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Two of Washington, D.C.’s largest firms — Akin Gump Strauss Hauer & Feld and Shaw Pittman — have sent out feelers to evaluate each other as potential merger partners. The purpose of the talks has been to learn more about each other’s firms, says Stephen Huttler, managing partner of 350-lawyer Shaw Pittman. But the leaders of both firms emphasize that they’re hardly ready to tie the knot. “Law firm managers discuss all kinds of things all of the time, and among the things we’ve discussed with our friends at Akin Gump is how our practices line up,” Huttler says. Adds R. Bruce McLean, chairman of Akin Gump, which has roughly 945 lawyers, “We have had several preliminary discussions with Shaw Pittman.” He stresses though that “nothing in those discussions can be accurately described as merger discussions.” However, a source familiar with both firms says the talks are “more than preliminary, but absolutely not a done deal at this point.” The source continues, “We’ve seen a lot of mergers of this caliber that never reach fruition. It’s still a wait-and-see matter. However, these firms have a lot of reasons to make this work. The industry shouldn’t be surprised if they pull this off where others haven’t.” If the firms do join, it would be one of the largest law firm mergers in the United States and an unprecedented move in the D.C. legal market. Shaw Pittman and Akin Gump are the eighth- and ninth-ranked firms in revenue in the District, with local 2002 revenue of $166 million and $163 million, respectively. Shaw Pittman has 328 lawyers in D.C. and Northern Virginia, while Akin Gump has 279. A combination of the two, barring major layoffs, would create the biggest local firm, with 607 lawyers in D.C. and Northern Virginia, and one of the 10 largest firms nationwide, with a head count of more than 1,200 lawyers and revenue topping $750 million. “They would be toe-to-toe with anyone,” says law firm consultant Peter Zeughauser. “They would be a formidable force.” William Brennan, an Altman Weil consultant in Newtown Square, Pa., who specializes in merger integration, agrees: “This would be a very significant event. It’s an indication that consolidation within the industry is continuing.” The firms already share several important organizational links, including a swap of their nonlawyer managers. Last year, Steven Moore left his post at Akin Gump to join Shaw Pittman as chief operating officer. And Akin Gump’s executive director, James Leary, until 2000 was COO of Shaw Pittman. And Shaw Pittman, after relinquishing its Los Angeles office space, will begin leasing from Akin Gump in L.A. in October. Earlier this summer, Shaw Pittman slashed its 18-lawyer outpost to six attorneys to focus on its core technology transactions practices there. In turn, Akin Gump leases space from Shaw Pittman in Northern Virginia. Akin Gump’s firmwide revenue in 2002 was $575 million, while Shaw Pittman, which also has offices in New York and London, brought in $192.3 million last year. The firms’ combined D.C. revenue was $329 million in 2002. This isn’t the first foray into mergers for Akin Gump, which has 15 offices around the world, including in Moscow and Brussels. In early 2001, the firm absorbed 61-lawyer Troop Steuber Pasich Reddick & Tobey in Los Angeles. And in D.C. in 2000, the firm took over 24-lawyer environmental boutique Cutler & Stanfield. In 1999, it acquired two IP boutiques, 14-lawyer Pravel Hewitt of Houston and Philadelphia’s 28-lawyer Panitch Schwarze Jacobs & Nadel. In January of 2003, Akin Gump snagged a 20-lawyer litigation group headed by high-profile litigator Steven Zager from Brobeck, Phleger & Harrison — widely viewed as an acquisition that hastened Brobeck’s demise. The firm has proved savvy at anticipating changes in the legal marketplace. During the late 1990s, when many firms were strengthening technology-related practices, Akin Gump saw a future in bankruptcy. Last year, the firm represented parties, including WorldCom’s unsecured creditors, in five of the 10 largest bankruptcies filed. Shaw Pittman has followed a different course. Under the leadership of Paul Mickey Jr., who stepped down as managing partner in January to return to employment practice at the firm, Shaw Pittman grew its technology-related practices. The firm entered the Northern Virginia technology market early and still has the largest office there, with more than 100 lawyers posted in McLean. By extension, the firm has also built a powerful technology outsourcing practice from within its 100-lawyer technology transactions group. But the practice took a hit earlier this summer when three key partners, two from D.C. and one from London, defected to Latham & Watkins. At the time, Huttler said that Shaw Pittman’s tech transactions group delivered between a quarter and a third of the firm’s revenue and had just completed its best quarter ever. In the wake of the tech downturn, Shaw Pittman laid off 19 associates in January 2002 and 11 more that August. Huttler said in April 2003 that the firm hoped to soon begin lateral recruitment for its corporate, financial institution, and government contracts practices. In April 2002, the firm’s New York office lost five business and finance attorneys to Alston & Bird, leaving Shaw Pittman with just 17 lawyers in Manhattan, down from a peak of 30 in December 2001. Consultant Zeughauser says merging two firms of this size — in the same city — could be difficult. For starters, the two firms have disparate partnership structures: Akin Gump has equity and nonequity partners, while Shaw Pittman has only equity partners. Moreover, the firms have large gaps in profits per partner and revenue per lawyer. Akin Gump’s 67 D.C. equity partners took home an average of $731,000 in 2002, compared with $534,000 for Shaw Pittman’s 99 D.C.-based partners. “That also presents a challenge, slotting partners into the compensation system,” says Zeughauser. Brennan disagrees. He says that according to a recent Altman Weil survey of 100 big-firm managers and lawyers, cultural compatibility is the most important component when two firms are selecting merger partners. He says issues such as culture and quality of lawyers frequently trump debt load or profitability. “Law firms are people businesses,” says Brennan. “If two groups of lawyers can’t get along, it doesn’t matter what their profits are, it will be a failure.” Ultimately, most merger partners have profits per partner within a “reasonable range” of each other, says Brennan, who adds that a gap like the one between Shaw Pittman and Akin Gump isn’t insurmountable. A merger of the two firms could also strengthen areas of weakness for each firm, according to Zeughauser. Akin Gump’s real estate practice is lacking, he says, but Shaw Pittman has been successful with its local transactional practice, which includes real estate and emerging technology in Northern Virginia. Akin Gump also brings a strong litigation practice, which earlier this year Huttler said he wanted to grow at Shaw Pittman. Says Zeughauser, “I can see a fit in many ways.”

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