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In what could be the nation’s largest law firm merger this year, the executive committees of Reed Smith and Oakland, Calif.-based Crosby Heafey Roach & May have each unanimously approved the basic terms of a merger agreement that would become effective in January. Both Reed Smith Chairman Gregory Jordan and Crosby Heafey Chief Executive Officer Kurt Peterson confirmed that the partners of each firm are set to consider the transaction by the end of the month. “We have had an interest in California, and we’ve talked to a lot of firms,” Jordan said. “And we are having serious discussions with Crosby about combining. Our executive committee has approved a transaction. But we now have to discuss the details with our partners, who will ultimately determine whether the transaction will proceed.” Jordan declined to discuss any other aspect of the potential deal, saying it would be premature before his partners put the matter to a vote. Peterson also stressed that both firms’ partners must vote and said that Crosby Heafey — the largest firm based in the East Bay area — has been sifting marriage proposals for about a year. “We have been looking for a firm with a strong institutional client base and with no presence in California,” Peterson said. Reed Smith emerged as a strong candidate, and the executive committees of both firms signed off on a preliminary agreement, Peterson said. Crosby Heafey partners, who are called directors, and Reed Smith partners still must ratify the pact, he said. If and when it is approved, the combination of 760-attorney Reed Smith and 230-attorney Crosby Heafey would constitute one of the largest law firm mergers in the country this year. The combined total of 990 lawyers would exceed other mega-mergers between two U.S. firms, such as the 820 combined attorneys from the St. Louis-based Bryan Cave and New York-based Robinson Silverman Pearce Aronsohn & Berman merger this summer. Boston’s 500-lawyer Bingham Dana and San Francisco’s 320-lawyer McCutchen Doyle Brown & Enersen, which also merged this summer, also equaled 820 combined lawyers. Such a large addition would allow Reed Smith, which scoffs when labeled a Pittsburgh-based entity, to call itself a national firm — which by The American Lawyer‘s standards means having no more than 45 percent of a firm’s total attorneys located in one region of the country. The Crosby Heafey deal would be Reed Smith’s largest transaction and fits a pattern of large, full-service acquisitions that have allowed Reed Smith to more than double in size in the past decade. Most notably the firm added 85-attorney Virginia-based Hazel & Thomas in 1999 and 75-attorney London-based Warner Cranston in 2000. As far back as the Warner Cranston union, Jordan has been pointing to California as the firm’s next target area. Such talk became even more pronounced this past December when the firm announced the addition of 26-attorney Parker Duryee Rosoff & Haft to its 35-attorney New York office. Jordan said that a major reason for the Parker Duryee merger was to become more attractive to potential California merger partners. “California is a huge market,” Jordan said. “We have a lot of clients there who would like us to be there.” The combined firm’s size would offer some advantages, such as to “deliver some financial heft,” but Peterson was reluctant to delve into detailed pluses and minuses of the proposed merger. Partners have to ratify the deal and, the CEO said, he didn’t want to make the merger seem inevitable. “It’s important that we don’t get ahead of ourselves,” he said. When asked if he was concerned that Reed Smith had grown so fast, Peterson said he and his partners have been very impressed that it has a very focused strategy. “They have been focused on why they should do something in London, why they should do something in New York,” Peterson said. While the two firms appear to have compatible financials, Reed Smith and Crosby Heafey are clearly headed in opposite directions. According to The American Lawyer‘s Am Law 200 survey, Reed Smith’s profits per partner and gross revenue both increased in 2001. The firm’s profits per partner went from $335,000 to $400,000. Conversely, Crosby Heafey saw its profits per partner tumble from $352,000 in 2000 to $314,000 in 2001. Crosby Heafey partner Jack Nelson, who runs the day-to-day operations, recently acknowledged to The Recorder, an affiliate of The Legal Intelligencer and law.com, that partners took home about 20 percent less than they expected in 2001. Combining the firms would have complex tax consequences, in part because Crosby Heafey is a professional corporation and Reed Smith is a partnership, Peterson said. “The effect of what we would be doing is a merger,” Peterson explained, later adding, “Reed Smith would acquire the people.” Crosby Heafey has been known as a strong regional, and sometimes national, player in the litigation arena. The firm acted as California counsel for Sulzer Corp. in the $1 billion hip-implant case. In the last five years, Crosby Heafey has expanded into San Francisco and Palo Alto, Calif., and sought to build up its corporate and technology practices. The firm has six offices, all in California; the largest is Oakland, while San Francisco, Los Angeles and Century City are the sites of sizeable offices. Two smaller offices are in Palo Alto and Westlake Village. Crosby Heafey’s management announced this past summer that it would entertain merger opportunities with an East Coast partner after suffering the loss of 13 partners in the last 18 months and being forced to lay off 13 attorneys and 40 other staff members last year. Jahna Berry of The Recorder contributed to this article.

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