Legal Business

King & Wood’s American dream over as merger talks with Morgan Lewis called off

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Legal mergers King & Wood MallesonsMorgan, Lewis & Bockius
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Following a long courtship, merger discussions between King & Wood Mallesons (KWM) and Morgan, Lewis & Bockius have been called off, Legal Business can reveal.

A combination between the global giant and Philadelphia-based Morgan Lewis would have created the world’s second biggest firm by turnover, combining KWM’s revenue of $1.02bn with Morgan Lewis’ $1.84bn. Morgan Lewis posted profits per equity partner (PEP) at $1.53m for 2015 while KWM’s stand at $900,000.

It understood talks between the firms had been strained in recent weeks following uncertainty over the future of KWM’s European business. Discussions had been led by Morgan Lewis’ chair Jami McKeon opposite global managing partner Stuart Fuller, who has since quit his leadership post.

The European and Middle Eastern partnership is currently considering a rescue deal from its Australian and Chinese counterparts after it was forced to halt its recapitalisation plan after the loss of four key partners, including Halford, former managing partner Rob Day and corporate finance partners Andrew Wingfield and Jonathan Pittal. The legacy SJ Berwin practice is carrying more than £30m in debt.

While the Asia Pacific arm has agreed to underwrite the debt and has promised minimum earnings for equity partners, the deal includes a year lock-in and salaried partners must also contribute to the recapitalisation. As with the original recapitalisation, equity partners must stump up £14m, with the shortfall to be made up by the Chinese and Australian partnerships.

The deal is subject to a vote, of which at least 70 partners (around 60% of the Europe and Middle East partnership) must agree to. The partners have until the week beginning 21 November to agree the deal. In July, 98% of the partnership had voted in favour of the original recapitalisation plan.

However, KWM was not the only firm vying for a union with Morgan Lewis, as CMS Cameron McKenna has approached the firm in recent months. A Morgan Lewis partner told this publication that Camerons had indicated that Morgan Lewis was its preferred choice of US suitor.

KWM declined to comment while Morgan Lewis did not respond to requests for comment.

sarah.downey@legalease.co.uk

Read more on KWM in ‘Comment: The moment of truth arrives in the SJ Berwin saga’

For an in-depth assessment of KWM, subscribers can see our July cover feature ‘Branded’

Legal Business

Inside KWM’s rescue deal: Management guarantee minimum earnings as salaried partners also tapped for cash

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Salaries King & Wood Mallesons
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As the European and Middle East partnership of King & Wood Mallesons considers a rescue plan to stabilise the business, Legal Business can reveal the firm has made a cash call to salaried partners, and guaranteed minimum earnings to equity partners.

Partners were informed of the deal on Thursday last week, which involves an injection from salaried partners of the European business. KWM is asking junior partners to each plough £60,000 into the business as part of the rescue plans.

It has also emerged that Chinese and Australian management has set a point value guarantee to its equity partners, where the value of each equity point will not fall below £11,000. This provides a minimum of what each partner will be paid if they agree to a lock-in and stay with the firm.

KWM’s Asia Pacific partnership has promised that if profits fall, the point value will not fall below £11,000. With its points ladder running between 20 to 60 (with a discretionary bonus at the top), this gives the highest earning partner the ability to pocket £660,000 and the lowest earning equity partner £220,000.

Management’s guarantee to hold the point value at £11,000 is a far cry from previously voiced ambitions by management. Earlier this year global managing partner Stuart Fuller, who has since confirmed he will step down from his management position, put forward a target to the partnership earlier this year to increase profit per point to £20,000 in Europe by 2019, which required a huge hike in profitability against a current figure of around £14,000.

KWM has had a turbulent time of late with its legacy European practice, which is carrying more than £30m in debt and was forced to halt its recapitalisation plans after the loss of four key partners, funds partner Michael Halford, former managing partner Rob Day and corporate finance partners Andrew Wingfield and Jonathan Pittal.

The new leadership for the Europe and Middle Eastern partnership, managing partner Tim Bednall and senior partner Michael Cziesla, flew to China in early November to talk about the future of the firm.

Partners at legacy SJ Berwin were told if they continue with the recapitalisation plan of putting in around £14m in the firm and agree to stay until October 2017, then China will stump up the rest of the cash.

The deal is subject to a vote, of which at least 70 partners (around 60% of the Europe and Middle East partnership) must agree to. The partners have until the week beginning 21 November to agree the deal. In July, 98% of the partnership had voted in favour of the original recapitalisation plan.

