CONFIRMED: Mallesons In Merger Talks With Chinese Firm King & Wood

Milliner's Sino Mouthful

It has been mooted for years, but now it looks almost certain that Australia’s perennial revenue top-dog, Mallesons Stephen Jaques, will merge with another international firm. We heard a rumour a few weeks ago that Mallesons was looking to affiliate with an Asian-based partner, preferably with deeper Chinese links than the firm currently holds in its own right. Of course, Mallesons already has a close relationship with State-backed Chinese clients (for example, the firm acted for Chinalco in its failed bid to acquire a $30bn stake in Rio Tinto), so it makes sense that the firm would seek to exploit the Sino-Australian connection further. But this is particularly the case where the firm has made no secret of its belief that its future revenue growth will be sourced from the region.

Fine China: Mallesons Ventilates Business Case

To this end, we read with interest the comments of CEP Robert Milliner last week (a portent, we think, that something was imminently afoot):

I suspect if we travelled forward to 2015 the next big things would be …  the rise of Asia and continued global law firm consolidation.”

Hmmm … the rise of Asia and consolidation? That seemed to align well with the tip-off we received from an anonymous source:

Mallesons K### W###????? You guys need to cease faffing around with Magic Circle firms and look at Asia. This is where the next major international merger will take place.

We dismissed it, having received (and reported on) literally dozens of Mallesons merger tip-offs in the past (which we regret were misinfored). But this one looks legitimate. Moreover, you’ll recall Mr Milliner last week also observed:

Another factor changing the legal market as we know it is the continuing rise of Asia. China has an estimated foreign reserve of about $US3 trillion ($2.8 trillion), with Chinese companies set to become the most significant global suppliers of foreign investment. The recently released 12th five-year plan for China has as a central theme the internationalisation of Chinese business. By 2025, China will be home to 14 of the world’s top 50 cities. All this spells out the fact that the world’s economic centre of gravity has moved and continues to move — away from the US and Europe to Asia. Of course, Europe and the US are still important markets. But the seismic shift towards Asia is undeniable, and it is here that the battle for global legal market share will be strongly contested.

Sheesh – Mr Milliner is certainly across his Chinese stats. But so too is his soon-to-be-successor Stuart Fuller, who told a conference last week:

We need a deeper, more long-term relationship with Chinese investors … We have a once- in-a-generation opportunity to recast our trading relationship with China. Let’s not be timid.

Now we know why both men are extolling Chinese business virtues. This from Bloomberg earlier today:

Mallesons … is in talks to form an alliance with Beijing-based King & Wood, two people familiar with the discussions said. The two firms are discussing combining some operations under a so-called verein structure, which allows for central management of functions such as technology and marketing, while maintaining separate finances, according to the people, who declined to be identified because the talks aren’t public.

Well, they are now.

Chinese Law Firm King & Wood

Chinese firm King & Wood was founded in 1993 and it is comparable in size and strength to Mallesons. This year the firm was named by ALB China as the Banking Law Firm of The Year, claimed the Chambers China Dispute Resolution Law Firm of the Year and scooped the IFLR Asia Regional Team of the Year award. The firm is at the forefront of headline Sino transactions – it is, for example, advising Goldman Sachs, Deutsche Bank, Credit Suisse and CICC as joint sponsors and joint bookrunners of Shanghai Pharmaceuticals Holding’s HK$15.2 billion (or US$1.95 billion) IPO. Several of the firms Trade Finance Deals were awarded Deals of the Year in 2010.

The firm has has about 880 legal professionals, being comparable in size to Mallesons’ 900 fee-earners, with offices in 16 cities including New York and the Silicon Valley. But the real clincher is the firm’s deeply entrenched ties in China. The firm already boasts offices in the following locations:

• Beijing
• Shanghai
• Shenzhen
• Chengdu
• Guangzhou
• Xi’an
• Chongqing
• Hangzhou
• Tianjin
• Suzhou
• Qingdao
• Ji’nan

For those unfamiliar with our Northern neighbour, these are 12 of the 14 cities that Mr Milliner cited as being inside the world’s top 50 cities by the year 2025. Coincidence, or major unwitting revelation?

National Fallout of A Sino-Australian Law Firm Merger

It is no secret that China has a rapacious appetite for Australian resources. In this regard, access to Australia’s most sought-after FIRB-advisory and M&A transaction personnel is likely the singular most important feature of the tie-up from the King & Hall perspective.

