Although it’s policy here at "Adam Smith, Esq." not to cover breaking news, rules are made to be broken, and this is an exception.
I learned mid-afternoon today that LeBoeuf and Dewey Ballantine are apparently in advanced merger talks, as reported subsequently in The Wall Street Journal. The rumor is that a formal announcement could come as early as Monday. My take?
Initially, the financial metrics are almost astonishingly well-matched. From the 2006 AmLaw 100 rankings (the most recent):
- Dewey’s PPP is $1.450-million and LeBoeuf’s $1.425-million
- As tellingly to my mind, Dewey’s revenue/lawyer is $820,000 and LeBoeuf’s $800,000.
- LeBoeuf is #45 on the AmLaw 100 with revenue of $513.5-million
- Dewey is #62 with revenue of $408.5-million
- The pro forma combination would have revenue of $922.0-million, tying it exactly for #12 with Morgan Lewis, behind DLA at $1.016-billion and ahead of Sullivan & Cromwell at $900-million
Both are obviously highly New York-centric, but also both come with very strong offices in London. The pro forma combined firm would have one of the largest New York and London offices of any US firm:
- New York: Dewey (300) + LeBoeuf (250) = 550
- London: Dewey (40) + LeBoeuf (130) = 170
What neither firm has in any remotely meaningful fashion is an Asian presence; each has nothing beyond a tiny outpost in Beijing.
Now, my "real" take: This is a merger that could make tremendous sense for both firms.
Not to put too fine a point on it, but both firms are in similar boxes. That box, with apologies to my home town, is overwhelming New York-centricity. As a global capital market center, New York’s pre-eminence is threatened as it never has been in the lifetime of those practicing today. This is a combination of globalization in general (when there are international alternatives, there are international alternatives); the impact of Sarbanes-Oxley, real and perceived; the omnipresent plaintiffs’ securities bar in the US; and the overhang of the "Spitzer Effect." If a city set out on a conscious program to position itself as friendly to global capital formation, it’s safe none of these phenomena would be on its agenda.
Is this an immediate threat? Far from it. Senior partners at both firms have nothing in the least to worry about.
Is it a longer-term threat? Unless structural changes occur—meaning selective regulatory rollbacks here, or spasms of regulatory overkill abroad—I fear that it is. Were I a young partner at either firm, the question top of mind, if not on my lips, would be, "So, what’s the plan?"
Interestingly, both firms have been conspicuously adding high-profile laterals over the course of the first half of this year. I wasn’t sure why LeBoeuf was doing so, but we may now have the answer.
As for Dewey, why they were doing so is simple: To recover from the badly bloodied nose—and unprecedented partner attrition—they sustained in their first real encounter with globalization, to wit their unconsummated merger talks with Orrick late last year. An unusual "show of strength" may have been perceived as needed, at Dewey, to recover stature.
Would Orrick have been, in hindsight, the better deal for Dewey? Reality not being susceptible to double-blind experiments, the short answer is of course that we shall never know. But it would have been a culturally fascinating, economically robust, and geographically potent, combination.
Orrick/Dewey would have been a true experiment in creating a 21st Century law firm.
LeBoeuf/Dewey is very much birds of a feather, and a bet on the belief that there’s strength in numbers.
Your view of its prospects of success may depend, I suspect, on your view of the importance of a firm’s ability to change over time as economic and sociopolitical centers of gravity migrate. Whether the merger talks come to fruition or otherwise, this is a resounding sign of the increasing pressures of globalization.
As we’ve learned from once-great American corporations ranging from Sears to US Steel to AT&T to GM, there is no entitlement to incumbency.
