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Calling off an engagement is always messy. Two weeks after New York’s Dewey Ballantine and San Francisco’s Orrick, Herrington & Sutcliffe broke off talks that would have led to one of the biggest legal pairings in years, fallout from the failed negotiations continues to rain down. Two more partners last week decamped from Dewey, raising the question of whether the departures will mark the tail end of an exodus of more than a dozen partners who have left the firm after it began merger talks with Orrick or if there are more to come. And although the impact on Orrick is less clear, the failure comes at a cost for it, too. It represents at least the fourth time in four years that Orrick has failed to cinch a merger, prompting speculation about why the firm can’t close these deals. It’s hard to say what’s been more public, the two firms’ mating dance or their bitter split. But like many relationships that end badly, each side thinks it’s all the other’s fault. At least one thing is clear: Other managing partners will look upon the wreckage as an example of how not to consummate a merger. Rest assured, they are taking notes. At Dewey, the hemorrhaging continues. Last week capital-markets partner Camille Abousleiman, a top rainmaker from the firm’s London office, along with partner Louise Roman Bernstein, defected to LeBoeuf, Lamb, Greene & MacRae’s London office, where Abousleiman will head the capital markets practice. It brings the number of Dewey partners who have left since the Orrick talks were announced to at least 13. “It’s a moment of great instability for Dewey,” says Peter Zeughauser, a California-based legal consultant. “The fact that they couldn’t pull it off without losing some of their best talent will raise questions about their future.” Losing blood Law firms typically try to keep their merger talks from seeing the light of day. So it was a surprise when Dewey and Orrick publicly confirmed in mid-September that they were engaged in talks to create a more-than-1,200-lawyer behemoth with about $1 billion in revenue. Both firms have strong corporate practices but fairly discrete areas of expertise. Dewey’s strength and reputation stems from its representation of investment banks in mergers and acquisitions, while Orrick is best known for its debt-financing practices. In October the firms said their executive committees had approved a preliminary deal and recommended it to their partnerships for a vote. Ralph Baxter, Orrick’s chairman, and Morton Pierce, Dewey’s chairman, were to be co-chairmen of the new firm, with Baxter also acting as presiding partner responsible for the day-to-day management of the firm. The deal was expected to close this month. But the firms struggled with partner defections from Dewey, argued on how the merged firm would be governed, and grappled with financial issues. They delayed the partnership vote until January and then called off the talks on Jan. 4. Both Pierce and Baxter say the firms failed to reach agreement on a number of fronts and that no single issue led to the decision to call off the talks. But the Dewey partner defections, which essentially devalued the asset Orrick was acquiring, at least acted as a catalyst for the collapse. Particularly damaging was the departure of mergers-and-acquisitions stars and Pierce prot�g�s Jack Bodner, who left for Covington & Burling, and Michael Aiello, who joined Weil, Gotshal & Manges. Orrick viewed these partners as the future of Dewey’s M&A practice, which was one of the key motivators for the deal, a source familiar with Orrick’s position in the negotiations says. Other big-name losses included the head of Dewey’s bankruptcy practice, Alan Gover, who joined White & Case’s New York office, and the head of the firm’s energy practice, Earle O’Donnell, who joined that firm’s D.C. office. The departures dampened Orrick’s enthusiasm for the deal and chipped away at its confidence in Dewey’s management team, which led Orrick to request an extra seat on the executive committee that would have given it a majority, the Orrick source says. The firms had initially agreed that the executive committee would be made up of five partners from each of the legacy firms. The demand proved to be one of the major stumbling blocks, say sources on both sides. “It had been positioned as a merger of equals,” says a source inside Dewey, “When it became clear that they were changing the dynamic, it wasn’t something we were interested in.” The departures forced the firm to question why it was pursuing a deal that was making so many top partners leave, the source says, adding that the partners who left perceived Orrick as a step down from Dewey. The partner defections seemed to fuel a vicious cycle in the negotiations. The departures prompted Orrick to ask for new terms, the Orrick source says. But these new terms in turn complicated Dewey’s effort to stem further departures because they added to the uncertainty surrounding the deal, the Dewey source says. “You can’t do a deal until you know the terms, and the terms kept changing with Orrick,” he adds. Dewey rejected Orrick’s proposal and instead suggested that Baxter, as presiding partner, could have a tie-breaking vote, both Dewey and Orrick sources say. Dewey’s management wasn’t enthusiastic about the proposal, as it was already concerned