KWM declined to comment.

sarah.downey@legalease.co.uk

Read more on KWM in ‘Comment: The moment of truth arrives in the SJ Berwin saga’

For an in-depth assessment of KWM, subscribers can see our July cover feature ‘Branded’

Legal Business

£14m and a 12-month lock-in: Asia lays out terms of KWM bailout package

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Financial management King & Wood Mallesons
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European partners at beleaguered King & Wood Mallesons (KWM) have been given a lifeline by the Asia partners at the firm, who have agreed to stump up cash in exchange for a lock-in and a capital contribution.

A partnership meeting was held for the European and Middle East arm of KWM which has amassed more than £30m in debt, yesterday (10 November) and the plans revealed.

As first reported by RollOnFriday this morning (11 November), partners at legacy SJ Berwin were told if they continue with the recapitalisation plan of putting in around £14m in the firm and agree to stay for 12 months, then China will stump up the rest of the cash.

The deal is subject to a vote, of which at least 70 partners (around 60% of the Europe and Middle East partnership) must agree to. The partners have until the week beginning 21 November to agree the deal. In July, 98% of the partnership had voted in favour of the original recapitalisation plan.

The deal was revealed after Legal Business reported yesterday global managing partner Stuart Fuller has stepped down from his leadership role, and will return to practice in Sydney in 2017.

The recapitalisation plan was halted last month after the loss of four high-billing partners, funds partner Michael Halford, former managing partner Rob Day and corporate finance partners Andrew Wingfield and Jonathan Pittal.

The new leadership for the Europe and Middle Eastern partnership, managing partner Tim Bednall and senior partner Michael Cziesla, flew to China last week to talk about the future of the firm.

KWM has been in talks with Morgan Lewis & Bockius for a merger, discussions which had become strained following the departure of key partner Halford.

A former KWM partner told Legal Business: ‘Where was all this a year or two years ago? It looks like it’s too little too late. There was a realistic chance of avoiding this, but the question is where are they now? People at the firm would say this was predictable, but there have been a number of missed opportunites.’

georgiana.tudor@legalease.co.uk

Read more on KWM in ‘Comment: The moment of truth arrives in the SJ Berwin saga’

For an in-depth assessment of KWM, subscribers can see our July cover feature ‘Branded’

Legal Business

Crunch time for KWM as partners meet over Chinese bailout deal

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Leadership King & Wood Mallesons
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King & Wood Mallesons (KWM) global managing partner Stuart Fuller has stepped down from his leadership role as the firm meets today to hear a proposal to stabilise its European business.

Legacy Mallesons Stephen Jaques managing partner Fuller (pictured) had held the top job since 2012, after the Australian firm merged with China’s King & Wood. He will return to practice in Sydney in 2017, and the firm said that it is starting the process of appointing a new global head. He informed the firm of his decision in recent weeks.

KWM has had a turbulent time of late, in particular with its legacy European practice, which was forced to halt its recapitalisation plans last month after the loss of four high-billing partners, funds partner Michael Halford, former managing partner Rob Day and corporate finance partners Andrew Wingfield and Jonathan Pittal.

The new leadership for the Europe and Middle Eastern partnership, managing partner Tim Bednall and senior partner Michael Cziesla, flew to China last week to talk about the future of the firm. It is understood that KWM will hold a partners’ meeting at midday in London to discuss proposals for the Asia Pacific business to offer support to the European business, which is currently carrying over £30m in debt.

Previous indications are that the Australian and Chinese practices could make a capital injection and offer additional guarantees with European partners likely asked to also make additional capital contributions. Substantive support may involve some form of lock-in to stabilise the business.

Legal Business revealed last week that KWM has been in talks with Morgan Lewis & Bockius for a merger, discussions which had become strained since the departure of key partner Halford.

However, Fuller’s decision to stand down is not directly related to recent events. Fuller had been instrumental to the firm, filling the vacuum in Europe after former managing partner William Boss stepped down early into his first term in January this year. He fronted a large redundancy round in March alongside former senior partner Stephen Kon and made efforts to reassure clients in the region.

Fuller said in a statement: ‘After over a decade in leadership roles in Australia, and almost five years as global managing partner, I believe it’s the right time for a change for me, my family and the firm.’

