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ANALYSIS: Herbert Smith Freehills Merger To Overcome “Panic” & “Loss-Making” Operations

Freehills pushes the button
Since our recent article profiling the looming merger between Freehills and Silver Circle firm Herbert Smith, more details have come to light. We spent some time re-reading emails in our inbox and stumbled onto some interesting comments regarding Freehills’ Singaporean office and its Asian affiliate TransAsia Lawyers.

The Numbers

Before we get to that, let’s look at what was reported about the merger (AFR 20/1/2012):

Freehills is gearing up for a vote on whether to merge with Herbert Smith. If approved, the merger is tipped for July 1. Freehills’ management is working out a proposal to put to the firm’s partnership about the deal… expected to involve combining the firms, most likely under a “Swiss Verein” equity structure.

Looking at the numbers, it appears that the move is a merger of equals, supporting the naming of Freehills in the rebranded firm. Both firms have similar revenue and partnership numbers. Freehills reported revenue of $510 million in FY 2010/11 while Herbert Smith reported revenue of approximately $560 million over the same period. Freehills has 197 partners, while Herbert Smith is reported to have over 250 partners, although that number is expected to drop prior to the merger.

It certainly sounds like the firms would make a nice fit for each other, but why merge?

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Anderson Rice Lawyers: No Art Collection, No Hand Ground Brazillian Coffee, No Managing Partner

Anderson Rice passes on the Brazillian
In case you missed the story late last week, the managing partner of Anderson Rice Lawyers – a small Melbourne-based law firm – and two of his fellow partners were suspended from the legal profession for mishandling more than $300,000 in client funds. VCAT ordered a nine-month suspension of the practising certificates of Michael Russell Coldham, Donald Ernest Brookes and Philip Nunn Barton, finding that the lawyers deliberately withheld the cheques in order to reduce the level of debt in their law practice’s overdraft account. The lawyers failed to present 216 cheques between 2004 and 2007, for money owed to barristers and expert witnesses.

The partnerly misbehaviour shouldn’t come as a surprise, really, when regard is had to the self-reflective musings contained on the firm’s About Us page:

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We’re Back! The New Site, A General FS Update & The Year Ahead

As you can see folks, we’re back at work and back online. We hope all our readers had a safe break and have some energy to get back into things for the new year. If you didn’t have a good break and you’re feeling at your wit’s end, make sure you talk to someone. Have a sick day, or, better yet, use one of the days allocated in your contract to “carer’s or personal leave”. These days can occasionally be overlooked by employees sorely in need of a day away from the office to collect themselves, so take one, or two, and speak with someone.

There are many people you can see and places you can visit for psychological/psychiatric help – just have a look around. It might sound trite coming from people like us with no formal training, but if you ever feel like you’ve “snapped” and are considering doing something drastic, confide in someone you trust or seek professional help. Attitudes toward mental health problems in the corporate workplace are slowly changing and you’re not alone.

Onto news about the site. We received the following feedback this morning:

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Ernst & Young Announces Grad Start-Date Deferrals as PKF Staffers Brace For Redundancies

an EY audit partner meets grads
In late November, we revealed that PwC had resolved to defer the start dates of its Corporate Finance grads by six months, in the process evoking painful memories of the cruel ultimatum the firm offered its Melbourne-based tax grads just a few months prior. Last week, the plight of Australia’s accounting-firm graduates was brought into an even sharper focus with the news that Ernst & Young would be following suit, pushing dozens of grads back to a date more convenient to the firm’s partners.

According to the AFR (20/1/12):

Graduates in E&Y’s audit division are being “offered the opportunity” to start work later in the 2012 financial year. Graduates in other service lines are not affected.

Thankfully, the firm still remains committed to employ the 416 graduates it made employment offers to, although time will tell whether they too receive a cruel ultimatum at some point in the future.

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Bank Sector Redundancy Explosion: Westpac Bank Prepares to Sack Hundreds of Staff

here comes the razor's edge
Following last week’s news that ANZ has fired approximately 130 employees apparently after periodically sacking more workers in the months prior to the announcement, comes news that Westpac looks set to follow suit and fire many hundreds of staffers.

According to the AFR (19/1/12), Westpac insiders estimated that the bank would shed about 600 staff this year. The speculation came after Westpac cut 28 senior technology execs last Wednesday, several weeks after Chief Executive Gail Kelly pledged a:

razor sharp focus on productivity.

 Westpac cut 767 of its roles in 2011 and, like some Australian law firms, is reported to be in the midst of a significant increase in its use of offshore service providers. It is also reported to be increasing its use of external service providers within Australia. Nevertheless, there is rumoured to still be enough excess baggage within the bank to warrant the sacking of a further 600 staffers.

