King & Wood, Mallesons ready to run the gauntlet

The proposed tie-up between Chinese top-tier firm King & Wood and Australia’s Mallesons Stephens Jacques has sparked lively discussion in the global legal market since the plan was announced in July.

The prospect of having a major international firm originated in Asia is ­moving closer to ­reality, as both firms have ­recently given their backing to the deal.

As early as the first quarter of 2012 a 2,000-lawyer international firm bran-ded King & Wood Mallesons could emerge. ­According to a source at Mallesons, while the Australian and Chinese entities will retain separate profit pools under a Swiss Verein structure, the firms’ ­operations in Hong Kong will be fully merged.

The united Hong Kong office, with almost 150 lawyers, including 27 partners, will play an important role in spearheading the integration and joint ­development, initially in Asia. The combined firm will then look at further expansion into Singapore and the US, with the aim of becoming a top-tier international network by 2015.

A joint announcement is expected to be made by the firms in mid-December, which will unveil much-anticipated details of the tie-up arrangements.

Signing the deal is just the beginning of what could be a tortuously long process. To make the deal work King & Wood and Mallesons face tremendous challenges, including – but not limited to – cultural issues, the wide gap in fee rates and profitability, management and organisational differences and regulatory hurdles.

The Chinese firm is well aware of this.

“We’re excited about joining forces with Mallesons, but we profoundly understand the significant differences between us,” said a King & Wood partner who preferred not to be named. “Compared with Mallesons, a well-established and top-notch firm by ­international standards, we’re a youngster – merely 20 years old.

“We have a lot of things to work on and lots of areas we need to improve. There’s a challenging road ahead.”

It is understood that King & Wood is seeking an equal partner with whom it can make the leap to become a truly international player without losing its identity. While King & Wood can gain valuable management knowhow and technical skills from Mallesons, the tie-up provides the ­Australian firm with access to King & Wood’s solid ­network, client base and capability in China.

However, many questions have been raised about the business viability of the merger, such as how ­attractive and competitive the combined firm will be to globalising Chinese clients, how much synergy the merger can create and whether the cost of losing referrals will outweigh the benefits.

People familiar with King & Wood will understand the firm’s rationale and international ambitions, as set out by its visionary leader Wang Junfeng, principal founder and chair of the firm’s ­management committee.

“The move is strategically correct,” said Tim Wang, a partner at Clifford Chance in Beijing. “King & Wood’s been comfortable with its leading position in the domestic market for some years and has been ­constantly seeking a major breakthrough. The deal will spur it to make a fundamental transformation of its practice and enhance its technical capability.”

Industry observers The Lawyer spoke to generally held the view that the King & Wood-Mallesons deal has an equal chance of success and failure; but despite the outcome it is a manifestation of a Chinese legal ­profession that is rising in global importance and shifting up a gear when it comes to internationalisation.

Dacheng, which is ­understood to be in tie-up talks with a top 100 US firm, and Broad & Bright, which is thought to be seeking a strategic alliance with ­Clifford Chance, are two other cases in point.