Expansive US national law firm Reed Smith has secured a major platform for Asian growth after last Thursday (18 October) brokering its long-planned merger with Richards Butler's profitable Hong Kong arm.

As reported on 19 October by legalweek.com, the deal was struck after prolonged talks between the US-based law firm and the Hong Kong practice, which have been ongoing since Reed Smith's tie-up with Richards Butler's London office in June last year.

All 28 partners from the practice, which boasts turnover of around $60m (£29m), will join Reed Smith's partnership when the union goes live on 1 January, 2008.

The firm refused to clarify the profitability of the Asian practice, which has been reported to average £1m for the firm's 15 equity partners. However, the firm conceded that the practice was substantially more profitable than Reed Smith's current average profits per equity partner, which were $940,000 (£461,000) in 2006.

However, the wide range of Reed Smith's partnership remuneration structure, which sees plateau partners draw more than four times the level of the most junior equity partners, means Hong Kong partners will be paid within the firm's normal partnership structure. Top earners at Reed Smith currently earn more than $3m (£1.46m), while senior Hong Kong partners will earn "near the top of that range", according to the firm.

No franchise option

Reed Smith managing partner Greg Jordan refused to comment in detail about how the deal had been structured but said claims that equity partners had been offered substantial upfront payments and the right to operate as a separate profit pool for three years were incorrect.

However, Jordan, who was in Hong Kong last week to secure the merger, said the firm would achieve full financial integration from 1 January, arguing that the model was central to Reed Smith's strategy.

This means the practice will move immediately to the US system of cash accounting, which is based on received bills, rather than the UK model of accrual accounting.

Jordan commented: "It would be a gross simplification to say that the Hong Kong partners received a massive upfront payment but there are a lot of assets moving back and forth. Fully integrating financially was important. While the franchise model is an option, it is not the model we have chosen to adopt."

Commenting on why the deal took so long to seal, Jordan added: "We had to show them our vision about how the market was changing. A lot of [large clients] want to work with a smaller group of firms in an increasing number of jurisdictions. There were also a lot of other firms taking a swing at them, so it was important we came up with the right deal."

The Hong Kong office will have some say over management issues, with partners Will Barber and Graham Winter both to take up roles on the firm's 21-member executive committee. Reed Smith corporate partner Tom Todd is moving over to Hong Kong for a 12-month stint to help bed down the merger. Todd was previously based in London and is the relationship partner for Bank of New York Mellon, one of Reed Smith's core clients.

Eastern promise

The merger will be seen as a trophy deal for the expansive US law firm, securing it one of the largest practices in the region. The office launched in 1980 but separated financially from Richards Butler in 1997 due to tax reasons.

The respected full-service practice, which has substantial securities and litigation practices, was renowned for being independently minded, having refused to back several merger bids by the legacy Richards Butler.

Among the Hong Kong office's leading clients is telecoms giant PCCW, which Jordan said Reed Smith hoped to advise on its European and US interests.

Jordan said the move would act as a substantial platform for growth in the region, while offering the firm the chance to service US industrial and pharmaceutical clients expanding in Asia.

The US national firm will now have more than 110 lawyers in Hong Kong, as well as an operation in Beijing, and is also in the process of obtaining a licence to practise in Shanghai.

The deal is the third substantial merger in 18 months for Reed Smith following the London Richards Butler deal and last year's tie-up with Chicago outfit Sachnoff & Weaver. The latter deal gave Reed Smith 140 lawyers in Chicago focusing on work including securities and securities litigation.

Following the Hong Kong tie-up, Reed Smith will have more than 1,500 lawyers worldwide and annual revenues in excess of $700m (£344m), making it among the 30 largest law firms in the world.