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TOXIC TIT FLOCK SHOCK! Frenzied Flesh-Bulbs Knock Down Shine Lawyers’ Door

bunnies bust in
Ask a plastic surgeon what fake breasts can do for a woman (or transgender individual) and you’re likely to hear a variety of responses that fall into two distinct categories: medicinal (eg recovery from a mastectomy); or aesthetic (eg to accentuate or create an appearance of femininity). Indeed, Shine Lawyers’ ambassador Erin Brokovich – who we believe is paid a six-figure salary by the firm merely for appearing in its gutwrenching advertising material – appears to have settled on a pair of Counterfeit Cans for the latter, non-medically legitimate purpose:

Erin Brockovich is all front. There are the big fake boobs… Here is a woman who… is brimming with self-confidence… only slightly sedated by the millions she has made in the past few years and the fame that has turned her into a shopping mall celebrity. Hence the boob job…

Broko’s Rib-Cushions did little to appease us last year when we characterised her, in our Halloween Special, as The Wicked Witch of the West (EDIT With Whopping Wahwahs). Alas, we’re now starting to finally apprehend the quantum of the commercial leverage that Shine has gained through its association with Ms Brokovich and her Pantomime Pec Peaches.

We received the following tip-off from a Shine Lawyers spy a couple of weeks ago:

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Middletons Merges With Brisbane Firm Flower & Hart as Baker & McKenzie Considers QLD Office

Bakers' global fluency freakshow
Australia’s 15th largest law firm by revenue Middletons became slightly bigger on Friday with the announcement that it would merge with Birsbane firm Flower & Hart. Middletons currently has a partnership of 64, approximately 250 non-partner fee-earners and another 200 support staff, but the merger will boost its partnership by 6 and add another 50 legal and non-legal employees.

It will also extend the geographical reach of the firm from its three current bases in Melbourne, Sydney and Perth (the latter of which it opened in November 2008 by merging with two local firms – Salter Power and Franklin Legal).

It is an interesting time for the legal sector in Australia’s resource-rich northern state. Middletons’ announcement comes on the back of the Brisbane arrival of three other mid-tier firms – Macpherson + Kelley, Thomsons and Henry Davis York – in the past 12 months.

But there may yet be firms looking to establish a QLD base. We received the following comments from an anonymous spy last week:

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Big4 Redundancies: “Dozens” To Be Sacked In Ernst & Young Productivity Downturn

EY's Finance team on Friday
Australia’s 3rd largest accounting firm by revenue, Ernst & Young, has become the latest professional services firm to officially announce job losses on the back of a productivity downgrade and growing fears of a euro-zone crisis. On Friday, EY released a written statement to the AFR which advised:

We are transferring Australian transaction processing activities to our global shared service centres as part of the firm’s strategy to leverage our global scale. As a result, a number of roles will move to our Dalian office in China.

To the lay observer struggling to decipher the corporate gobbledegook – a “strategy to leverage global scale” – we invite you to consider the most popular article on EY Australia’s website, entitled Asian Agenda, which states that China:

has long been seen as a source of cheap labour and raw materials, offering the potential for highly competitive operating costs.

Yep, EY Australia is sacking Aussie workers because it can source cheap Chinese labour. No real surprises there. But we received the following comments from an anonymous EY spy on Friday, shedding more light on the size of the group to be affected by the cheap labour strategy:

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Abortive FREEBIES!! International Merger Between Freehills & Herbert Smith Set to Proceed

a good looking child?
Herbert Smith Freehills. Get used to that name folks, coz it’s here to stay. Don’t believe us? Take a wander to www.herbertsmithfreehills.com … the domain name recently acquired by Keltie – a firm of UK and European patent and trade mark attorneys. According to Keltie, the domain name has been acquired

… on behalf of one of our clients.

Our guess is that client is Herbert Smith. Or Freehills. Or both. And we’re not alone. Way back on 2 December 2011, our good friends at Roll on Friday reported that:

The prospective merger between Mallesons and King & Wood has sent Freehills into “in envious panic” about its own future and especially its own Chinese alliance partner which our source claims is dissatisfied with its Australian best mate. And so Freehills is rumoured to be looking for a tie up with Herbies – a firm which may well be on the rebound after being publicly rejected by its European alliance partners last week.

A source informing RoF posed the following question to the site:

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ANZ Announces Hundreds of Reudundancies After Several Months of Rumoured Hushed Exits

An ANZ staffer leaves the building
The year has opened on a gloomy note indeed for those in Australia’s financial sector with news earlier this week that ANZ intends to drastically shave headcount. On Tuesday, the cuts got underway with 130 employees sacked. The affected employees came from the bank’s commercial and retail divisions, chiefly responsible for the provision of loans to small to mid-sized businesses and individuals.

A spokesperson for ANZ told the AFR (18/1/2012):

These changes reflect continued belt-tightening in the business given the more subdued economic environment and the continued pressure funding costs are placing on margins.

While the 130-odd job losses has so far been restricted to back-office employees, hundreds more are expected to go in the next six months. However, it appears that the forthcoming redundancies and those made on Tuesday were preceded by several months of hushed exits.

According to an anonymous ANZ spy:

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