We wish him well in his future endeavours.’

jaishree.kalia@legalease.co.uk

For more on firms’ moves to position themselves in the growing PP market see: The Finance View: Private bonds – can Europe bring it home?