The elite Wall Street legal teams advising on the blockbuster A&O Shearman merger

John Malpas explores the thinking behind the appointment of Davis Polk and Simpson Thacher to advise on the planned A&O/Shearman tie-up

Wall Street deal heavyweights are needed to untangle potential issues around pay structures Shutterstock

“Detail-oriented, commercial, creative and thoughtful.” That is how Davis Polk & Wardwell’s head of compensation, Jennifer S. Conway, is described by the legal directory Chambers and Partners.

These are all skills that should come in use as she advises on her client Shearman & Sterling’s proposed merger with UK Magic Circle firm Allen & Overy (A&O), given that melding the two firms’ partner pay systems looks to be one of the most challenging aspects of the deal.

Batting for Allen & Overy (A&O) during this process will be Simpson Thacher’s Jeannine McSweeney, a “Next Generation Partner” for employee benefits and executive compensation, according to the Legal 500.

If opinions on A&O and Shearman’s bid to create the third-largest integrated international law firm by revenue have been largely positive, the slickness of the deal’s presentation has been universally recognised.

It is an impression that was given further gloss by the choice of two top Wall Street law firms as advisers on the deal.

From a UK perspective, where a small group of firms have carved out successful niches as advisers to professional practices, enlisting the services of two M&A heavyweights seems a little unusual, even if the equivalent specialist expertise isn’t so readily available in the US.

But it certainly isn’t just about the optics, argues Robert Bata, principal of WarwickPlace Legal, pointing to the expertise of both firms in the field of executive compensation.

“It stands to reason that while on average, partner profits seem to be reasonably similar, some key Shearman partners in the US will be compensated at a much higher level than some of the top people at A&O,” he observes.

“The two firms need to figure out how to keep the high earners incentivised, so they stick around. And that is where the executive compensation experts at Davis Polk and Simpson Thacher come in with their experience advising on these types of issues for big corporates.”

According to Zulon Begum, a partner in London firm CM Murray’s partnership and LLP practice, employing independent legal advisers sends out an important message to partners during law firm merger negotiations.

“My experience is that it is 50/50 whether law firms hire legal advisers to advise them on mergers as they often feel they have the expertise in house,” she says. “However, it often makes sense to use outside experts, not just because of the intricacies of partnership or professional regulatory law, but also because it means the partners have the comfort of not having to rely totally on what management are telling them.”

The two firms certainly can’t be accused of skimping on this independent advice.

The Davis Polk team is led by corporate partners William Aaronson and Lee Hochbaum and, alongside Conway, includes tax partner Michael Mollerus and a supporting team of counsel and associates.

Aaronson has been at Davis Polk for almost 30 years, leads the firm’s M&A team and counts MasterCard and Comcast among his clients. Hochbaum has advised corporate clients including GE and Heinz on major acquisitions.

Simpson Thacher’s team, meanwhile, is led by M&A partners Eric Swedenburg, Anthony Vernace and Jihyun Chung and includes Jonathan Goldstein (tax) and Peter Guryan (antitrust), alongside McSweeney and a trio of associates. 

Swedenburg leads the M&A team while Vernace was recently part of the team that advised Twitter's board of director's on the social media giant's $44bn acquisition by Elon Musk.

A looming hurdle for A&O, Shearman and their two sets of advisers are partner votes by the end of the summer: the approval of three-quarters of the respective partnerships is needed, although the management teams will be looking to maintain momentum with a much more emphatic endorsement.

But that won’t be the end of it. Completion is not anticipated until six to 12 months from now.

Zulon, who advised Taylor Vinters on its recent merger with Mishcon de Reya, isn’t surprised by that time frame given “tax, partnership, corporate and regulatory issues” that will need to be “tackled jurisdiction by jurisdiction”.

She adds: “This will be particularly challenging if they want to be an integrated partnership from the word go rather than relying on a verein structure. It will be interesting to see how they achieve this.”

A major headache for the two parties, and one that is often not appreciated by firms when they embark on merger talks involving the UK, relates to conflicts of interest.

“The Solicitors Regulatory Authority rules do not allow prospective merger partners to share information about their clients in order to check whether there are conflicts,” says Begum’s colleague, partner Corinne Staves.

“You are limited to information that is in the public arena or through obtaining permission from clients, which is a laborious process. In the US, I believe it is possible to instruct an independent checker to act as a middle man, but this isn’t possible in the UK.”

Further reading: ‘Opportunistic and strategic’ – Allen & Overy’s bold move to crack the lucrative US market

The two firms addressed the conflicts issue in an FAQ sheet published on the day of the merger announcement.

“We have undertaken a preliminary assessment of conflicts and this exercise will continue as we work towards combining our firms,” it said. “We will alert specific clients directly, if we believe there are any conflict issues which require management/resolution. We do not anticipate a significant number of issues.”

All of which spells a lengthy process that will need to be handled with great skill and, one suspects, patience.

Email your news and story ideas to: [email protected]