Editors' Blog

Chadbourne/Watson Farley: the slow road to nowhere

Posted 15/11/2007 by Deal Comment

Well before Watson Farley & Williams and Chadbourne & Parke announced that their transatlantic merger talks had been called off, the smart money was on this deal not happening.

The announcement yesterday (14 November) came almost 12 months after the talks had begun in earnest and with very little development to show for it, despite the discussions going public in the US back in June.

One head of a top 20 firm sums up the general view: “It is the worst thing for a merger if it becomes public. Sometimes if you can’t do it quickly, it is not worth doing at all.”

Partners at both firms blamed the summer slowdown and an inability to get key people together for the lack of progress. But in an age where BlackBerrys have ruined the concept of a holiday, you would expect a merger to have been up there on the list of priorities.

It has become a truism of law firm merger talks (and transatlantic deals in particular) that if a deal’s going to get done, it gets done quickly, as was demonstrated by Richards Butler’s contrasting experiences with Proskauer Rose and Reed Smith.

Certainly the waiting game became a bit much for some Watson Farley partners, who were ‘perplexed’ by the lack of progress. As reported by Legal Week (1 November) despite the talks being officially ongoing, at the Watson Farley partnership conference in October the subject took a backseat.

While both firms were doing due diligence on one another, the City practice was seemingly the one playing the waiting game.

The head of one sizeable City firm with knowledge of the US practice told Legal Week: “Chadbourne has very aggressive management and an aggressive negotiating style – they aim to destabilise.”

Profitability is also likely to have been an issue – Watson Farley’s partner profits were £419,000 in the last financial year compared to Chadbourne’s $1.085m (£549,000). Given the strength of the pound, the numbers don’t look too dissimilar. But, as one UK rival comments: “US partners have a feeling for their worth that is not connected to the exchange rate.”

Furthermore, the US firm would not respond to reports that it had refused to budge on the name Watson Farley being dropped even in its domestic markets.

Quibbles over exchange rates parity, branding and the difficulty of getting partners together over the summer – it seems like awfully superficial hurdles to have a killed a merger that seemed to make sense in creating a distinctive energy/projects firm with transatlantic credibility.

There were also a number of Watson Farley partners who left recently – Susan Farmer to join Fulbright & Jaworski’s City energy and project finance team and international litigation head David Kavanagh and fellow contentious partner David Foster to O‘Melveny & Myers. However, one Watson Farley insider stressed that the departures were unrelated to the talks.

Indeed, the only substantive issues to apparently emerge – apart from a lack of will and a high-handedness from Chadbourne – are reports of disagreements over post-merger management, that most traditional of deal-breakers.

Certainly Watson Farley would have had much to gain from the deal – one partner at the firm conceded to Legal Week that “there was a lot riding on it” and “it will be interesting to see what happens now.” The firm has a solid energy practice but perhaps not utilise that platform as much as it could have to take advantage of the recent boom in energy work. As such, few appeared to disagree with the comment of one former partner this week that Watson Farley has no Plan B.

Still, at the least the firm has conceded that it needs change and some argue that Watson Farley’s strategy is clearer than its US counterpart, which looks similarly constricted in its options for future development.

By contrast, one Watson Farley partner commented before the talks were officially observed: “We’re a pretty transparent firm – what you see is what you get.”

caroline.grimshaw@legalweek.com