But if Chinese tentacles spread into Australia’s most prestigious national firm – which boasts enduring relationships that extend from politicians to Supreme Court Judges – can it be said to be in the national interest?

Our immediate sense is that the capitalist freakshow Mallesons partners would scarcely care, which is ironic, because the merger would see those same partners linking with a firm espousing a deeply ingrained Communist ideology.

But this hasn’t stopped Mr Milliner firing up his roadshow…

By Water: Milliner Seeks A Positive Legacy

The Mallesons partnership will obviously have to vote on the merger, but Firm Spy understands that the early revelation of these merger plans has affected the Mallesons Board’s strategy to win broad partnership approval. Moreover, we’re informed that later this month, Mr Milliner is hosting what was intended to be a Merger Roadshow for the Sydney-based partnership at lavish restaurant Catalina. No expense is being spared for the dinner – partners are even being transported from their Sydney offices to the restaurant via water-taxi. Such is Mr Milliner’s determination to ensure diners reflect favourably on his presentation.

And it is perfectly logical. We understand that Mr Milliner’s response to GFC-related pressures deeply divided the Mallesons partnership. Mr Milliner’s CEP-predecessor, Tony D’Aloisio, was a widely unpopular leader, and it makes sense to us that Mr Milliner would wish to avoid a similar legacy by having his tenure remembered through the creation of a profitable partnership, rather than as a spin-doctor tightwad who made junior lawyers work longer hours, for less money, than all the firm’s competitors. But more than that, the merger would have the added advantage of extinguishing Gilbert + Tobin’s alliance with King & Wood, created in 2007. Of course, Mallesons regards Gilbert + Tobin as its mortal enemy following the firm’s coup in netting a large chunk of the work of Mallesons’ major client Telstra.

Positive Legacy? Tick. Gilbert + Tobin Vengeance? Tick. More Money For Rich & Greedy Partners? Tick. Prostitution of Australia’s Resources to the Highest Bidder? Tick.

“Mallesons King Wood”, Verein Partnerships, Offshoring & Insurance

What is a “Swiss Verein Partnership”, you ask? According to commentator Peter Kalis:

A verein is an association of member organisations recognised under Swiss law. It is used to maintain separation among entities under a common brand. In the legal context, a verein is formed through simple articles of association without creation of an entity that actually practises law. Rather, the member law firms independently render legal services and severally accept the rewards and liabilities that accompany such work. They do not share a common profit pool.

It is more than an “alliance”, but less than a full-blown merger like we have seen with DLA Piper, which is good news for Mallesons’ professional indemnity insurance overheads. But in an era of increased work outsourcing/offshoring, we think this kind of structure will become more prevalent. To this end, we note the comments of an observer below:

K&W pays their 1st year solicitors AUD$1,000 per month so wouldn’t be surprised if a bit of “offshoring” happens down the road…

On the topic of Mallesons King Wood, Mallesons head of Communications, Sue Ashe, told Bloomberg:

We’ve been looking for a suitable link or alliance for a number of years… We’re exploring a number of different options including talking with firms in the U.S., the U.K. and Asia

Unsurprisingly, Ms Ashe declined to identify the firms. Meanwhile. King & Wood Managing Partner Wang Ling told Bloomberg that the Chinese firm is always in discussion with international firms for various types of collaboration:

“At the same time, the firm’s intention is to keep its independence”

Independence … an elusive concept for a Chinese entity, we would have thought, but probably no moreso than for an entity whose life force is dependent on revenue growth, profits, and gruelling hours in front of a computer. May they rot together.

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UPDATE 26/07:

Mallesons CEP Robert Milliner confirmed on Monday that he is holding merger talks with King & Wood, as well as other firms. According to The Asian Lawyer:

Robert Milliner, Mallesons’ Sydney-based chief executive partner, said in an email the firm had been exploring a number of possible alliances with firms around the world as part of a broader internationalization strategy. “We have spoken to King & Wood as one of a number of Asian firms,” he said. “However, we continue to review the best option for the long term future success of our firm.”

The Asian Lawyer also secured comments from a source at King & Wood’s Beijing office who said:

discussions between the firms had been “on-again, off-again” over the past several months. “Right now, they’re on again,” he says.

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