Dentons, McKenna Deal Officially Dead

, The Am Law Daily

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Road Splits

Despite being a record year for law firm mergers, 2013 will not see McKenna Long & Aldridge and Dentons sit down with one another at the Thanksgiving dinner table. The Am Law 100 firms confirmed Tuesday that they will remain separate entities a little more than a month after announcing they were in discussions about a potential combination.

McKenna had postponed voting on a merger with Dentons several times, according to reports by sibling publication the Daily Report, with a final vote that began this weekend due to conclude Tuesday. But voting was halted by midday once McKenna's management, which had endorsed the deal with Dentons, realized it could not persuade a supermajority—or partners holding two-thirds of equity in the firm—to vote in favor of a merger, says a senior Dentons partner who briefed The Am Law Daily on the matter early Tuesday afternoon.

The Am Law Daily has learned that partners in McKenna’s government contracts practice in Washington, D.C., were among those who were opposed to combining with the U.S. arm of Dentons, a firm that operates under a Swiss verein structure that maintains separate profit pools for partners working in different jurisdictions.

The senior Dentons partner, who says that only six of his firm’s roughly 900 partners were against a merger, claims that a “small minority” of partners in McKenna’s D.C. government contracts group used their control of a larger portion of the equity partnership interest in the firm to block the Dentons deal from going through. About 75-80 percent of McKenna partners favored a merger, says the senior partner.

A source familiar with the machinations at McKenna contests that narrative, telling The Am Law Daily that opposition to the deal extended beyond D.C. and included government contracts partners in other offices and litigators in California.

While declining to comment on which practice groups were opposed to the proposed combination, a McKenna spokesman provided The Am Law Daily with the following statement: “We are not in a position to successfully bring our firms together at this time. We look forward to maintaining the many friendships and working relationships, including with shared clients, that partners in both firms have forged. Both firms will continue to advance their respective strategic priorities.”

Global accounting giant PricewaterhouseCoopers, a longtime consultant to both firms, advised Dentons and McKenna on tax ramifications of a possible tie-up. KPMG was hired by McKenna to count the votes by partners located in the firm’s 15 offices around the world, according to a source who spoke with The Am Law Daily on the condition of anonymity. This source says some McKenna partners expressed concerns about potential tax obligations arising from Dentons’ Swiss verein structure. (Dentons did not engage other external advisers of its own.)

Some McKenna government contracts partners were also concerned that they would be forced to increase their hourly rates in the event they approved a merger, says the lawyer familiar with the matter. And the fact that the combined firm would have been known as Dentons also troubled some McKenna partners, who were concerned about the loss of what they believe is a strong brand name in the government contracts sector.

The end of the talks between Dentons and McKenna came a day after Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman announced that they had ended their own merger discussions as a result of client conflicts. And while Orrick and Pillsbury agreed to a one-year moratorium on poaching partners from each other in the wake of their fruitless negotiations, Dentons and McKenna have no such deal. That's according to the senior Dentons partner, who says that with a majority of McKenna partners supporting the proposed union, there could be lateral movement in the future from one firm to another.

McKenna, which completed a merger last year with California’s Luce, Forward, Hamilton & Scripps, began discussing the possibility of combining with Dentons in late September.

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