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It didn’t work. When D.C.’s Swidler & Berlin merged with New York’s Shereff, Friedman, Hoffman & Goodman in the summer of 1998, the marriage was touted as a means to help Swidler compete with heavyweights like Skadden, Arps, Slate, Meagher & Flom in the East Coast’s two most important legal markets. But last Monday, 57 of the firm’s 64 New York attorneys � essentially all of what had been Shereff Friedman � bolted to join the Manhattan office of Philadelphia-based Dechert. That same day, the firm’s eight-attorney D.C.-based antitrust team also left for Dechert in a separately negotiated move. And as a final blow, rising star Michael Levy took his six-attorney white collar defense team to the D.C. office of McKee Nelson. For Swidler Berlin, as the firm previously known as Swidler Berlin Shereff Friedman is now known, the exodus comes after a year of turmoil � a year that included failed attempts to merge with San Francisco’s Orrick, Herrington & Sutcliffe and D.C.’s Dickstein Shapiro Morin & Oshinsky, months of merger rumors, and questions among its rank and file about the firm’s vision. Even as last week’s split was taking place and Swidler was calling the departures part of the firm’s “long-term strategic plan,” reports from numerous sources close to the firm indicated that dissatisfaction among its New York attorneys drove the divorce. For their part, firm leaders from both offices described the separation decision as “mutual.” Ultimately, however, there was public acknowledgment even among Swidler’s management that the firm’s wedding to Shereff Friedman had been ill-advised. “Everybody wants to be in New York,” says managing partner Barry Direnfeld. But “D.C. firms trying to grow in New York . . . I don’t think that’s a good model. What’s very profitable in D.C. is only barely profitable in New York.” At the heart of the breakup was an inability to parlay two firms with markedly distinct practice areas into a sum that was greater than its parts. “The practices did not integrate, and synergy did not occur,” says Swidler’s Roger Frankel, the firm’s former managing partner who oversaw the merger. “Their New York corporate practice is a midmarket practice. We anticipated that Shereff’s clients would need D.C. regulatory lawyers. They didn’t.” A LONG-DISTANCE AFFAIR But in July of 1998, the firms’ top partners had a different view of the D.C.-New York engagement between 175-attorney Swidler and 65-attorney Shereff Friedman. Publicly, at least, the disparate practice areas that appear to be the merger’s fatal weakness were touted as strengths. “The reason we did this is because we have regulatory clients who will benefit from a larger corporate securities practice group,” Frankel told The Washington Post at the time. “And their clients are increasingly looking for regulatory lawyers.” In hindsight, the firms’ leaders appear to have miscalculated the extent of the demand. At the time, a secondary reason driving the union was a desire to merge the combined Swidler Berlin Shereff Friedman with a national player, according to Andrew Levander, a senior partner in Swidler’s former New York office, who went to Dechert. “But step one wasn’t dependent on step two happening,” he says. As the years rolled by and the firm’s two offices failed to mesh or find an acceptable suitor, partners in both offices began to grow restless. According to several sources with inside knowledge of the firm, the discomfort with the status quo was particularly acute in New York. That situation was worsened by the fact that both offices maintained distinct identities in their respective marketplaces. “The real problem we were having in the New York marketplace was that Swidler wasn’t really known here,” says Martin Nussbaum, a senior partner in the New York group joining Dechert. “Six years later, it was still thought of as Shereff Friedman and not Swidler Berlin.” Though the two offices failed to effectively integrate, the firm continued to enjoy healthy profits. In 2003, Swidler’s D.C. office reported profits per partner of $940,000. For 2004, according to Swidler’s managing partner Direnfeld, that figure will top $1 million firmwide.

