Unpacking the Biggest Law Firm Merger of 2016

The biggest law firm merger of the year has been announced: Arnold & Porter and Kaye Scholer will seal the deal on Jan. 1 to form a Washington, D.C.-based law firm with around 1,000 lawyers.

Richard Alexander will chair the new firm, to be called Arnold & Porter Kaye Scholer LLP.

Two of the firm’s top clients are Novartis and Pfizer, and at least for Novartis, its top lawyer in the U.S. has expressed enthusiasm about the marriage in a prepared statement.

Thomas N. Kendris at Novartis said: “For us, this is a combination that does not just create a larger firm for the sake of being larger; it creates a broad portfolio of strengths in key areas, to our future benefit.”

Alexander and Michael Solow, managing partner of Kaye Scholer, caught up with Big Law Business to answer a few questions about the union, including how the firms will consolidate offices and whether there will be any layoffs or staff changes in the months to come.

[caption id="attachment_34453" align="alignleft” width="232"][Image “Richard Alexander, chair of Arnold & Porter” (src=https://bol.bna.com/wp-content/uploads/2016/11/alexander-e1478801905326.jpg)]Richard Alexander, chair of Arnold & Porter[/caption]

Big Law Business: Large corporations — Pfizer, included — have reduced the number of outside counsel they use to cut back on legal costs. How much did that trend play a factor in this combination?

Alexander: Every decision that Mike and I make independently and have made together about this is being made in the context of the environment in which we operate. We have no question we are in an industry that’s going through significant change. For us, the answer to your question is that we need to continue to find new ways to differentiate ourselves in the marketplace so that we can effectively compete for work and talent. The way in which that work is being allocated among the most sophisticated counsel is changing. There is no question that how clients are making their legal [hiring] decisions is a factor in this transaction.

Solow: Yes, it’s part of it.

Big Law Business: How did discussions start?

Solow: [Former Arnold & Porter Chair] Tom Milch and I met at an event five years ago. We never had any intense set of negotiations. When Richard became chairman of the firm, we got to know each other. Tom was also involved and it became apparent to both of us that our firms could benefit from such a combination.

Big Law Business: How do both firms benefit from the deal?

Solow: The feedback we have gotten along the way, in terms of talking to key clients we mutually represent or separately knew, is really what drove this for me. On the life sciences side, we [at Kaye Scholer] have always had a very strong practice on the litigation side from products to product liability to IP. And we have a growing presence on the corporate side of life sciences transactions, but starting with corporate, we needed the regulatory expertise that we tried but weren’t able to gather in Washington. We certainly worked with Arnold & Porter over the years and on a cooperative basis. They have the deepest bench when it comes to life sciences in the regulatory space and we complement each other very nicely in litigation. Together, we materially enhance each other’s practices on the transactional side. That’s life sciences.

The other area of complementary practices is on the financial services side. We have also had a strong corporate and real estate finance practice in New York. The world has become much more governed out of D.C. in the financial services area. I don’t think that is going to change. There may be changes in the regulation but I think there will always be that interconnection and we felt we were losing transactions because of it. And I think Arnold & Porter felt that, it got great work, but it didn’t get their fair share of the work in regulatory advice.

[caption id="attachment_34458" align="alignright” width="296"][Image “Michael Solow, managing partner of Kaye Scholer” (src=https://bol.bna.com/wp-content/uploads/2016/11/michael-solow.jpg)]Michael Solow, managing partner of Kaye Scholer[/caption]

Big Law Business: Were there client conflicts that came up through the merger discussions?

Alexander: There are inevitably conflicts and we have addressed them and I don’t think we can say anything more about it to you. None of them are material to the synergies of the transaction.

Big Law Business: Often times law firm mergers are tumultuous. Should we expect to see departures, layoffs or significant staff changes in the future?

Alexander: I’m obviously not going to talk about individuals. The reality of the legal business now is that we, as independent firms, are very vigorous in our expectations of colleagues. This is going on in all law firms. This transaction is not about right-sizing our attorney population. For our non-lawyer staff, inevitably there are some redundancies and inefficiencies when you combine two organizations and consolidating offices. So there will be some of that. But we think they are not material to the overall transaction. We have been very thoughtful about this with respect to client matters. It’s not been about cutting heads, it’s about client service. There are some positions that, when you consolidate locations, you can have redundancies. But in terms of the lawyers themselves, there is no planned layoffs or anything like that with respect to the lawyers.

Big Law Business: Can you provide any more specifics?

Solow: You know we opened an office in Tallahassee [where the firm staffs administrative functions]. There was a discussion we had collectively about whether or not we want to continue that. Arnold & Porter embraced the idea. They had not had it before, and thought about it as a potential move in their own business that actually will grow over time. There are plans to grow our off-site non-lawyer service center. How people are positioned, and how we work through our staff, that has to be a work in progress. We are a 375-lawyer operation today. For Arnold & Porter, there are about 700 lawyers today, but when we put this together, it’s a completely unique situation for both of us.

Big Law Business: So from the sounds of it, the newly formed firm will look to transition people, where it makes sense, to that Tallahassee office?

Alexander: There are certain administrative functions that, over time, will be staffed out of Tallahassee. But I don’t want to get into the when or why.

Big Law Business: You also mentioned that there would be office consolidation?

Alexander: By way of New York, Kaye Scholer has an impressive new facility that is consistent with the ethos we engaged in when we built out our new space in Washington. [Arnold & Porter’s lawyers will move into Kaye Scholer’s New York space.] At the same time, they will be moving their lawyers in Washington to our space. There is a lot of operational work. The hardest work that is yet to be done is integrating these practices, integrating it on a social and practice group basis and for us to achieve the synergies of this transaction. This isn’t something we are going to snap our fingers on Jan. 1 and it’s done. It happens over time.

https://youtu.be/ZKfjssLrOm0

Big Law Business: Other offices?

Solow: We are moving into their space in London; they are moving into our Silicon Valley space; and our people will move to Arnold & Porter in Los Angeles.

Big Law Business: What is the structure of the transaction? Is this being done as an asset acquisition or this this a merger?

Solow: It’s a true combination. We are creating a firm combined of our two firms. It’s what I call — in the corporate sense — a classic merger.

Big Law Business: How much revenue is the new firm projected to bring in?

Alexander: No law firm leader can tell you what is going to happen in a calendar year. In 2015, our combined revenues were $1 billion. I can’t tell you how we are going to end the year as independent firms, nor can I be predictive about what we are going to accomplish in 2017.

Solow: This is not about, from my perspective, 2017. We are 100 years old, starting next year, and Arnold & Porter is 70-plus years old. That’s a collective 170 years of experience. We are working on our next 170 years with each other and that is what is important to us.

https://youtu.be/ItgZcKlqt_0

Big Law Business: Can you talk about the timing of this announcement, just a couple days after the presidential election? And also, how do you see Trump’s presidency affecting the newly formed firm, if at all?

Solow: I think change is always good for lawyers, regardless of your view on the outcome of the election. My view was that eight years ago with the Obama administration, there was going to be change. Whether our president-elect or Clinton had been elected, there was going to be significant change and that has always been beneficial for lawyers.

Alexander: There will be 50 people who give you different answers. At the end of the day, we remain confident that the strategic reasons for this transaction remain as relevant today as they were on the 8th and we remain very excited about the opportunity that has been presented.

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