Cadwalader Loses Its Long Struggle to Stay Independent

New York’s oldest law firm answered the outstanding question surrounding its ability to remain independent with a resounding no when it announced a merger with Hogan Lovells last week.

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As Bloomberg Law reporter Meghan Tribe tells it, Cadwalader Wickersham & Taft had been in a gradual decline since the 2008 global financial crisis. It also failed to adapt to the new reality of the legal industry in which lateral hiring is not just commonplace but necessary for a firm’s survival, she said.

On this episode of our podcast, On The Merits, Tribe gets into what transpired that forced the more than 200-year-old firm to put itself up for sale, and also what made Hogan leap at the chance to merge with Cadwalader. Additionally, Tribe talks about what the tie-up could mean for the pro bono deal Cadwalader struck with the Trump administration earlier this year.

Do you have feedback on this episode of On The Merits? Give us a call and leave a voicemail at 703-341-3690.

This transcript was produced by Bloomberg Law Automation.

Host (David Schultz):

Hello and welcome back to On the Merits, the news podcast from Bloomberg Law. I’m your host, David Schultz.

So a few months ago, we talked on this podcast about problems at the firm Cadwalader and whether it could turn things around while staying independent. Well, now we know the answer to that question, and it’s a no. New York’s oldest law firm announced last week that it would be merging with Hogan Lovells, putting some closure on what was a very difficult year for Cadwalader.

Today we’re going to talk about why what was once a legal industry titan is now getting swallowed up by another firm, and also about what’s in it for that other firm, Hogan Lovells. We’ll also get into the status of the pro bono deal Cadwalader struck with the Trump administration earlier this year.

We have on the podcast today Bloomberg Law reporter Meghan Tribe. I started by asking her when the troubles for Cadwalader started and why they couldn’t just turn things around.

Guest (Meghan Tribe):

So to really look and understand how Cadwalader landed here, you kind of have to go back a ways to the 2008 financial crisis. Prior to that, the firm really occupied a place among New York’s elite law firms. But like most things in 2008, when the financial sector took a hit, so did Cadwalader. Because it did expose the fact that they were so dependent on financial institutions and their financial clients in the financial sector.

But also at the same time, their competitors started breezing ahead, you know, really on the backs of core transactional practices. I think public M&A, private equity being a huge one. So they never really built out capacity in any of those areas or ancillary areas that would have been attractive to bring in those partners. But they were so deeply embedded in the financial sector that they still were incredibly successful too.

Ultimately, what happened this year, we saw kind of from the beginning of the year, my colleague Justin Henry has really kind of been on top of it. We saw major partner departures. I think they lost more than 33 partners this year. Some attributed to, you know, the Trump deal that they did with President Trump. But on the whole, it was areas where they couldn’t afford to lose people and they lost senior partners in those areas.

Host:

So as you mentioned before, Cadwalader was one of the firms that struck a deal with Trump to provide pro bono services. What’s the status of that deal now? What do we know about that?

Guest:

So Justin’s reporting over the summer indicated that there were some partner departures that were specifically pegged to dissatisfaction with the deal that they struck with Trump, which was essentially handing over millions of dollars of pro bono legal services. Now that it has tied up with Hogan Lovells, there’s still kind of the outlying question of what are the obligations now under this deal? Is this deal grandfathered in? Does it not exist anymore because Cadwalader, Wickersham & Taft no longer exist anymore? So that’s kind of one of the follow up questions I think that we have about this.

Host:

Yeah, although it’s interesting that I guess that didn’t dissuade Hogan Lovells from merging with Cadwalader, wasn’t worried about this potential outstanding obligation.

Now before we get deeper into what happened this past week with Cadwalader, tell me a little bit about a survey that you recently reported on from Citi and from former podcast guest Gretta Rusanow. This was a survey about the legal market, and it sounds like the legal market right now is a little soft. Did that play into this lack of macroeconomic, I guess, enthusiasm in the legal industry?

