Clyde & Gilbert – some initial thoughts

United merging with City? Microsoft with Apple? Linklaters with Freshfields? That, in City insurance terms, is pretty much what you've got with the news exclusively revealed on legalweek.com today that Clyde & Co and Barlow Lyde & Gilbert are in merger talks.

A tie-up would unite the two biggest brands in the legal insurance market, and in revenue terms constitute the largest union ever executed between two UK law firms (the deal that created Clifford Chance happened at a time when magic circle firms were about as big as Howard Kennedy).

It would also, in many senses, be a takeover of Barlows by the larger firm. How could it not? In the mid-1990s Barlows was seen by many as the definitive City insurance practice, but it has suffered a wasted decade. Clydes, meanwhile, has been one of the most consistently impressive performers in the UK top 50 over the last 10 years. In this context it's more obvious to see the attraction of a deal to Barlows - providing the firm is ready to swallow the considerable consequences of being swallowed.

And on the plus side, Barlows has shown signs of managerial life over the last 18 months, has a solid trading period under its belt and has some fantastic lawyers, notably in its much-admired professional indemnity team. And, of course, a deal would create a unique global law firm with real financial muscle, not to mention a credible international network.

True, the talks are a big strategic shift for Barlows, whose back-to-basics game-plan (meaning insurance, insurance and more insurance) was partly based on hooking up with a large US practice. The firm quickly realised that insurance law is pretty far down the pecking order in the States, effectively killing off the chance of a credible deal.

Counter-intuitively, the loss of Barlows' eight-partner aviation team in March has helped to ease the path to a merger as the team would have created a mess of conflicts with Clydes' equally robust aerospace practice.

As such, talks kicked off informally around March, with Clydes senior partner Michael Payton taking the initial lead.

Will it happen? Legal Week is steering clear of a prediction on this one. The office politics of a deal would be fiendishly complex, and the insurance companies that are the bedrock of both firms' client base are notoriously edgy about their advisers merging/moving/collapsing. But either way, this will have huge consequences for Barlows. You don't engage in a merger bid like this and just walk away if it's not happening. So much for insurance firms being the conservative do-nothings of the City law market.

• For more news, comment and reaction, see Clydes and Barlows in advanced stage talks over merger