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The idea of a merger is an irresistible temptation for a growing number of law firms lured by fantasies of serving more clients in more cities for more money. But turning that vision into an economic reality takes a combination of timing, patience and finesse in a market littered with bungled merger deals. The mergers that do work typically follow a methodical process, an evolution marked with milestones common to most deals, expert say. It is not by chance when a marriage of firms flourishes, they say, but rather because of ample planning and an eye wary for the pitfalls, such as culture clashes among the firms, compensation disagreements and management style differences. The lawyers at newly formed Wilmer Cutler Pickering Hale and Dorr believe they have found a formula for success, though the proof is likely years down the road in what they call a merger of equals. For now, their deal serves as an example of how a law firm plans and executes a consolidation of practices. The merger, which created a 1,050-attorney firm with 13 offices in the United States and abroad, including London; Brussels; and Munich, Germany, took about 10 months in the making, a process that started in the summer of 2003. Here is how it happened: The connection July 2003: Washington-based Wilmer, Cutler & Pickering managing partner William Perlstein and Boston-based Hale and Dorr managing partner William Lee meet in Hale and Dorr’s New York offices at 300 Park Ave. They are joined by Hale and Dorr corporate litigator James Quarles and Wilmer Cutler corporate litigator Roger Witten. The two, Quarles and Witten, graduated together in 1972 from Harvard Law School and both had served on the Watergate special prosecution force in the 1970s. It is the connection between these two friends that initially brings the firms together. According to Lee and Perlstein, the group meets for about three hours, without the specific idea of a merger in mind. “There was no note-taking,” Lee said. “It was just friends and colleagues trading thoughts on where the marketplace was headed.” Despite the casual atmosphere of the first meeting between Wilmer Cutler and Hale and Dorr, merger consultant Ward Bower of Altman Weil said that much strategy generally is involved before the parties ever sit down together, no matter how breezy the first encounter may be. “Merger is not a goal in itself but a strategy to achieve goals,” said Bower, who was not involved in the merger of Wilmer Cutler and Hale and Dorr. Those goals, he explained, may include increasing geographic size, adding new practice areas or targeting market segments. In the Wilmer-Hale deal, the two were attracted to how each firm’s practice areas complemented the other’s. As Perlstein and Lee explained it, Wilmer Cutler liked Hale and Dorr’s intellectual property practice and its ties to the technology industry; Hale and Dorr liked Wilmer Cutler’s securities and regulation work. Vetting the conflicts August 2003: Lee and Perlstein meet in Hale and Dorr’s Boston office at 60 State Street. They are joined by the heads of major practice divisions of the two firms, including lawyers from the antitrust, securities, corporate litigation and life sciences groups. “We wanted to get a sense of what each firm did,” Perlstein said. The partners address the issue of client conflicts, an increasingly thorny problem with growing law firm consolidation. The firms determine that they have one significant conflict of interest involving a technology client related to their international trade practices. The identification of this conflict precedes the May 2004 departure of Gilbert Kaplan, chairman of the government and regulatory affairs group and head of the international trade practice at Hale and Dorr. Kaplan, who left Hale and Dorr because of the conflict, went to Atlanta-based King & Spalding’s Washington office when the firms joined in May. Although Perlstein said he believed the firm was fortunate to come away from the deal with only one major conflict, experts say client conflicts arising from former-as opposed to concurrent-representation are becoming a major concern. Kaplan did not return calls seeking comment. As firms merge, that pool of former clients grows and tracking the conflicts becomes more difficult. Richard Zitrin, author of two books on legal ethics and a practitioner in San Francisco with Zitrin & Mastromonaco, said he has already seen a loosening of conflicts rules as mergers have become more common. “Big law firms are big businesses,” he noted. He said that conflicts rules are moving away from simply determining if a client’s interest would be adversely affected by a firm’s representation of a potentially conflicting party to a balancing test that considers the benefit of the firm. “There’s a great pressure to have some erosion,” he said. Even though Wilmer Cutler and Hale and Dorr had only met twice, it is at this point where potential merging partners need to consider not only clients lost to conflicts but a host of other costs that are less apparent, Bower said. Mergers include the expense of changing every item that bears the old firm’s name-from cups, stationery and business cards to pens and bags. More significantly, many of the firms’ top players are occupied with effectuating the merger. And while they are busy with those tasks, they are not billing hours. Other considerations are the accounting costs of joining two sets of books, the technology costs of joining two systems, marketing fees and the legal costs of drawing up the merger contract. Retirement agreements with departed partners are another expense. It is rare, Bower explained, that Firm A is enthusiastic about helping to pay Firm B’s long-departed practitioners. Also at this point in the process, firms explore the issue of common culture, Bower said, as did the Wilmer Cutler and Hale and Dorr