The legal sector may still be incredulous of the failure of merger talks between Ashurst Morris Crisp and Fried Frank Harris Shriver & Jacobson, but that is nothing compared with how lawyers at both firms feel.
Devastation, confusion and bitter disappointment may go someway to describe partners’ emotions in relation to the talks that went so far and yet imploded at the last moment.
Valerie Ford Jacob, Fried Frank’s co-managing partner and chief proponent of the merger, is said to be inconsolable about the breakdown, although she will find some succour in the fact that her partners are rallying round in complete support of what she tried to achieve.
Both firms are still asking themselves why it happened. Although perhaps the question should be: what could have been done differently?
Partners at New York’s Fried Frank had begun to lose patience with what one partner describes as Ashursts’ “ideological rather than practical” reservations. The US players were prepared to give Ashursts until the end of May, by which time Fried Frank wanted to vote on the merger. Ashursts’ senior partner Geoffrey Green was hopeful that he could whip up enough support for the tie-up – he just needed more time. And some might say that there was encouragement in the most surprising quarters.
Corporate heavyweight Chris Ashworth, known to be against the Clifford Chance merger in 1998 and sceptical about 2001’s Latham & Watkins tie-up, also took time to be convinced of the merits of a move for Fried Frank, but came round in the end. He was one of a group of partners, said to include Green and managing partner Justin Spendlove, who flew to New York to assess the repercussions of Fried Frank rainmaker Stephen Fraidin’s departure for Kirkland & Ellis. But, in the end, the firm’s management had to concede that Ashursts’ partners were just not prepared to throw themselves behind the plan. So what went wrong?
First, money. The question over which partners got what just would not go away. Fried Frank said it was prepared to change its remuneration system, made up of lockstep as well as two extra layers of points for very senior rainmakers, over a five-year period. During that period, some partners in the US would continue to be awarded extra points. By the five-year deadline, its system would be aligned with Ashursts’ pure lockstep model. Ashursts decided that some of its own partners also needed to be awarded on a super-points basis and, according to a number of sources, it was this that started “a bloody war”.
It is not clear whether there was resentment within Fried Frank that Ashursts had asked for the points, though lawyers say that the real problem was the factions the issue caused within the UK firm. First, there was the politically prickly issue of deciding who got the points and on what criteria. Private equity guru Charlie Geffen was singled out as having a heavyweight book of business, as was Paris corporate star Thomas Forschbach, although whether the Forschbach move was more one of necessity to make sure he remained in favour of the merger is open to debate.
Sources say that the Paris office had serious reservations about the merger and, it now seems, there were real estate and corporate lawyers not prepared to go forward. These were balanced against members of the finance department, in particular the group around structured finance star Erica Handling, who were known to be active proponents of the deal. One partner says: “Almost all the talks were about remuneration and were always overshadowed by the super-pointers.”
The departure of Fraidin was also initially thought to be a flashpoint. It is understood that he presided over a $20m (£12.5m) book of business and he was seen as an important cog in Fried Frank’s wheel. It now emerges that Fraidin was thought to be somewhat frustrated that his ambitions to hold a management position at Fried Frank were never quite realised, but he cannot be hurting too much – after all, he stands to earn $9m (£5.6m) in three years at Kirkland.
Some hesitant Ashursts’ partners jumped on Fraidin’s departure as a potential problem for the future. Whether by luck or design, the timing of Fraidin’s departure was destabilising.
Another alarming factor, and possibly a delaying tactic at Ashursts, was the debate over what percentage of votes was needed to push a merger through. Sources say that most lawyers considered that a simple majority was needed, but some groups – apparently corporate and real estate – stated that a qualified majority was imperative. This was never cleared up. Such questions clearly left the management at Ashursts between a rock and a hard place.
While there is criticism that there was a severe lack of communication between the management and the partnership, there was a concerted effort from Spendlove and Green to approach all partners, to secure support and then to put it to a partnership vote.
It is understood that Ashursts partners hoped that a preliminary vote would take place before Christmas, but this was delayed, as, it appears, was the business case for doing a merger in the first place, leaving partners feeling alienated and uninformed. On the other hand, if management had tried to force it through, that could have been equally disastrous.
There is sympathy from the US about the fact that the senior and managing partner could not count on support from their lawyers in the same way that Jacobs can and did.
Where this leaves Ashursts is unclear. Spendlove now says that the US is not a priority, which may be a mistake. Areas such as finance and corporate, especially cementing investment bank and private equity clients such as Merrill Lynch, would have benefited greatly from an Ashursts/Fried Frank merger.
Lawyers genuinely talk in awe about what a powerhouse the combination would have created. But then, isn’t hindsight a wonderful thing?