Possible Trend? King & Wood and Mallesons talk Merger


Posted on August 1, 2011 at 4:08 PM

This past week, the Chinese firm, King & Wood, and the Australian firm, Mallesons, are talking about forming an alliance in response to the growing integration of the Chinese and Australian economies.

With Australia controlling and producing a noticeable amount of the world's natural resources, Chinese investors have begun to heavily invest in the Australian natural resource industries. King & Wood along with other big law firms have noticed this investment and want to cash in on the increase in work in that area.

The Asian Lawyer reports, "The King & Wood source says his firm is likewise looking to greatly expand its work on behalf of Chinese companies eyeing investments in Australia." Stuart Fuller, the managing partner of Mallesons said, "We need a deeper, more long-term relationship with Chinese investors," possibly referring to the impending deal.

The prestigious Chinese firm along with the Australian giant have been in talks of creating a Swiss Verein, one much like Norton Rose's merger with Deacons in 2010. This Swiss Verein would maintain separate profit and revenue streams for both firms, while allowing for the central management of technologies and marketing. The Chinese government restricts foreign law firms from practicing Chinese law, however this deal would allow for both firms to operate in China.

The largest obstacle that this deal faces is getting the Chinese government to sign off on it, as we noted earlier, they strictly prohibit foreign firms from practicing Chinese law. However it is widely believed that the Chinese government would approve the deal if King & Wood are leaders of the deal.

This is not the first time we have a deal like this been done, in fact, King & Wood were involved in a similar deal in 2007 with Gilbert + Tobin, another Australian firm. The two firms created their alliance in order to make a joint partner committee to cater for clients in China. The two firms also would share legal and management skills. If this deal between King & Wood and Mallesons goes through, the King & Wood and Gilbert + Tobin partnership would be terminated.

As noted above, Norton Rose and Deacons used a Swiss Verein to allow for Norton Rose to get involved in Australia. Two Magic Circle Giants, Clifford Chance and Allen & Overy have both gone into Australia in order to expand business, though they did not use a Verein type deal. Allen & Overy took 15 partners from Australian firm Clayton Utz when they opened their Australian office. Clifford Chance, once rumored to merge with Mallesons in 2008, moved into Australia earlier this year in their merger with two boutique firms, Chang Pistilli & Simmons (CP&S) in Sydney and Cochrane Lishman Carson Luscombe in Perth.

With the Australian dollar becoming stronger along with a notable increase in M&A in the Australian natural resource market, major firms like this with a presence in China will continue to move in Australia to work in this expanding area. If this slowly growing trend continues, I think it is only a matter of time before more large American law firms merge with Australian firms in order to penetrate the market.

In King & Wood's situation, this would be a great move. They have said that they want to become the first Chinese law firm to become an international firm; this would be a step in the right direction. With the increase in activity in the Australian economy in terms of Chinese investment, this could lead to large revenues for the firm, which could entice the Beijing-based firm to expand into other locations.

One downside to the deal could be the reactions of competitors. International competitors could react to the deal by bringing their business to other Chinese law firms, so as to not "help" a new competitor in the Australian market. The deal has not been made official yet, but it is certainly showing signs of a growing trend among big law firms.

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