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Most observers of the New York legal scene can name one law firm from London’s Magic Circle that has forged ahead with U.S. expansion while its peers patiently hope for a merger with one of New York’s elite. Now there appear to be two such firms. While Clifford Chance’s American efforts have grabbed far more headlines, Allen & Overy has quietly proceeded with a substantial U.S. expansion of its own. Its New York office now counts 102 lawyers, and the firm announced in February it will launch a U.S. litigation practice. “The goal is to have the right-quality people in sufficient numbers to be considered a top-flight New York firm,” said Daniel P. Cunningham, the senior partner of Allen & Overy’s New York office. But in pursuing that goal on its own, Allen & Overy, which has more than 2,000 lawyers worldwide, has effectively closed the door on the possibility of a merger with a top-flight New York firm, the desire for which has so far slowed the expansion of other London firms. Along with a few slightly smaller London firms, the Magic Circle firms, Clifford Chance, Allen & Overy, Linklaters, Freshfields Bruckhaus Deringer, and Slaughter & May, occupy a position in the London legal market roughly equivalent to that held in New York by firms such as Cravath, Swaine & Moore; Sullivan & Cromwell; Davis Polk & Wardwell; Simpson Thacher & Bartlett and a handful of others that dominate in high-end corporate work. A transatlantic combination of such firms would create a global juggernaut, merger proponents argue. Thus far, however, those proponents have mostly been on the British side, as the top New York firms have all rejected merger offers from Magic Circle firms, preferring to expand overseas on their own, if at all. Apart from Slaughter & May, which has chosen not to expand in the U.S., the British firms have had to decide whether to charge ahead on their own, merge with lower-ranked U.S. firms or position themselves for the day when the elite New York firms change their minds. That last hope has fed “dynamic tension” affecting the growth of London firms’ Manhattan outposts, said New York-based legal recruiter Jonathan Lindsey. “Until now, they haven’t tried to be full-service firms,” said Lindsey. “They know a merger will be tougher the more people they have in New York.” Freshfields and Linklaters have continued to maintain relatively modest New York offices focused on corporate practice areas that they hope will be regarded as complementary by the New York firms. “Our preferred route for expansion in the New York market would be a merger with a New York firm,” said Terence Kyle, the head of Linklaters’ 40-lawyer New York office. There was no timeline on such a merger, he added, and the firm would pursue “sensible expansion” in line with that goal. Cunningham acknowledged that Allen & Overy’s plan to become a full-service U.S. firm will seriously harm its chances of merging with a top New York firm. But the chances of such a merger occurring anytime in the near future seem vanishingly small, he said. “I don’t think we’re giving up much,” he said. Allen & Overy’s recent announcement that it had hired Michael S. Feldburg, the current chair of litigation at Schulte Roth & Zabel, to launch its U.S. litigation practice in March promises a further jolt of expansion. Feldburg said he hopes to have a litigation department with roughly 25 lawyers in a year’s time. But getting U.S. expansion right may prove a unique challenge for Magic Circle firms, who also fear appearing downmarket relative to top New York firms. “Partners at Davis Polk will say, ‘They used to be good but now they’ve got all those people from so-and-so and so-and-so.’ ” said a New York headhunter who asked to remain unnamed. In some quarters, such perceptions already apply to Clifford Chance, which staked out its ambitious expansion strategy with its 1999 merger with New York’s Rogers & Wells, a large and respected firm but not one considered a powerhouse. In the past year, Clifford Chance, currently the largest firm in the world with 3,600 lawyers, continued its expansion tear with its high-profile poaching of West Coast partners from the now-defunct Brobeck, Phleger & Harrison. “Clifford Chance is clearly the weakest of the Magic Circle in terms of the quality of its legal work,” said the managing partner of one elite New York firm. For the time being, Allen & Overy is taking a more conservative approach than Clifford Chance, which is already one of the largest firms in New York with more than 450 lawyers. Cunningham said the firm’s growth would be achieved organically through highly selective lateral hiring and law school recruiting. Aside from Feldburg, Allen & Overy this week hired structured finance partner Barry P. Biggar from the New York office of Bingham McCutchen. In an earlier move, the firm hired bankruptcy partners Kenneth P. Coleman and David Frauman from Cadwalader, Wickersham & Taft. Cunningham created a splash himself when he joined Allen & Overy two years ago from Cravath, where he was a derivatives partner. He said he believes he is the only partner to have left Cravath to join another law firm, besides David Boies. At the law school level, Cunningham said Allen & Overy had made a concerted effort to communicate to students the advantages of joining a global firm where spending time at offices around the world would be encouraged, compared with some New York firms, where time abroad can be perceived as damaging future prospects. The firm has had about 45 summer associates from U.S. law schools in recent years, he said, up from one in 1996. Allen & Overy has doubled in size since Cunningham joined, but he acknowledged the firm still has some way to go before the office is practicing at the level it hopes to. Three or four years would be an optimistic estimate, he said. The head of one New York firm predicted a tough road ahead for all British firms expanding in the United States. “They are extremely powerful competitors in the U.K. but today we don’t see any of the English firms as serious competitors,” he said. “I can’t imagine a major U.S. company going to a major U.K. firm with their most important matters. It will take a long time before a U.K. firm has that kind of credibility,” Cunningham acknowledged the challenge Allen & Overy will face in pitching clients accustomed to looking to London firms for cross-border transactions only. “That’s less and less true of global financial institutions,” he said. “The [corporations] will take longer. You change that mind set one client at a time.”

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