Shearman & Sterling and Hogan Lovells abandon merger talks

Wall Street law firm Shearman & Sterling and rival Hogan Lovells have ended merger talks that would have created a legal powerhouse, saying that a deal was not in their interests.

Shearman, a 150-year-old firm that was once one of Wall Street’s most powerful advisers, boasting clients from Citibank to Henry Ford, had been in talks with larger competitor Hogan Lovells for months.

David Beveridge, Shearman’s senior partner, and Hogan Lovells chief executive Miguel Zaldivar were leading negotiations on a deal that would have supplied Shearman the scale to be a genuinely global player. For Hogan Lovells, Sherman would have given it a stronger brand in New York.

However, in a statement late on Thursday, the firms said that “after careful consideration, we have mutually agreed that a combination at this time is not in the best interest of either firm”.

Several current and former Shearman partners told the Financial Times that a tie-up would have helped the firm address multiple challenges, including losing partners to deep-pocketed competitors and a global network that had brought higher costs but insufficient scale.

On Friday, hours after the firms announced the end of merger talks, a 20-strong team of lawyers left Shearman’s Munich office to join rival Morgan Lewis & Bockius. Earlier in the week, it emerged the firm was losing star finance partners Korey Fevzi and Philip Stopford who are joining Cravath, Swaine & Moore.

Shearman’s equity partners took home an average of $3mn in 2021, far short of the $7mn paid out by rivals including Davis Polk & Wardwell and Kirkland & Ellis.

Under Beveridge, Shearman has embarked on a difficult restructuring aimed at focusing the firm on more profitable regions, such as the US, and sectors including private equity. Last month, the firm, which has about 700 lawyers, cut 38 staff in the US, citing “continuing and growing economic headwinds”.

A merger with Hogan Lovells would have created a behemoth of about 3,500 lawyers across the world. But law firm mergers are notoriously difficult to achieve, not least because of the difficulties of knitting together differing compensation systems and keeping key staff loyal.

In 2019, talks between London-based “magic circle” law firm Allen & Overy and Los Angeles group O’Melveny & Myers collapsed after the two sides failed to agree on a valuation for the combined business.

Tony Williams, principal at Jomati Consultants and former managing partner of Clifford Chance, which merged with a US firm in 2000, said: “Large mergers between law firms are very difficult to achieve in what is a people business . . . Lawyers often over-emphasise the benefits of the status quo and are resistant to change so any opportunity needs to be exceptionally compelling to achieve traction.”

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