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San Francisco firms Cooley Godward and Orrick, Herrington & Sutcliffe are in tentative negotiations about a possible merger, according to sources. Orrick has been in merger discussions with Silicon Valley’s 64-attorney Venture Law Group, and the addition of Cooley may make the deal more desirable for all three firms. While Orrick has a large base of public company clients and a bigger litigation practice, Cooley and VLG have large emerging company practices that some consultants say could be a good long-term investment for Orrick. The combination “would certainly pull together powerful resources in the technology area,” says Ward Bower, a law firm consultant at Altman Weil Inc. The three-way merger would also give Cooley and Orrick a “tie-in to a solid East Coast base.” Bower says he would be concerned, however, about conflicts of interest among the three firms. Multiple sources, speaking on condition of anonymity, say negotiations have been going on since the beginning of the year. It’s not clear yet whether the firms have shared financial information or whether they are near a partnership vote. Nevertheless, the sources describe the talks as serious. But they warn that the deal could be derailed if the firms’ balance sheets are less positive than partners had hoped. Despite the talk, both firms have refused to comment publicly on the possibility of a pact. “Our policy is we just don’t comment on rumors like this,” says Ralph Baxter Jr., Orrick’s chairman. “We’re not going to comment on the specifics of any strategic discussion we may be having,” says Mark Pitchford, Cooley’s chief operating officer. But Stephen Neal, Cooley’s chairman, acknowledged in an interview in March that the firm was actively looking for a merger partner and would decide within the next few quarters whether there was a firm out there that would meet Cooley’s criteria. The qualifications, he said, included: a firm with a substantial New York presence; culture values similar to Cooley’s; substantial litigation and corporate practices; either current capabilities in Europe or an interest in developing them; strong finances; a good balance sheet; and little or no bank debt. Orrick appears to meet several of Cooley’s requirements. The firm has almost 200 attorneys in New York and a toehold in Europe and Asia. In addition to its London and Tokyo offices, Orrick opened an office in Paris last year and a Milan outpost in April. Financially, Orrick had one of the best performances among Bay Area firms in 2002. It ranked No. 1 in profits, with partners earning $875,000, a 14 percent jump from the previous year. Its gross revenue was also up 9 percent, to $400 million. Cooley’s gross revenue fell 15 percent in 2002, to $301 million, and profits per partner rose 3 percent, to $735,000. Orrick has been on a growth spurt. In addition to its international expansion, the firm opened an Orange County office in August 2002 when it picked up a group of intellectual property partners from Lyon & Lyon after the Los Angeles-based IP boutique shuttered its doors. Orrick opened an office in Portland earlier this year, expanding its presence in the Pacific Northwest. Orrick and Cooley both opened outposts in the Seattle area in 1998. But Cooley’s Kirkland office was unable to weather the downturn in the tech sector, and Cooley closed it in January after two partners jumped to Orrick. Cooley, which has dropped from a high of nearly 700 lawyers in 2001 to about 500 currently, also has been struggling to cope with the prolonged downturn in the tech sector. It is attempting to decide whether to remain a regional tech player with a few outposts or merge with another firm and become a national, or even international, legal force. The firm has held discussions with several firms, including New York corporate boutique O’Sullivan, which merged with O’Melveny & Myers in July, and New York intellectual property firm Pennie & Edmonds. Since talks with Pennie broke down last year, Cooley was rumored to be in discussions with New York’s Proskauer Rose. But consultants and former Cooley partners say Proskauer, with its focus on employment law, would be a poor fit for Cooley. Deborah Ludewig, a former Cooley partner who joined Pillsbury Winthrop in April, says she was unaware that Cooley and Orrick were in merger-related discussions. But a three-way deal with VLG, she says, “would make it a very powerful merger.”

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