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6 janvier, 2007 10:52

Zusha Elinson
The Recorder
01-05-2007

Orrick, Herrington & Sutcliffe and Dewey Ballantine have aborted their merger amid mounting differences and a steady stream of Dewey partners leaving the firm.

"We jointly decided that given where we were on certain issues, it was time to decide or move on," said Dewey Chairman Morton Pierce, who declined to discuss those issues. "Uncertainty is not a good thing."

A source close to the deal said there were three major sticking points: Disagreements over management and governance at the new firm, concern over Dewey's unfunded retirement benefits, and concern over the number of defecting Dewey partners.

More than 10 partners left Dewey since news of merger talks surfaced in October, including two highly regarded and high-grossing M&A lawyers, Jack Bodner and Michael Aiello. Dewey's M&A practice was one of Orrick's primary targets in the deal that had been expected to close this month.

In early December, the firms said the vote would take place not as planned at the beginning of the year, but a few weeks later.

Orrick Chairman Ralph Baxter Jr. declined to comment on the issues that derailed the merger.

"I'm disappointed because the merger did have great promise, but in the end [both firms] decided that we would not pursue the merger because we decided it was not in our best interests," he said.

Baxter, who has chaired Orrick for 16 years, declared in October that he and Pierce would co-chair the firm, with Baxter responsible for day-to-day management. But some say Orrick's top-down management may have spooked Dewey partners.

"In New York firms in particular, the individual partners are used to a lot of autonomy and that's a different model than Orrick -- and it's not just Orrick, it's firms all over the country turning to more centralized management structures," said Peter Zeughauser, a law firm consultant with the Zeughauser Group. "I do think that was an issue."

Many observers criticized how the firms conducted merger discussions in the public eye, making statements and touting the "Dewey Orrick" firm since the story surfaced last fall. The marketing departments went so far as to design a new logo -- from the start it was noted that the green Orrick "O" would survive the merger.

"As in all deals, I prefer that it not be publicized until it's signed and sealed," said Pierce, a veteran M&A lawyer. "It was out there publicly because it leaked, not because of our designs."

Pierce worked closely with Aiello, who left for Weil, Gotshal & Manges, and Bodner, who left for Covington & Burling, in Dewey's M&A department and said he wished them the best. The firm also lost Benjamin Hoch and Dianne Coffino, who joined Covington's financial restructuring and insolvency practice. White & Case snared three partners, including bankruptcy partners Alan Gover, who headed Dewey's bankruptcy group, and project finance partners Earle O'Donnell and Donna Attanasio.

Others who have left include tax partner Thomas Giegerich, who joined McDermott, Will & Emery, and corporate partner Arthur Hayes III, who joined Sonnenschein Nath & Rosenthal.

"We may have lost a few people because of the discussions," says Dewey executive committee member Jeffrey Kessler, "but I don't think it was a mistake [to engage in merger talks with Orrick]. It was something worth exploring. At the end of the day, I think we will both be stronger firms."

Pierce said he had no regrets either. "I think it's been positive, it's been an education -- it's the first time we ever discussed a merger."

Pierce said he would be open to a merger down the road, although the firm won't be actively courting other firms.

Consultants say a merger between two firms like Orrick, which has about 1,000 lawyers, and Dewey, with around 500, brings with it some difficulties.

"Mergers are complicated transactions, especially for large firms," said Brad Hildebrandt of Hildebrandt International who advised Orrick in the deal. "There were a lot of issues, but no one issue was the deal breaker."

The combined firm would have had 1,500 lawyers in 21 offices around the world, including 12 outside the U.S., and revenues of more than $1 billion, which would have placed it in the top 10 on the Am Law 100.

Orrick's revenue grew 20 percent to $666 million in 2006, and profits per partner were up 15 percent to $1.43 million, according to figures released by Orrick on Thursday.

The American Lawyer magazine's Brenda Sandburg contributed to this report.