attorneys. Less to do with dress codes and company perks, firm culture relates to the partners’ relationship with their firm. “Are the partners there to serve the firm or is the firm there to serve the partners?” he said, adding that those questions present two ends of a continuum, with most firms falling somewhere in between. “On one end, the firm comes first. On the other end, the partners come first,” he said. The big disclosure October 2003: Against the warnings of advisors and others, Perlstein and Lee tell their respective firm partners about the proposed merger, some seven months ahead of its completion. To the surprise of many, news of the merger does not surface in the media until about four days before the firm’s merger announcement in April. The two managing partners said that they were willing to risk a leak to associates and the press if they could adhere to a philosophy of openness with their partners during the merger process. Disclosing the plan to the partners is a critical stage in any merger process, said Joel Henning, vice president and general counsel of Hildebrandt International, a law firm consultancy. Especially if the firms are not of equal size, he said, partners in the smaller firm can begin to bridle under the perceived dominance of the bigger firm in a pending deal. Lee conceded that even in the merger of equals, many partners did not shine to the idea initially. “If we had taken a vote at the two firms a week after we disclosed the merger, the answer would’ve been ‘no,’ ” he said. Following the announcement to the partners, the firms launch into a major meet-and-greet effort, in which partners sit down with each other to put faces with names. Over the course of the next seven months, as many as 200 partners gather together, by Perlstein’s and Lee’s estimates. The meetings are formed under a variety of configurations, including an attorneys-under-40 dinner. The name game February 2004: Lee and Perlstein meet at Hale and Dorr in Boston to decide on the firm name in a session that lasts “about an hour,” Lee said. They opt to put the Wilmer name first to keep the integrity of the Hale “and” Dorr name, they explained, adding that a name such as Hale and Dorr Wilmer Cutler & Pickering made less sense. The process of choosing a firm name, though a brief event for these two firms, is often a strong indication of whether merging entities can effectively work together, Bower said. He advises firms to deal with the name issue in the first or second meeting. “If they can’t agree, they’ll let it get in the way,” he said. At the same February meeting, Lee and Perlstein decide to operate under a co-managing partner structure until 2007 to help fully integrate the firms. Such a structure can work, Bower said, as long as it is created on a temporary basis and for a finite duration-not just until it fails to work, he added. In addition, Perlstein and Lee at the February meeting decide to create a management committee comprising 12 partners, using six from each firm. They also determine compensation levels, the amounts of which will be disclosed to all members. “Everyone knows what every other partner makes,” Perlstein said. These decisions, too, are made within the hour. Hildebrandt’s Henning said that he studies negotiation sessions to see if the two sides discuss at length how to get out of the deal as it proceeds. If they do, it is a good indication that the agreement may falter, he said. “If one side or both sides spends a lot of time wanting to talk about escape clauses, I just say ‘let’s shake hands and go our separate ways,’ ” he said. Contacting the clients April 2004: Lee and Perlstein notify “five to six” clients of pending merger to ask them if they will speak to the press when the merger is announced. Partners of both firms vote to merge. The decision, according to Lee and Perlstein, is unanimous. The vote follows a memo to the partners from the management committee explaining the deal. Over the course of two days, partners of both firms divide up the names of some 225 clients and call to notify them of the merger before an announcement of the deal is reported by the press. The purpose of client notification is to answer any questions and to assure clients that they will still receive services from the partners they know. The decision to wait until after the partner vote to tell clients is to ensure confidentiality of the deal, Lee said. The firm issues a press release of the merger. The press dubs it as one of the largest mergers ever between two U.S. law firms. Both managing partners launch into what they described as an extensive “road show” where they visit many of the 16 offices among the combined firms. They travel to some of the European locations and hold video conferences with partners at other locations. The purpose is to explain the reasons for the merger. “We’re both in our mid-50s,” Perlstein said. “Our jobs were to look ahead for the next generation.” The combined firm, at this point, has about 1,050 lawyers, with offices in New York; Washington; Boston; Baltimore; Princeton, N.J.; Oxford, England; Waltham, Mass.; McLean, Va.; Reston, Va.; London; Berlin; Munich; and Brussels. A ‘minimal’ fallout May 2004: On the last day of the month, the deal is closed. The agreement is reduced to an eight-page document. About a month later, technology transactional partner David Sorin moves to Morgan, Lewis & Bockius’ Princeton office. He takes with him four partners, one of counsel and two associates. Kaplan goes to King & Spalding. Despite Sorin’s move, Perlstein said that, so far, the fallout from the merger has been “minimal.” He attributes the departure of a “couple of other” attorneys to the routine “comings and goings” of a practice the size of Wilmer Cutler Pickering Hale and Dorr. Time will tell. Jones’ e-mail address is [email protected].

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