with the degree of power Baxter would have as presiding partner, the Dewey source says. But, in any case, Orrick rejected Dewey’s proposal. Another issue that dogged the negotiations and was exacerbated by the departures was how to deal with Dewey’s unfunded pension plan. The negotiations finally broke down for good when Dewey told Orrick it would call off the talks if Orrick didn’t come up with a counter-proposal by Jan. 5. The firms announced the deal was off on Jan. 4, after Orrick said it wouldn’t change its terms. Moreover, a proposal that would have set Baxter’s compensation at $5 million a year for five years � and requests he made for additional perks � also ruffled some feathers, a Dewey source says. But discussions on the co-chairmen’s employment agreements, which provided for the same base compensation for Pierce, never progressed far enough to be a major stumbling block, according to both Dewey and Orrick sources. Picking up the pieces Legal observers have criticized the firms’ decisions to reveal so much about the negotiations, but both Pierce and Baxter say they agreed to talk about the deal only after it had leaked. “At the end of the day, I don’t think it affected the outcome,” Pierce says, a conclusion with which Baxter agrees. Although the publicity surrounding the merger talks may not have had any impact on the ultimate result of the deal, it doesn’t reflect well on either firm. Pierce rejects the notion that the failed talks have destabilized Dewey. “We had our best year ever last year, and we are projecting an even better year this year,” Pierce says, but acknowledges that the uncertainty created by the talks could have become problematic. “It’s frankly one of the reasons, from our perspective, that we didn’t go forward with the merger,” he says. “It could have become destabilizing if we had gone on with the process and gone on with the uncertainty. Lawyers are conservative by nature.” Pierce predicts that the London departures will be the last merger-related defections. Some New York-based recruiters agree that the end of the merger talks will stem the tide, but others say that the firm may be poised to lose more in the coming months. And in any case, they note, the talks could have repercussions on the firm’s ability to recruit. The fallout of the deal for Orrick is less clear. Baxter says the episode won’t have any effect on the firm. “It all comes under the heading [of] nothing ventured, nothing gained,” he says. The experience won’t change the firm’s appetite for a merger, he adds. “We never thought that it was the main way to pursue our strategy,” Baxter says. “It’s just a tactic, and it’s a tactic that has a lower likelihood of being accomplished, but it has a high reward if you do accomplish it because you make more progress in one move than hiring one lateral or hiring a small team.” Still, the implosion could be a blow to Baxter’s reputation, as he was aggressively pushing for the deal. “It would have been a real feather in his cap,” Zeughauser says. But then again, failed merger talks are nothing new for Orrick. The talks with Dewey represent at least the fifth time in the past decade that the firm was known to be engaged in serious merger talks yet was unable to close the deal. Merger discussions with Donovan Leisure Newton & Irvine broke down in 1998, with Silicon Valley firms Cooley Godward and Venture Law Group in 2003, and with D.C.-based Swidler Berlin Shereff Friedman in 2004. In 2005, the firm talked to New York-based Coudert Brothers, but Baxter says those negotiations never went far. Orrick did acquire Rambaud Martel, a 50-lawyer Paris-based firm, last year. “If I were a managing partner and I had a call from Ralph Baxter saying he wanted to do a potential merger, I would want him to explain what happened with the previous talks,” says Richard Gary, former managing partner of Thelen Reid & Priest and now a legal consultant. But Gary emphasizes that Orrick’s history would be only one of many factors to consider in deciding whether to pursue serious discussions. Another observer says such a public history of failed mergers could indicate that the firm jumps into serious negotiations without having thought it through thoroughly, that it’s difficult to negotiate with, or that it just can’t get deals done. Another concern that firms may consider in opening talks with Orrick is its history of picking up partners from firms it previously had merger talks with. For example, after talks broke down with Donovan, Orrick ended up picking up its entire litigation department, which was the firm’s most desirable asset, after Donovan broke up. Similarly, Orrick acquired more than 40 lawyers from Coudert’s China practice and all of its highly prized London and Moscow offices in 2005. The firm also picked up at least nine lawyers from VLG and Swidler’s 10-person bankruptcy practice. But Baxter is quick to point out that all the instances in which lawyers moved to Orrick after merger talks involved unusual circumstances. Donovan and Coudert folded, and the Swidler team moved to Orrick after being conflicted out of Swidler’s 2006 merger with Bingham McCutchen. “If Orrick picks up some of Dewey’s talent, some people will question their motives,” Zeughauser says. Alexia Garamfalvi can be contacted at [email protected].

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