November 2, 2009 9:00 AM

LETTER FROM ASIA: Mayer Brown's Big Bet in China

Posted by Dimitra Kessenides

In January 2007, McDermott Will & Emery announced a groundbreaking deal that created an allied Chinese law firm, MWE China Law Offices, led by two prominent Shanghai lawyers. Later that year, Mayer Brown agreed to merge with Johnson Stokes & Master, Hong Kong's largest law firm.

Both firms' moves occasioned much hype and hoopla. But two years is a lifetime in the swiftly changing world of China practice. How are these firms doing today? In Part One of this special report, Shanghai-based writer and former Recorder reporter Kellie Schmitt reports on MWE China, while in Part Two Anthony Lin, The American Lawyer's chief Asia correspondent, drops in on Mayer Brown's Hong Kong outpost.

By Anthony Lin

When it comes to international expansion, Mayer Brown doesn't go for half-measures. The Chicago-based firm's 2002 merger with London's Rowe & Maw remains one of the largest transatlantic mergers to date. Five years later, Mayer Brown made a similarly big move in Asia, combining with Hong Kong's largest law firm, 260-lawyer Johnson Stokes & Master.

The Asian combination, still the largest undertaken by a global firm, is now 20 months old. Mayer Brown chairman Bert Krueger says it has already generated a large volume of cross-border work and emphatically declares it a success.

"We're off to a great start, and we believe the benefits of the merger will be truly astounding for our clients and the firm," says Krueger.

But second-guessing continues in the Asian legal community. Some partners at competing U.S. firms point out that they've stopped shipping referral work to the former JSM. Others question how a global firm benefits from a Hong Kong arm best known for its real estate and shipping practices.

Elaine Lo, 55, the former senior partner of JSM, who now serves as Mayer Brown's Asia chair, says critics need to understand that the merger was not about creating an imitation Magic Circle or Wall Street firm to dominate capital markets work in the region.

"A Wall Street or Magic Circle firm would not have been a good fit for JSM," she says. "They would balk at the types of the practices we've got, but we're never going to ditch them because the partners of this firm are very, very proud of what they have built in JSM."

Founded in 1863, JSM has long been the go-to firm for the former British colony's blue-chip businesses. "We got started even before HSBC," Lo says, referring to the global bank founded as the Hong Kong and Shanghai Banking Corporation in 1865. "HSBC has been a client of the firm since the day they started."

But while the firm has built a substantial banking and capital markets practice, it is best known for its work for property developers. "We have the number-one real estate practice in Asia, not just Hong Kong," Lo says.

JSM partners decided to seek a global merger because major clients were going elsewhere for offshore work. In Mayer Brown, which had opened a small Hong Kong office in early 2007, they found an eager suitor.

"Before it was really quite artificial or quite pretentious [for Mayer Brown] to claim they are a global firm when they had almost nothing in Asia," says Lo. "So it was essential for them to complete the jigsaw puzzle and have this Asian piece. JSM was a dream come true for them."

Since the two firms combined, Lo says former JSM and Mayer Brown lawyers have worked together on 156 matters. Hong Kong lawyers are working for Lehman Brothers' Asian liquidators, calling on the expertise of other Mayer Brown lawyers in the U.S. and Europe. The combined firm also represented Beijing Automotive Industry Corp. in its unsuccessful bid to acquire General Motors Company's Opel division.

"This is the sort of work we would not have been able to get if JSM were still the old JSM and Mayer Brown were still the old Mayer Brown," says Lo.

But that work comes at the cost of other assignments. Large global firms that previously used the old JSM as local counsel on global transactions are less eager to send that business to a competitor. Indeed, JSM's chief rival in the local legal market, Deacons, says that it's reaping a windfall of new business.

"We have definitely seen an uptick in the amount of referrals, especially from American firms, since the JSM merger," says Jeremy Lam, the executive partner of 150-lawyer Deacons, now Hong Kong's sole independent large firm.

Lo says that referral work was "never significant in terms of value" for JSM and was fading in any case due to international firms' expansion.

"In Hong Kong, in China, I think referral work will be slowly but surely drying up because many of our [international law firm] friends are setting up their own offices with a view to doing well in the market," she says.

Lo says Mayer Brown is making a more concerted effort to attract corporate clients in China, where JSM had three offices. JSM had long represented Chinese companies expanding in Hong Kong but Lo thinks the combined firm is now well placed to help growing Chinese companies anywhere in the world.

A handful of legacy Mayer Brown lawyers have already relocated to Asia to help out. Lo expects more as Asia's recovery outstrips those in the U.S. and Europe.

"Everybody wants to be in emerging markets with the potential for growth, not in the Old World, for the next three years," she says.

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