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The on-again, off-again merger talks between Philadelphia-based Pepper Hamilton and Washington, D.C.’s Arent Fox Kintner Plotkin & Kahn have been called off for good, a Pepper Hamilton spokeswoman said last week. Talks between the two firms heated up again in January — only four months after it was announced that negotiations had concluded without a deal. The latest round of conversations wrapped up last week, according to the spokeswoman. Pepper Hamilton executive partner James Murray and Chairman Barry Abelson both were vacationing and unavailable for comment. But chief marketing officer Mary Beth Pratt confirmed that the talks had concluded, though she declined to say why. “We felt it wasn’t the right fit for us,” Pratt said. “Continuing discussions led to the belief that it wouldn’t work. This was something that both sides decided.” Arent Fox managing partner Christopher “Kit” Smith was also on vacation and unavailable for comment. Executive committee chairman Mark Fleischaker said there were differences the two firms could not get past to complete the merger. “Mergers of equals are difficult to complete,” Fleischaker said. “Pepper Hamilton is an excellent firm, and we were hopeful we could accomplish one. However, there were irresolvable issues and it didn’t work. We are now looking forward and expect Pepper Hamilton will do the same thing.” Sources familiar with the situation, though, said talks stalled for common reasons — practice conflicts, power issues and incompatible financials. Though firm officials denied it in the fall, one source said in February that potential client conflicts still presented a roadblock in getting the deal done. Arent Fox handles a good deal of bad-faith claims work. A source familiar with the situation had said Pepper Hamilton soured on that practice because of its heavy representation of insurance companies. The power issues revolved around who would run the new firm, what its name would be and how management and compensation would be structured. Neither firm had a great year financially in 2001. According to preliminary numbers provided to The American Lawyer for the upcoming Am Law 200, Pepper Hamilton’s profits per equity partner did not change much from the $365,000 it reported last year [for financial year 2000]. While the firm has lost much of its intellectual property capability in Philadelphia and Washington over the course of the past year, Pepper Hamilton would have offered Arent Fox its powerful corporate and securities practice, led by Abelson’s highly profitable venture capital group. The firm also has a strong commercial litigation group. While Arent Fox reported a higher profits per partner ($400,000 for financial year 2000) than Pepper Hamilton, the firm went through a rough financial year in 2001, according to a recent story in Legal Times. The money the firm spent on associate salaries, office space and practice area development was felt in the bottom line, with lowered profits per partner. But firm leaders said things would improve this year and that no attorneys would be laid off. When the talks originally broke off last fall, sources said Pepper officials were concerned that Arent Fox attorneys were not unified behind the firm management’s strategic vision. Sources noted that Arent Fox had tried and failed to complete other mergers during a two-year quest during which Smith focused most of his time on finding a partner. Talks began early in the summer and would have produced a firm with more than 700 attorneys in more than 10 offices. Pepper Hamilton has 425 attorneys and Arent Fox has 300. There are obvious geographic and practice synergies that would have made a union between Arent Fox and Pepper 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 has a New York site, no single attorney is solely situated there. Arent Fox has a 40-attorney Manhattan office. Pepper has 26 attorneys in its Washington office, where the firm still has a presence in real estate, litigation, labor and employment and some other transactional practice areas. Arent Fox has 260 attorneys in its main Washington, D.C., office.

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