Guest:

You know, since the merger announcement, I’ve asked several people about that question. You know, was it Cadwalader specific or was it the sandbox that Cadwalader was playing and changed so drastically that it kind of forced their hand? You know, opinions are varied on that. You know, some folks are saying you can’t really avoid the changes that have happened in the legal industry, that, you know, the Kirklandization, you know, to quote a to quote a legal recruiter is something that’s really unavoidable. And this is where you have one firm that can take on any client of any size, a firm that does everything, it doesn’t really specialize in one particular economic sector.

But not only that, it’s also the changing of partners’ relationship to their law firms. Prior to Kirkland’s expansion, you know, really across the legal industry, partners were really loyal to their firms. They rarely if ever moved. But Kirkland and others have really changed the game where they’re offering millions of dollars to rainmaking partners who are then taking clients that traditionally would have been institutionalized by these large firms and bringing them and the work over with them.

So it’s created this free market system for partners to where traditional old New York law firms never had that attrition. But they also never had to recruit either. So yes, I do think that that change puts pressure on firms that really kind of don’t adapt. But other folks have said it’s really a Cadwalader issue where the firm was so narrowly focused in financial verticals that it was never able to build out a bench that would be enticing for a lateral partner.

Host:

Well, that’s really fascinating. But it should be noted that not every New York-centric firm is doing poorly. You know, you have Wachtell, Paul Weiss, Cravath, they’re seen as New York firms and they’re doing pretty well, more than pretty well. So what’s going on here? Why are firms like Cadwalader struggling while these other firms are not? What even is a New York firm anymore? What does that term even mean?

Guest:

Well, it’s a really good question because if we’re defining a New York law firm by the most people that it has in New York City, I think you could easily say that, you know, Kirkland is a New York law firm, Latham is a New York law firm, you know, Gibson Dunn, Sidley Austin, they all have huge amounts of lawyers in New York City doing work for New York clients. I think the pull and power of the New York market is just so strong that you have, if you’re a big law firm, you have to have an enormous amount of capacity here in New York City. I mean, it’s still the top legal market in the country.

You know, so that’s an interesting question. But I think Cadwalader is the oldest law firm in New York City. They also culturally had an identity. They were typically a one-tier partnership, a very small partnership where a handful of people made a lot of money. You know, they typically were in lockstep compensation, meaning their partners were paid by seniority. The biggest thing probably would be the lack of attrition and the lack of hiring, lateral hiring. Their lawyers typically stayed put. Clients belonged to the firm, not individual lawyers. And that has changed very drastically.

And so we can quibble about what a New York law firm is, you know, but it is really, you know, it is really interesting to kind of see the transformation.

Host:

Yeah, especially because there have been other Wall Street-centric law firms, and I’m going to call them Wall Street law firms instead of New York law firms. There have been other Wall Street-centric law firms that have also had struggles recently and have had to merge. So I wonder if that’s the distinction.

Guest:

I think it is understanding where your clients are and where they’re headed. And oftentimes there is this sense of we’re doing it well and we don’t need to change. But if you don’t see where your clients are headed, if you don’t see where the market is headed, you’re going to miss out.

And you know, I will say I asked people, you know, after the news of Cadwalader’s merger and given the fact that Shearman & Sterling, another old-line New York law firm, merged with A&O last year, you know, and Schulte Roth & Zabel, another big New York law firm merged with McDermott Will & Emery. Was the decision by Cadwalader similar to those? And they’re not. Cadwalader’s story is different than Shearman & Sterling’s story. It’s different than, you know, Strook Strook & Lavan, who went under. You know, Strook was a very strong firm, you know, had an enviable restructuring practice and, you know, real estate group, and they kind of built the firm on that. And then they lost essentially all of their bankruptcy and restructuring group to Paul Hastings, which left a huge void.

