The prospect of a Mallesons/Clifford Chance merger is a topic that has been utterly done to death by news media in the last year, including by us. We regularly receive updated intelligence on the status of the merger but choose not to report it because, frankly, it tends to sound pretty dubious.
However, we have just received some compelling new information which we believe warrants revisiting the story.
But first, some context.
A Merger Postponed… Again
We received the following edited comments from an anonymous Mallesons spy in October 2009:
The rumour circulating that a formal merger between Mallesons and Clifford Chance is set to be announced within weeks is true. The Mallesons board has successfully executed a voluntary redundancy program through which the firm managed to rid itself of proportionately very high number of senior associates. This has come on the back of the firm executing a carefully orchestrated plan to (as the board calls it) ”retire-manage” – that is, to encourage ageing partners to exit the firm. These are not coincidences, but rather the strategic means by which the firm has been able to convince Clifford Chance that a ’leaner and meaner’ Mallesons makes the merger commercially provident for both firms. It has worked. I understand Robert Milliner and several other members of the Mallesons board met with Clifford Chance heads to hold renewed merger talks last week. Clifford Chance regarded the recent upswing in the Australian economy as significant in concluding that the international merger should take place. Less than 10 people at each firm know this information.
No, we couldn’t corroborate these comments, but they had a partnership “ring” about them. We believed them. A few days later, it even emerged that Mallesons Chief Executive Partner Robert Milliner said the firm would be abandoning the lock-step model of remuneration to align the firm with remuneration structures embraced internationally (in our view to more closely align it with the model prevailing at Clifford Chance):
Mr Milliner said the speed at which Australian firms abandoned “lock-step” salaries for all employed lawyers with the same years of service would be strongly influenced by international practice.
Merger speculation was similarly rife in other news media at about this time too. So what happened?
A Magic Circle Competitor Emerges
At around the time advanced, board-level negotiations were taking place between the Mallesons and Clifford Chance, we speculate that Clifford Chance became aware that A&O was intending to open an office in Australia. Given that “it takes time to bring people across from other firms“, there can be little doubt that many months prior to our publication in October 2009 of an impending Mallesons/Clifford Chance merger, Grant Fuzi and his Clayton Utz colleagues were being sounded out by A&O about the prospect of defecting to open up an A&O base in Australia.
Although we doubt they knew that it would be constituted by over a dozen defecting Clayton Utz partners, we believe it is very likely that Clifford Chance (and possibly Mallesons) became aware of A&O‘s intention to open an office in Australia in late 2009. Law firm consultant George Beaton recently told The Australian that it was “no secret” that the country’s top four firms were courting international alliances. We speculate that in late 2009 it was similarly “no secret” amongst the heads of Magic Circle firms that A&O would be opening in Australia in 2010.
On 8 February 2010, Allen & Overy announced it was entering the Australian market. After the announcement, Mr Fuzi took up office at A&O and immediately embarked upon an intensive regimen of meeting with clients. His fellow defectors were not due to commence with the firm until 1 May 2010, so, in the intervening period, Fuzi was charged with the task of bringing business across to his new firm.
All the while, a pensive Clifford Chance was given the opportunity, at the last moment, to again withdraw from negotiating a Mallesons merger and to intently watch the reception ofA&O into the Australian legal market.
Renewed Merger Speculation
At around the time that fellow Clayton Utz defectors finally joined (May 2010) Grant Fuzi at A&O, the AFR reported that:
Mallesons is … in discussions with international counterparts over [a] potential merger or strategic alliance… Beaton Research & Consulting confirmed [it] was involved in advising on merger talks between some of Australia’s leading firms and “magic circle” firms in the UK… Mallesons‘… Robert Milliner said [the firm] “maintains an ongoing dialogue with a range of firms on both sides of the atlantic and regionally… we’ll move if and when the time is right in terms of our strategic objectives”… A … merger would force Mallesons into further cuts to staff numbers, having already completed a redundancy program last year to shed some 110 staff.
Perhaps Clifford Chance had assessed that the market was responding favourably to A&O’s arrival and that it too should make a foray Down Under?
A&O’s WA Market Successes
There can be little doubt that A&O is one of the few major success stories of 2010. The current edition of BRW reports:
The Perth office [of A&O] has secured advisory and transaction-based work for a number of clients in energy and resources, including Fortescue Metals Group, Japanese financier JBIC, Aquarius Platinum, Nexus Energy, as well as financing for BHP’s offer for Canadian resources company Potash Corporation. The firm is also beginning to penetrate the industrial and corporate markets through mergers and acquisitions, including advising UBS on the proposed Stella Travel and Jetset merger.
Meanwhile, Lawyers Weekly reported earlier in the week:
Fuzi is unwaveringly confident that A&O will succeed in what it has set out to do, and cites a steady stream of big deals – in excess of $10 billion worth in three months, with more to come – and a constant barrage of job applications as being testament to the fact the firm’s strategy is already working.
Yes, the strategy appears to be working, so will Clifford Chance finally signal its intention to get a piece of the Aussie action>
Our Latest Intelligence
Several weeks ago, we received the following comments from an anonymous (and cryptic!) Mallesons spy:
Which high-profile Mallesons partner is moving, mid-deal, from the Melbourne office to the Perth office?
The intrigue that descended over Firm Spy HQ was finally lifted when we received the following excellent tip off from another anonymous Mallesons spy earlier this week (thanks for this terrific update!):
The relocation of Mallesons‘ M&A partner Stephen Minns from the Melbourne office to the Perth office is part of a concerted effort by the firm to arrest the WA office’s deteriorating revenue base. The Perth centre is performing abysmally and much of Mallesons’ lamentable FY 2009/2010 financial performance can be attributed to its failings. However, unlike offices in Sydney and Melbourne, where it board evinced no hesitation in getting the knife out to cut numbers, the Mallesons board considers the Perth office to hold the key to the firm’s future domestic growth and the firm needs to “take a hit” over there rather than summarily chop head count. The board and senior partners share concern that the foothold which Freehills has gained in the West could see it considerably distance itself from Mallesons in terms of per-partner revenue within years. Not only that, but the mooted Clifford Chance merger which is considered highly desirous to Mallesons staff, could be permanently stayed unless something drastic can be done to turn its fortunes around. Enter Stephen Minns.
It turns out that Stephen Minns is the co-head of Mallesons‘ M&A practice, in charge of over 60 partners and 250 lawyers. He sounds to us like the sort of big-shot who can get an office back on track. But if A&O has already captured such a significant share of the WA market, has Minns’ arrival has come too late?
Will the fortunes of the Mallesons Perth office and the efforts of one super-hero be the difference between one of the most highly anticipated international mergers and a massive Clifford Chance merger CHOP?
Send the Firm Spy your news and views!
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mallesons perth has never recovered from the departure of a group of senior M&A partners who set up a boutique perth firm 3 or 4 years ago. on the litigation side, one top partner joined the boutique and the other went to the bar. in perth, the big deals are being landed by a combination of freehills, allens and blakes. its the result of ten years of treating their juniors so badly that not many folks stick around and those that do, have almost no partnership prospects. you reap what you sew.