Allen & Overy and Allen & Gledhill eschew full merger in favour of alliance

The combination between Allen & Overy (A&O) and Singaporean firm Allen & Gledhill is likely to take the form of a Formal Law Alliance (FLA) – the loosest kind of association possible – rather than a full merger.

It is understood that a full merger would be difficult to achieve, even though Singapore recently amended its Legal Profession Act to allow foreign law firms to take a profit and equity share in Singaporean law firms (15 February 2012).

“The amendments only allow a foreign firm to hold up to 33 per cent of the equity shares in a Singapore law practice. If Allen & Overy and Allen & Gledhill want to do a full merger, they would have to get a special exemption from the regulatory authority,” said a partner of a UK firm in Singapore.

A partner from one of the two firms told The Lawyer that both sides are keen on an FLA, which essentially is a contractual relationship equated with economic arrangements.

The FLA is a looser relationship than the Joint Law Venture Allen & Gledhill has had with Linklaters over the past 10 years. There are currently two FLAs: Ince Law Alliance and The WR Alliance.

Aside from regulatory hurdles, it is understood that another main challenge for the merger lies in winning support from the majority of partners at both firms. On 17 February, about 130 partners from both firms met in a closed-door townhall meeting to discuss key issues surrounding a potential merger. The meeting was described as “intense and emotional”.

Partners from A&O are said to have been mostly concerned about the dilution of profits if the firm took on over 100 new partners, while partners at Allen & Gledhill are mainly fearful about retrenchments, questioning whether they can get on to A&O’s partnership ladder or whether some of their less profitable practices will be cut out.

“Given the current world economic situation, it’s very difficult to sell partners in an international firm a merger deal that could potentially dilute their profit. It’s only possible to push it through when the business is absolutely booming,” said the partner.

“There’s a big difference between the business model of international firms and Singaporean firms. Doing a full merger could cause significant retrenchments of lawyers and staff in the local firm. Firms with good corporate social responsibility won’t want to see it happen.”

It is understood that Allen & Gledhill and Linklaters had looked at ways of furthering their tie-up, but were unable to reach an agreement prior to turning to starting discussions with A&O.

If the FLA proposal is voted through, A&O and Allen & Gledhill will be able to gradually strengthen their relationship and reconcile their business models towards a merger in the future, when regulations allow.

An A&O spokesman stated: “Our negotiations are still ongoing and are dependant on certain regulatory approvals being obtained. Until the outcome of the regulatory process is known we’re unable to comment further”.

Allen & Gledhill declined to comment.