He added: ‘I am proud of the global firm that we have built over that time, and our achievements over that period, and continue to be excited by the firm’s enormous potential.’

georgiana.tudor@legalease.co.uk

Read more on KWM in ‘Comment: The moment of truth arrives in the SJ Berwin saga’

For an in-depth assessment of KWM, subscribers can see our July cover feature ‘Branded’

Legal Business

Exclusive: Morgan Lewis holds talks with KWM as Camerons circles

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Legal mergers CMS UKKing & Wood MallesonsMorgan, Lewis & Bockius
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Morgan, Lewis & Bockius has emerged as a potential partner to King & Wood Mallesons (KWM), despite the US giant also being targeted by CMS Cameron McKenna as its long-coveted US suitor.

A Morgan Lewis partner has told Legal Business that talks to combine with KWM had been on and off for months but KWM had been eager to press ahead with conversations in recent weeks. With 520 equity partners, the top 20 US law firm has a profit per equity partner (PEP) of $1.54m and revenues in 2015 of $1.84bn. In contrast KWM has over 550 partners around the world and PEP of $900,000.

It is understood that the talks were led by Morgan Lewis chair Jami Wintz McKeon and involved the possibility of a multi-profit centre union using a Swiss verein structure initially to ‘test the waters’.

However, the Morgan Lewis partner said talks had become strained since the resignation of KWM City funds partner Michael Halford, who had been central to the discussions, but they had not been officially called off. The departure of Halford last week and three fellow partners in London saw KWM halt a planned recapitalisation after a 2016 dominated by departures in Europe to reassess its options.

The talks come as KWM Europe, UK and Middle East (EUME) managing partner Tim Bednall and senior partner Michael Cziesla have flown to China to talk about the future of the firm amid a turbulent period for its European practice, which joined KWM through the 2013 merger between KWM and SJ Berwin. It is understood that talks are ongoing for the Asia-Pacific business to offer support to the EUME partnership to help stabilise the firm in the region. Moves by the larger Asia Pacific business, which is still growing at more than 20% a year in China, may involve lock-ins with the EUME partnership, which is a separate profit centre, in return for financial commitments or guarantees to the business.

The Morgan Lewis partner added that while many US law firms were interested in KWM’s Chinese arm, its large Australia business would put off some US rivals.

The partner added that while Morgan Lewis was likely to not be the only firm seriously approached, ‘I think they liked us best.’

However, KWM is not the only firm vying for a union with Morgan Lewis, as Camerons has approached the firm ‘quite aggressively’ in recent months. The partner said that Camerons had indicated that Morgan Lewis was its preferred choice of US suitor.

The Morgan Lewis partner added: ‘However, there are partners in the US who feel CMS partners are in a different standard from Morgan Lewis, plus there is an issue with the German arm.’

A former Camerons partner said: ‘I would have thought the PEP levels at Morgan Lewis were too strong. I don’t think Camerons would have fitted too well with a New York firm, but an East Coast firm would be good for them. I have a high level of confidence the firm would be interested in Morgan Lewis. It’s a tightly run, profitable outfit.’

Camerons is currently moving to implement its combination with Nabarro and Olswang, with partners at the three firms having voted to merge last month. When the three-way merger goes through the combined firm will have revenues of more than £400m in the UK.

Morgan Lewis is no stranger to rescue deals, having in 2014 completed a ‘transaction’ which saw 226 partners and more than 525 other lawyers, legal professionals and staff move over from Boston-bred Bingham McCutchen.

Morgan Lewis, KWM and Camerons declined to comment.

sarah.downey@legalease.co.uk, matthew.field@legalease.co.uk

Read more in the opinion piece: ‘Comment: The moment of truth arrives in the SJ Berwin saga’

Read more analysis in the feature: ‘Branded – Inside the troubled takeover of SJ Berwin’

Legal Business

King & Wood loses five-lawyer energy team to Squire Patton Boggs

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Strategic recruitment King & Wood MallesonsSquire Patton Boggs
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King & Wood Mallesons (KWM) has lost a five-lawyer team including global energy and infrastructure co-head Neil Upton to Squire Patton Boggs in the latest exits from its London office.

Upton joins the transatlantic firm with a team of four associates and two other staff. His practice focuses on advising utilities, banks and financial institutions on energy projects. Upton had worked on deals including financing several UK gas-fired power stations as well as power plant projects in Africa, Europe, China and the Middle East.

Squire has recently hired into its UK practice. In March, the firm added Andrew Herring into its real estate practice from DWF to its London office and last year hired James Duckworth as a construction partner in Sheffield from Nabarro. The firm also notably added to its energy disputes practice with the hire of Ben Holland from CMS Cameron McKenna in 2014.

