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Pepper Hamilton is talking merger with Washington, D.C.-based Arent Fox Kintner Plotkin & Kahn in a move that would give the combined firm more than 700 lawyers. Neither firm would confirm or deny the reports, but several sources say talks have been ongoing for weeks, though nothing appears imminent. Arent Fox managing partner Christopher “Kit” Smith acknowledged that the 290-attorney firm has been discussing merger with several firms but would not offer any specifics. “It’s certainly not private that Arent Fox is looking to grow and expand its national and international platform,” Smith said. “We’ve talked to a variety of firms — smaller and larger — but we are a long way from making any kind of decision. I can say that this is an offensive strategy and not a defensive one. We just completed our best year, but we think we can be better prepared for the future if we grow.” Pepper Hamilton executive partner James Murray also demurred when asked about the Arent Fox rumors. But he admitted the firm’s strategic plan includes some major growth. “We have set certain priorities about where we need to be stronger,” Murray said. “We have an idea about what practice areas and what markets need to be added or expanded. We think we need to be substantially larger, and we are not daunted by major combinations.” Legal recruiter Michael Coleman of Coleman Legal Search said that two of Pepper’s main strategic objectives are to establish a significant New York presence and expand its Washington one. “It sounds like a good business decision to explore a merger with Arent Fox, because it would solve both with one move,” Coleman said. A source familiar with the Washington, D.C., legal market said that Arent Fox used to have the dominant regional real estate practice but was hit hard by the recession of the early 1990s and never fully recovered. The firm, the source said, still lags behind local competitors in profits per partner but has taken steps to try and correct it. “It seems like it would have the potential of being a good marriage,” the source said. “It would be a bigger regional firm with a good complementary fit in terms of practice and geography.” For the past 18 months, Arent Fox has been hunting for a merger partner. Legal Times reported late last month that Pepper Hamilton was a “likely new prospect.” There are obvious geographic and practice synergies that would make such a union attractive to both sides. From Pepper’s perspective, an Arent Fox merger would help the firm meet two major strategic objectives: obtaining a New York presence and expanding its Washington office. While Pepper currently has a New York site, no single attorney is solely situated there. Arent Fox has a 40-attorney Manhattan site. As for Washington, Pepper already has 40 attorneys there, but Arent Fox has 260. When looking at practice area strengths and weaknesses, Arent Fox is a typical D.C. firm with deep government relations and regulatory groups that include former U.S Sens. Dale Bumpers of Arkansas and John Culver of Kentucky. It also has strengths in health care (particularly with FDA matters), real estate and a 50-attorney intellectual property group. Sources familiar with both firms said that Pepper would welcome such additions, particularly the IP and government relations strength. Pepper would offer Arent Fox its powerful corporate and securities practice, led by firm chairman Barry Abelson’s highly profitable venture capital group. The firm also has an extremely strong commercial litigation group. With 425 lawyers, Pepper Hamilton is 30 percent larger than 300-lawyer Arent Fox. But the economics of the two firms appear similar. According to Legal Times, Arent Fox’s profits have lagged behind those of many other major Washington firms in recent years. But the firm’s New York practice, and the retirement of some partners, combined to lift 2000 profits up over the previous year, firm chairman Marc Fleischaker told the publication. Gross revenues for the year hit $120 million, Fleischaker said (up from $93 million in 1999). He said net profit in 2000 was about $40 million, with revenue per lawyer of $444,000 and profits per partner of $430,000. That’s about $80,000 more per partner than in 1999. According to the 2000 edition of The American Lawyer‘s AmLaw 200, Arent Fox’s gross revenue was ranked 135th with a gross revenue of $98 million, revenue per lawyer of $405,000 and profits per partner of $350,000. Pepper Hamilton ranked 99th on the list, with a gross revenue of $125 million. Revenue per lawyer clocked in at $370,000, yielding $315,000 in profits per partner. While about half of Pepper Hamilton’s lawyers are in Philadelphia, the rest are scattered among 10 other offices: Pittsburgh and Berwyn, Pa.; Cherry Hill and Princeton, N.J.; Wilmington, Del.; Tyson’s Corner, Va.; Detroit; and the aforementioned New York and Washington sites. That would also seem to be appealing to Arent Fox, as Smith said that one of the major reasons the firm has looked at merging is to expand geographically — both nationally and internationally. Smith said Arent Fox has an office in Bucharest, Romania, but that only one American lawyer is stationed there. Even if the two sides could work out those matters, they would also have to deal with the all important power issues that often plague potential mergers of two relative equals. What is the new firm’s management structure? Who’s going to run it? How many seats on the management, executive and compensations committees are to be dispersed to each side? Do the respective firm cultures mesh? And what will the new firm name be? Arent Fox has tried to make it down the aisle at least once before with a midsize Northeastern firm. Last fall, the firm confirmed it was discussing a merger with Boston’s 225-lawyer Brown Rudnick Freed & Gessmer. But those discussions fell through. Fleischaker insisted to Legal Times that Arent Fox is not being squeezed by larger firms, and is in no rush to do a deal. But if the amount of time his managing partner devotes to the subject is any indication, it’s a pretty high priority. According to Fleischaker, Smith spends 80 percent to 90 percent of his time on the firm’s merger efforts.

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