But, by other measures, Swidler was falling behind its peers. At the time of the merger in 1998, the revenues of the two firms would have placed it in the low 80s on The American Lawyer‘s rankings of the nation’s top revenue-producing firms. Six years later, Swidler had slipped to 118. Driven in part by the strength of its telecom practice led by partner Andrew Lipman, the D.C. office had swelled from 170 lawyers at the time of the merger to 233 in 2001. But as the telecom boom withered and the economy stalled, Swidler began to shed numbers. By April 2004, its D.C. head count had shrunk back to 171. As early as the fall of 2003, the firm had already begun what Direnfeld calls an “internal conversation” about merging or separating. That discussion, by most accounts, was driven particularly by the New York office’s desire to join a larger firm. At the time of the merger, Direnfeld says Swidler had hoped to grow the 65-attorney New York office to 150 lawyers. But the growth never happened. “We were a strong D.C. firm,” Direnfeld says, “but didn’t have a big enough footprint in New York.” Those small shoes in Manhattan particularly hurt the firm’s efforts to attract top talent in New York. “It was very difficult to recruit to a New York outpost of a small Washington firm,” says Levander. And not far over the horizon loomed an enormous decision: Swidler’s lease at 3000 K St., N.W., in Georgetown’s Washington Harbour complex overlooking the Potomac was due to expire in 2007, a lease that would have to be signed by partners in both Washington and New York. THE SIX-YEAR ITCH Finally, an opportunity to merge appeared last spring, when 700-attorney Orrick, Herrington & Sutcliffe, an aggressive San Francisco-based firm, opened discussions to acquire both offices. The proposed merger talks progressed quickly and were reported in Legal Times in early May. But before the deal could be finalized, a litigation conflict was discovered between Orrick and Swidler’s D.C. office. By early July, the conflict had proved irreconcilable, and the talks were dead. Firm leaders in both Swidler’s D.C. office and the former New York office confirm that the merger would likely have been consummated save for the conflict. (Ralph Baxter Jr., Orrick’s chairman, did not return a phone message for this article.) But news reports of the failed talks had created problems for the firm. “Stories about the firm merging with Orrick . . . compelled us to examine where we were,” Levander says. “It’s hard to recruit top-flight law students when they were asking ‘Who are you? Where are you going to be next week?’ “ They also led Paul Denis, who headed Swidler’s D.C.-based antitrust group before taking it to Dechert, to question his path at the firm. “After all the stories about Orrick, I had to think about the future of my group,” he says. “At some point, you’ve got to recognize what the market is doing and react to that.” As a result, the firm continued to seek and receive merger proposals. But by this time, Swidler’s D.C. office had begun to hemorrhage lawyers. From April 1, 2004, to Jan. 5 of this year, the firm’s head count dropped from 171 to 138. By October 2004, Direnfeld was progressing with merger talks that would have split the firm, sending its New York lawyers to Orrick and its D.C. office to Dickstein Shapiro Morin & Oshinsky. On Nov. 6 and 7, Direnfeld and Swidler’s D.C. partners gathered in Lansdowne, Md., a suburb of Baltimore, for a town-hall-style retreat to discuss the fate of the firm. Once the partners started speaking, according to Direnfeld, “it was wildfire.” The overwhelming consensus: allow the New York office to depart on its own, but keep the D.C. office as a stand-alone firm. Just four partners objected to the plan, says Direnfeld: Levy, white-collar defense partner Michael Spafford, Denis, and fellow antitrust specialist Michael Farber. “[That] firm retreat was a seminal event,” Lipman says. “It was like the founding fathers meeting in Independence Hall.” Though the D.C. office had taken itself out of the merger game, Levander, Nussbaum, and the other New York partners continued to seek a new match. “We received a great many inquiries,” says Nussbaum. “It was flattering.” By late December, the options had been narrowed to just two firms: Orrick and Dechert. A newcomer to the talks, Dechert had opened negotiations less than two months before. “Up through the holidays, we didn’t know where we were going to be,” says one of Dechert’s new New York partners, who spoke on the condition that he not be named. The decision to go with Dechert, according to several sources, was made largely because the Philadelphia firm was stronger in mergers and acquisitions and white collar defense, two specialties of the original Shereff Friedman team. For his part, Dechert chairman Barton Winokur touts the acquisition for adding depth to the firm’s 113-attorney New York practice. “We were a bit light in New York on our corporate side,” he says. Winokur also praises the smoothness of the transition. “They were great at extricating themselves,” he says. But as Winokur and his new New York attorneys begin their integration, Swidler’s leadership says it will go about the process of rebuilding its seven-attorney New York office by focusing only on a few core areas, such as real estate, bankruptcy, and insurance. “Many, many mergers don’t work out,” says Frankel. “We realized we want to be what we were 10 years ago.” To that end, Frankel has taken to crossing out the “Shereff Friedman” on his business card, leaving Swidler Berlin on its own again. Which makes the next question obvious: Is the newly reconstituted Swidler Berlin ready to jump back into the merger game? Direnfeld smiles and shakes his head. “We’re out,” he says.

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