Squire London managing partner Robert Weekes (pictured) said: ‘Neil fits so well with our teams here and globally. His appointment is a continuation of our strategic hiring in London, joining up practices and industry groups more closely and creating stronger links between international offices.’

The firm is currently approaching a leadership election after long-term EUME managing partner Peter Crossley confirmed he was stepping down from his leadership role after 12 years while remaining at the firm.

KWM has seen a number of partner exits in the last 12 months, most recently seeing four big billing City partners confirm their departures.

Last week, private equity partner Michael Halford, former managing partner Rob Day, corporate finance partner Andrew Wingfield and Jonathan Pittal all resigned from the firm.

The Asian legal giant has looked to shore up its European business after the string of high-profile exits. However, the legacy SJ Berwin practice was forced to halt a planned recapitalisation in the wake of the resignations.

The firm recently also replaced its senior leadership for EUME, electing Frankfurt-based Michael Cziesla as senior partner and Tim Bednall as managing partner.

matthew.field@legalease.co.uk

Read more on Squire Patton Boggs in: ‘We have enough of a say’: Squire’s Peter Crossley on retirement, leadership and the US‘

Legal Business

KWM looks outside the City as it elects new European leaders during turbulent period

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Leadership King & Wood Mallesons
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King & Wood Mallesons’ (KWM) European partnership chose two new leaders last month, electing corporate partners Tim Bednall and Michael Cziesla as managing and senior partner for the legacy SJ Berwin practice.

The elections were triggered by the early retirements of managing partner William Boss and senior partner Stephen Kon, who return to full-time fee-earning, and come amid a turbulent 18 months for the Global 100 firm. The new leaders take their posts after the firm has missed profit distributions, seen global revenues fall, made a cash call and has been forced to restructure the partnership, with 24 legacy SJ Berwin exits.

Legal Business

KWM exits continue as German banking head takes team to Taylor Wessing

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Strategic recruitment King & Wood MallesonsTaylor Wessing
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Following the resignations of five King & Wood Mallesons (KWM) partners last week, the firm has lost the bulk of its Frankfurt financing team to Taylor Wessing, which takes on five lawyers including two partners. The exits come as the legacy SJ Berwin practice has halted its recapitalisation plans in the face of mounting departures.

KWM’s German head of banking and finance Sabine Schomaker and partner Clemens Nieder will join Taylor Wessing before the end of the year along with of counsel Ulf Gosejacob and two associates.

The partners joined KWM from White & Case in January 2013. Schomaker and her team have been recommended in the European Legal 500 for their ‘excellent level of service’.

The hire brings Taylor Wessing’s German banking and finance practice up to 17 lawyers. German banking and finance head Peter Seemann said: ‘This is a milestone in strengthening out Frankfurt location and expanding our financing practice.’

The Australian-Chinese firm recently lost key European funds partner Sonya Pauls from its Munich office. High-billing Pauls left for Clifford Chance in August. Pauls has more than 20 years’ experience advising European and global fund managers.

In July, K&L Gates opened an office in Munich with a three-lawyer hire from KWM, bringing in investment management partner Hilger von Livonius.

KWM’s European arm has endured a difficult summer of partner exits, a leadership election and a stalled recapitalisation. Just weeks after electing Frankfurt-based Michael Cziesla as EUME senior partner and London-based Tim Bednall as EMUE managing partner the firm saw four key partners announce their resignations last week.

Key private equity partner Michael Halford and former managing partner Rob Day both resigned along with corporate finance partner Andrew Wingfield and Jonathan Pittal.

The firm’s legacy SJ Berwin office halted its recapitalisation plans following the exits. A spokesperson said at the time: ‘In light of these resignations, the firm has paused its recapitalisation programme in EUME (having received commitments for the requested amount of capital) whilst it assesses the financial impact. We anticipate this process will be complete within four weeks.’

matthew.field@legalease.co.uk

Read more: ‘Comment: the moment of truth arrives in the SJ Berwin saga’

Legal Business

Comment: The moment of truth arrives in the SJ Berwin saga

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Comment King & Wood Mallesons
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Even if you discount the more lurid claims made regarding King & Wood Mallesons, it is clear the firm is facing a huge challenge to get its Europe and Middle East business back on track.

