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Last month, the grapevine at Cooley Godward buzzed with one big rumor: that the firm was about to merge with L.A.’s O’Melveny & Myers in an effort to boost the Palo Alto, Calif., firm’s international presence. The speculation was so rampant that Cooley Chairman Stephen Neal had to respond. On Feb. 22, he sent out a firmwide e-mail emphatically denying a Cooley-O’Melveny marriage. “We are not in merger discussions with O’Melveny or any other firm,” Neal wrote. Yet Neal’s e-mail left a tantalizing fact on the table for the firm’s gossip hounds. At their retreat in October, he said partners discussed whether it made sense to consider an international presence. A team of Cooley partners is studying the question, he wrote. “If that effort leads to a decision that we should be overseas then the management committee and the partnership will have to consider whether we should try and build an overseas presence organically, following the model we have used for domestic expansion, or through a combination with another firm.” For Cooley Kremlinologists, Neal’s e-mail seemed a tacit admission that the firm is in play for a merger. And former and current Cooley attorneys say the firm previously broached the possibility of a merger with L.A.-based Latham & Watkins and London’s Bird & Bird. Neal, however, denies the firm has been in talks with either Latham or Bird & Bird and downplays the idea of a merger — though he won’t rule it out as a possibility. “We’ve talked internally over the years about whether a merger might be the best way to execute on other strategic objectives that the firm might have but we’ve never gotten to the phase of entering merger discussions,” he said. O’Melveny didn’t confirm or deny whether it had discussed marriage with Cooley. “We’ve had the most successful year in our history so it shouldn’t surprise anyone we’re regularly involved in conversations with a wide variety of parties regarding our strategic options,” said Ronald Merriman, O’Melveny’s managing director of client services and development. “We won’t comment on rumors regarding discussions.” More than anything, the recent rumors show just how hot international practices have become. The leading California firms have touted the importance of being global to attract and retain clients. They’ve made a push in the last two years to open overseas offices. Latham & Watkins, for example, has acquired offices in Germany, France and Brussels through mergers with local firms. Yet tech firms like Cooley, Palo Alto, Calif.’s Wilson Sonsini Goodrich & Rosati and Gray Cary Ware & Freidenrich have almost exclusively focused on the domestic market — some say to their long-term detriment. The question, firms and industry consultants say, is what markets and regions tech firms will opt to pursue. “Firms that don’t globalize will remain niche players,” said Thomas Shoesmith, who headed up Cooley’s international business practice before jumping to L.A.-based Paul, Hastings, Janofsky & Walker last year. “There will be a place for firms that are tightly focused on the space from Menlo Park to the southern border of Palo Alto,” he said. But the emerging growth companies are themselves becoming more international and that “will drive them toward firms that have established themselves on a bigger stage.” MISSED OPPORTUNITY? Shoesmith said Silicon Valley firms failed to take advantage of the boom period of 1998 to mid-2000 to become more competitive. “They had the opportunity to use the bubble as a slingshot,” he said, “to propel them into New York and an international practice to be in a position to challenge firms already there.” But Neal contends the same conditions that would have made Cooley consider the international market then – client involvement overseas – are still applicable. And the slower period might be a more appropriate time for going overseas, he said, since the firm was so busy during the boom it couldn’t afford to take time away from clients. “It’s a point of ongoing discussion within the firm as to what to do during the slowdown in the economy,” Neal said. “Some would say we should focus on what we’re doing and others would say there is no better time to make a dramatic strike forward. We haven’t committed to one course or another.” Cooley isn’t the only tech-focused firm assessing its international options. While Wilson doesn’t have an international office, it does a significant amount of work in Asia, India, Europe and Israel, said Wilson partner John Roos. “We’re always analyzing our options overseas,” he said. As to whether the firm might consider a merger, Roos said, “I would never rule anything out as far a global opportunity.” San Francisco’s Brobeck, Phleger & Harrison is one of the few tech firms that has made a significant investment in the international market. It chose to enter Europe through a joint venture with Boston’s Hale and Dorr to control costs, said Tower Snow Jr., former chairman of the firm. “We haven’t considered merging with a European firm and wouldn’t because of the difference of cultures and a host of practical challenges,” such as the higher compensation of associates in the United States. Snow also said he didn’t think international offices played much of a role in boosting revenues among California firms last year. “My belief is that 80 percent of overseas offices of American firms either break even or lose money,” he said. As for merging with a U.S. firm, Snow said it would be difficult for tech firms to find an appropriate partner. “Wilson, Cooley or Brobeck don’t fit culturally or in a variety of other ways with Southern California firms and they fit less with New York firms,” Snow said. And tech firms may simply be less attractive to potential suitors than they were during the economic boom. “Until 1 1/2 to 2 years ago lots of firms were interested in getting into transaction work,” said Blane Prescott, a consultant with Altman Weil Inc. “They wanted to get into capital markets and the next best thing was venture capital or the IPO side. Cooley had it.” Shoesmith said tech firms also have lost their allure in Europe. “Two years ago if you went to London with a Silicon Valley business card everyone was bowing down in the street,” he said. “They aren’t doing that anymore.” Is it essential for Silicon Valley firms to become international? Consultant Bradford Hildebrandt of Hildebrandt Inc. said it depends on a firm’s practice, goals and clients. “The markets overseas for U.S. lawyers are capital markets,” he said, adding that only those firms with a significant New York office are likely to be credible. Joel Sanders, a partner in Gibson, Dunn & Crutcher’s San Francisco office, said firms don’t have to be global to be successful. “There may be a class of work that will go to global law firms,” Sanders said, “but there will be a lot of high-quality work that will still go to non-global law firms and there will be plenty of room for non-global law firms to be successful.” So far, Cooley seems to be taking a wait-and-see approach. “We could compete for some time without an international office,” Neal said. “It’s fair to ask if the legal landscape will change in three or five or 10 years and if those firms with international cross-border capabilities will have a competitive edge. I don’t think an international office is necessary yet, but it could become necessary.”

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