Jones Day and Gouldens: an unlikely couple?

The market view of the proposed US/UK merger has been harsh, but Dearbail Jordan urges the sceptics to think again

Last week’s announcement that US giant Jones Day Reavis & Pogue was in merger talks with UK tiddler Gouldens elicited a myriad of emotional responses.

Ranging from the puzzled to the downright hysterical, most lawyers failed to get their year-end-addled brains around the concept. The idea that Gouldens, a firm that has oft been propelled into the legal echelons of Macfarlanes, Dickson Minto and Travers Smith Braithwaite, would want to get it together with Jones Day, a beast of a firm which boasts 24 offices, proved too much for some.

One source quipped, somewhat unfairly: “It’s like trying to merge a Lear Jet with a donkey.”

However, now the initial shock has subsided, a merger between the two appears to make more sense.

First, as is always the concern when contemplating a transatlantic merger, there is the fear of losing independence. Gouldens, at least for now, seems to be winning that fight. Its 145-lawyer London office certainly dwarfs that of Jones Day, which boasts just 60 lawyers.

Also, Russell Carmedy, joint managing partner and highly-rated corporate rainmaker at Gouldens, will head the merged firm’s London office ensuring that it will remain very much in the UK firm’s hands.

At least Carmedy and Charters Macdonald-Brown, joint managing partner, know they have the blessing of their partners. Before embarking on due diligence last Monday, Gouldens’ total partnership of 39, which includes 25 equity partners, was asked to debate the tie-up before unanimously voting in favour the following day.

However, one question persists on invading the air like a bad smell – is Gouldens’ move a defensive one?

One of the reasons behind Gouldens’ strategy is that a merger with Jones Day will give it a ready-made international network, both in Europe (France and Germany are already well established) and throughout the US.

However, little more than a year ago, White & Case tempted Gouldens into talks, albeit at a very preliminary level. Like Jones Day, White & Case also has widespread coverage in the jurisdictions that appeal to Gouldens. But 12 months ago these talks came to nothing.

So if the international strategy wasn’t right then, why is it right now?

A quick glance at Gouldens’ deals list in the past 12 months shows that corporate, which is estimated to make up around 45 per cent of the firm’s turnover, has not been particularly buoyant.

Strong relationships with mid-tier brokers such as Beeson Gregory have ensured at least one deal above the $100m (£64.6m) mark, while old faithful Pillar Properties meant the firm scored a $629m (£406.5m) coup.

However, those aside, deal size has tended to flutter around the $50m (£32.3m) mark.

Hanson is notably absent from the deals list. This was a client that was widely credited with helping to build up the firm in the late 1980s and early 1990s, although sources at Gouldens argue that fee income from Hanson never exceeded 4 per cent of total turnover.

According to Gouldens, the idea that this is a defensive move is untrue; it simply says that “times have changed”. And a firm such as Jones Day, which apparently counts 50 per cent of the Fortune 500 among its client base, the promise of autonomy and the incentive of sustained profits per equity partner in a year many predict will be worse than 2001/02, is simply too good an opportunity to pass up.

Maybe it just comes down to how you define defensive. Despite the initial hilarity, Gouldens might end up having the last laugh after all.