In this week alone, five significant partners have indicated they are to go – a group including four of its most significant billers. Around 40 partners have now left the firm in Europe this year, including 24 the firm restructured out of the business, and the last two months have seen a number of significant departures, most damagingly at the end of August that of German funds star Sonya Pauls for Clifford Chance.

A partners’ meeting on Thursday (27 October) in London indicated the scale of the challenge, with partners told that KWM was halting its recapitalisation for the European business while it assesses its options, a process which it says will be concluded in four weeks. With the firm already having a £25m loan, KWM’s finances are strained for a firm generating £181m in the region.

That things took another turn for the dramatic was hardly a shock given the election this month of new managing and senior partners for its European and Middle East business. That a legacy SJ Berwin partner from its City heartlands didn’t win either role spoke volumes.

Most damaging was the news that Michael Halford was among yesterday’s resignations. Halford is the point man for KWM’s profitable funds practice, a team that always operated as a self-contained fiefdom. Given that funds has for years been top of the City priority list for high-paying US law firms, stopping the group splitting away will be difficult to say the least. Another of the leavers, Andrew Wingfield, is probably the most significant operator left in the firm’s City corporate practice, a stand-out individual in a team not exactly over-flowing with senior talent.

It will require something dramatic to resolve this situation if partners are not to peel off rapidly. The remarkable saga of SJ Berwin, including its turbulent three-year marriage with KWM, is reaching a decisive phase. Beyond a suitor prepared to take on the practice it is hard to see where this goes.

How did it get here? Much of it is due to SJ Berwin’s governance, a yawning cultural chasm between the Asia Pacific business and the City firm and a fundamentally mis-sold union. SJ Berwin had already struggled to mature beyond the entrepreneurial fire that powered its rapid rise. That struggle was evident well before KWM came calling. The result of that failure, particularly after the KWM union, is that the firm in Europe was left with the worst of both words – the passion was gone but neither did the firm have the polish and process to take its business to the next stage.

Likewise, it has been plain for some time that the Asian Australian practice was growing weary of the SJ Berwin soap opera, even as many of the old Berwin hands argue that KWM singularly failed to deploy the City firm’s considerable assets. Both jaded viewpoints are surely true. Very soon we’ll know how this story plays out.

alex.novarese@legalease.co.uk

For an in-depth assessment of KWM, subscribers can see our July cover feature ‘Branded’

Legal Business

KWM halts recapitalisation as four heavyweights announce exits

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Financial management King & Wood Mallesons
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The beleaguered European arm of King & Wood Mallesons has been hit today (27 October) with yet another blow as it has emerged that four heavyweights are to quit its City office, including private equity partner and major biller Michael Halford, former managing partner Rob Day, as well as corporate finance partner Andrew Wingfield and Jonathan Pittal.

Their sudden resignations coincide with a partnership meeting held this afternoon where the group was informed of departures and, according to communications with Legal Business, have laid doubts over the finances of the firm.

In a statement the firm said: ‘King & Wood Mallesons can confirm the resignations of London partners Michael Halford, Jonathan Pittal and Andrew Wingfield. Rob Day has also indicated his intention to resign. These resignations do not impact our employees.’

‘In light of these resignations, the firm has paused its recapitalisation programme in EUME (having received commitments for the requested amount of capital) whilst it assesses the financial impact. We anticipate this process will be complete within four weeks.’

The four partners departing are considered major billers at KWM Europe, with three of them among the 20 highest-billing partners at the firm. Halford in particular is a senior figure in KWM’s European funds team, a trophy practice. It is not known whether these partners have firms to go to yet.

A former partner said: ‘All four leavers are highly mobile and are thought to being circled by many US and magic circle firms. This is the body blow in confidence that the (new) management team could have done without.’

The Asian legal giant has sought to steady its European business following a string of high-profile exits this year.

The firm’s European partnership has undergone a testing 18 months, having recently re-organised its structure, moving from 17 to three divisions, asked 24 partners to leave in March and increased its loan facility with Barclays earlier this year.

This month the firm replaced both leaders for its legacy SJ Berwin practice, opting for Frankfurt partner Michael Cziesla as EUME senior partner, defeating Dubai-based disputes partner Tim Taylor QC. Earlier this October the partnership elected Tim Bednall as EUME managing partner, defeating Gareth Amdor in a two-man race for the position.

sarah.downey@legalease.co.uk

Click here to read: ‘Global 100: Branded – Inside the troubled takeover of SJ Berwin’ 

Read more: ‘Comment: How KWM became Rogers & Wells II but with less staying power’