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July 21, 2011 1:10 PM

Leading Chinese and Australian Firms in Alliance Talks

Posted by Brian Baxter

Two of the largest firms in Australia and China are considering forming a strategic alliance that would create a legal powerhouse in the Asian-Pacific region.

U.K. publication Legal Week and sibling publication The Asian Lawyer report that Australian firm Mallesons Stephen Jaques and domestic Chinese firm King & Wood have been engaged in talks for the past several months. Bloomberg first had news of the discussions between both firms.

Beijing-based King & Wood is one of the largest and most highly regarded firms in China. It was the first domestic Chinese firm to open an office in the United States by branching out in Silicon Valley at the tail end of the tech bubble a decade ago. King & Wood has rapidly expanded its international operations since then, opening an office in New York at the onset of the global economic crisis in September 2008. Now with 950 lawyers--190 of them partners--the firm has offices throughout China, as well as a base in Tokyo.

Mallesons, which is based in Sydney, has about 1,000 lawyers on staff with roughly 200 of them partners. The firm has offices throughout Australia, a base in London, and outposts in Beijing, Hong Kong, and Shanghai. Merger talks between Mallesons and Clifford Chance were called off in December 2008, and the Magic Circle firm eventually opened its own base in the country earlier this year by acquiring two local corporate boutiques.

Robert Milliner, chief executive partner for Mallesons in Sydney, told The Asian Lawyer in an e-mail that his firm had been exploring the possibility of alliances with several firms around the world as part of a broader internationalization strategy. "We have spoken to King & Wood as one of a number of Asian firms," Milliner said. "However, we continue to review the best option for the long-term future success of our firm."

The Australian and Chinese economies have been increasingly intertwined in recent years, according to The Asian Lawyer, with many large Chinese companies investing in Australia's growing natural resources industry. The Am Law Daily reported this week that M&A activity in Australia's natural resources industry has been booming in recent months. Mallesons is advising China's Hanlong Mining Investment on a $1.52 billion offer for Aussie mining company Sundance Resources, the latest in a string of natural resource deals Down Under.

In addition to Clifford Chance, fellow Magic Circle firm Allen & Overy planted its flag on Australian soil last year by raiding Mallesons rival Clayton Utz for 15 partners. British firm Norton Rose saw its revenues surge this year after its merger with Aussie firm Deacons, and DLA Piper became the world's largest firm by attorney head count in May after completing its merger with former Aussie alliance partner DLA Phillips Fox.

China has experienced a comparable growth surge in both the size of its legal market and power of its domestic corporations. The American Lawyer reported in January on the increasingly international ambitions of Chinese firms as their own corporate clients expand their global footprint.

The Asian Lawyer recently reported on China's "low-key legal elite," noting King & Wood's aspirations to become the country's version of Skadden, Arps, Slate, Meagher & Flom. As reported by The Asian Lawyer in May, Chinese firms have been plagued by generational gripes within their ranks, but King & Wood, a modified lockstep firm, has worked hard to have senior partners mentor their younger brethren.

King & Wood has also been busy in the lateral market, recruiting lawyers from leading U.K. and U.S. firms in recent months. Last year it hired former top Clifford Chance capital markets partner Rupert Li to become its international managing partner. Four years ago, King & Wood established a strategic alliance with Australian firm Gilbert + Tobin to work together in China and across the Asia-Pacific region. (An anonymous source told The Asian Lawyer that the Gilbert + Tobin alliance would be superseded in the event of any King & Wood tie-up with Mallesons.)

Any formal alliance or merger between King & Wood and Mallesons could occur under a Swiss verein structure, according to reports by Bloomberg, Legal Week, and The Asian Lawyer.

The American Lawyer reported earlier this year on the Swiss verein being the preferred option for major international law firm mergers because of its ability to form a holding structure that keeps separate profit and revenue streams. Critics claim that the verein's inherent lack of financial integration means that mergers under that model create firms in name only.

But the verein model could pose a potential obstacle to any final deal between Mallesons and King & Wood because of Chinese restrictions barring foreign firms from practicing local law, according to The Asian Lawyer.

As a result, other options are also on the table. The Asian Lawyer reports they could be a simple "best friends" referral agreement or a more controversial pooling of financial resources through a straight merger between both firms. While the Chinese bar association is known for being protectionist, other domestic firms have previously entered into alliance agreements with their Aussie counterparts.

In September 2009, large Australian firm Freehills followed Gilbert + Tobin's lead on its deal with King & Wood by entering into a nonexclusive alliance with China's TransAsia Lawyers.

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