Following months of speculation and rumours, merger talks between Heller Ehrman and Baker & McKenzie have been called off, writes The Recorder.
In a voicemail sent to partners on Monday morning, Heller chairman Matthew Larrabee cited conflicts as a key reason for the end of the talks. He also said there was an alternative plan in the works and promised to be more communicative.
The end of talks, first reported on the Above the Law blog, is both good and bad news for Heller, observers said. Heller will retain its culture, which may have drowned by the sheer size of Bakers, but the end of the talks will once again raise uncertainty over Heller's status. The firm has lost more than 30 partners this year - just last week the head of the firm's Washington, DC office left for Bingham McCutchen. With the merger now off and partners continuing to leave, pressure is on for the firm to take action by either finding another merger partner soon or demonstrate an effective course of action without a merger.
"My sense is that other firms will be contacting Heller, or Heller will be contacting, or could be in conversations with, other firms," said Richard Matthews, a legal recruiter in San Francisco. A source familiar with Heller said the firm has other candidates in line.
A Heller-Bakers merger would have created a 4,000-lawyer firm, with Heller contributing about 650 lawyers - fewer than Baker's current number of equity partners. At face value, the merger made sense. The two firms seemed to match up well on partner salaries, with only a $60,000 (£31,600) difference between the profits per partner reported by each firm in 2007, which hovered around $1m (£530,000).
And while there were major conflicts - such as which firm's insurance practice would survive a merger, with Heller representing policyholders in insurance fights - industry observers were sceptical that conflicts were the sole reason the talks were abandoned.
It was rumoured that Baker, which has two tiers of partnership, wanted Heller to de-equitise some partners, something that would have met resistance within the firm.
There are concerns over how the end of the long-rumoured talks will affect Heller, with some recruiters pointing to failed talks between Orrick Herrington & Sutcliffe and Dewey Ballantine, which ended with Orrick picking up a number of Dewey lawyers, and between Baker and Coudert Brothers, which ended with the dissolution of Coudert.
Friedrich Blase, a consultant with Kerma Partners in New York, said: "Heller has a huge upward battle to pull off another merger or to come back somehow with the diminished partnership that they already have."
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