So you know, Cadwalader, you know, credit to Cadwalader’s leadership for recognizing that they had to do something. And you know, when you’re forced with that decision, you really take two paths. You say, do I look for a merger partner or do we attempt to plug the holes that we can via lateral hiring? Lateral hiring is expensive and it’s hard. It requires a lot of investment from the firm. It requires a certain appetite for failure because not every lateral hire is going to be a home run. You just don’t know. Or you can find a partner, a merger partner in this case, that you feel is compatible to you, that gives you what you need, you know, with, in a weird way, less of a risk.

Host:

Well, let’s get into that partner now. The purchaser here, Hogan Lovells, you know, this is not the first time in the last couple years that Hogan has swallowed up another firm. So I’m guessing it wouldn’t be wrong to say its decision to merge with Cadwalader is part of a deliberate premeditated strategy. This is not an opportunistic move here. Do I have that right?

Guest:

Absolutely. I mean, Miguel Zaldivar, who leads Hogan Lovells, is really a man with a plan. And he’s not somebody that is afraid of mergers. I mean, he understands, I think, the complexity of it. He understands the risks that are involved. He and, you know, Hogan Lovells have made it very clear that they want to invest in New York and make New York, you know, a centerpiece for Hogan Lovells and build out a presence here. He took on 30 lawyers, more than 30 lawyers from Strook. And I think it also, you know, is really interesting that all of the most of the firms that have merged or otherwise have had talks with Hogan Lovells. They were in talks with Shearman & Sterling. They were in talks with Strook. And we have to remember, too, that Hogan Lovells is a result of a merger itself. So the appetite is there.

And I will say, too, that I did a story last year kind of looking at the data from mergers. And every person that I talked to for that story points to two mergers as being incredibly successful as kind of, you know, the lighthouse at the end on the coast, which are WilmerHale and Hogan Lovells. So I guess if anybody can do it, perhaps it’s them.

Host:

But that, of course, leads to the obvious question, which is, is Hogan done? You know, is Cadwalader the last merger or will they continue to keep looking to swallow up other firms?

Guest:

You know, this is such a big merger and it’s going to take a lot of time to integrate it and to make sure that it eventually runs like a well-oiled machine. You know, so I think that is probably the primary focus. They’re going to stop for a while and, you know, digest what they just swallowed. Most certainly, because ultimately, you know, you’re looking at the landscape of the firm. You’re looking at where perhaps redundancies, even just like little things like office space, like where do we move in here? How does that going to work, et cetera? And then you’re going to see what capabilities you have once everybody starts operating like a well-oiled machine. Where do we still need capacity? So I think there are still a lot of things for them to figure out and hammer out. But in terms of like a major equity, I don’t think there might be an appetite for that right now. I think it’s just kind of letting the pieces fall where they are.

Host:

Yeah, that makes sense. One last thing before I let you go really quickly, what’s the timeline for this deal being finalized? And is there anything obvious that you see that could cause this deal to not be finalized?

Guest:

I don’t think so on the latter. I think that both from everything that we’ve heard, that both parties are very optimistic. And so oftentimes too, you know, when we finally get word of merger announcements, the deal’s kind of already done. It’s just, you know, essentially hammering out the details and securing partner votes too, because partners do have to vote on this as well. But I don’t think that they would have announced it if they did not feel like they had the confidence of the partners to be able to push this through. I believe Hogan Lovells Cadwalader will be live sometime mid-2026, and we’ll see where it goes from there.

Host:

Hogan Lovells Cadwalader, it actually does kind of, you know, have a nice ring to it. All right, well, Meghan Tribe, thank you so much for talking with me and have a great holiday.

Guest:

Thanks. You as well, David.

Host:

And that’ll do it for today’s episode of On the Merits. For more updates, visit our website at news.bloomberglaw.com. Once again, that’s news.bloomberglaw.com.

The podcast today was produced by myself, David Schultz, our editors were Chris Opfer and Alessandra Rafferty, and our executive producer is Josh Block. Thanks, everyone, for listening. See you next time.