A potential milestone for Asia market as Linklaters JV partner enters talks with A&O. Alex Novarese reports

Back in September Legal Week published an extended article noting that the Asia-Pacific region has become the key strategic battleground for the leading Anglo-Saxon law firms as they jostle to cement their global status.

Perhaps the starkest example yet of that dynamic – viewed at least from the perspective of the Square Mile – is last week's news that Allen & Overy (A&O) has made an ambitious bid to expand its Asian practice, after entering discussions to tie-up with Linklaters' Singapore partner Allen & Gledhill.

The City giant issued a statement on 4 November confirming that it was talking to the 300-lawyer Asian practice, regarded by many as Singapore's leading law firm, about a merger. The statement read: "Allen & Overy has entered into preliminary talks with Allen & Gledhill which may, or may not, lead to proposals for a combination of the two firms subject to any necessary regulatory approvals in Singapore.

"The strategic intent behind the talks is to establish whether an alliance or combination is possible which would enhance the market leading positions of both Allen & Overy and Allen & Gledhill in the Asia-Pacific region and enhance Singapore's position as a regional hub for high value legal services."

A&O's move comes during a period in which Singapore has emerged as an increasingly key strategic hub in the wider Asia region. The introduction of a more liberal regime in 2008, which allowed six foreign firms, including A&O, licences to practise local law, is also seen as underpinning Singapore's growth and shaking up the local market.

The London-based law firm currently has 53 fee earners in Singapore as part of a 381-lawyer practice spread across Asia-Pacific. The 312-lawyer Allen & Gledhill is one of Singapore's 'big four' firms and the second-largest local practice by number of lawyers. The firm – which acts for institutional clients including Bank of America, Barclays Capital, Citigroup, DBS, HSBC, Standard Chartered Bank and United Overseas Bank – has maintained a formal joint venture (JV) with Linklaters since 2000.

However, the JV regime has been unpopular with many firms, leading to a number of alliances being abandoned. International firms typically complain that the JVs are too restrictive and allow local firms to work non-exclusively with their international partner. In contrast, the qualified foreign law practice (QFLP) programme allows international firms to practise local law directly.

Linklaters has yet to seek a QFLP licence, though it currently has around 40 lawyers based locally. The initial round of licences in 2008 were awarded to A&O, Latham & Watkins, White & Case, Herbert Smith, Norton Rose and Clifford Chance. A&O itself previously operated a JV with Shook Lin & Bok, which it abandoned when it secured its QFLP licence.

The talks raise the prospect that Allen & Gledhill could integrate fully with A&O under the QFLP regime – a move which would hugely boost A&O's Asia platform, giving the combined firm as many as 700 lawyers the region. The Singapore Ministry of Law is already reported to be considering an outline proposal of how the merger would work.

A&O has been aggressively investing in Asia-Pacific, in recent years securing launches in Australia and Indonesia to forge a nine-office network. A tie-up with Allen & Gledhill would also bolster the City firm's position in Indonesia, as the country enjoys close business links with Singapore.

Whatever the ultimate result of the Singapore firm's discussions with A&O, the expectation within Linklaters is that its formal relationship with Allen & Gledhill is unlikely to survive in the long term.

The fate of the talks will partly be decided by Lucien Wong, Allen & Gledhill's hugely-respected, superbly-connected head, who has a reputation as a strong personality at the firm. His move to entertain talks with A&O has been seen as a sign of his ambition to reposition his firm globally – and possibly that he is thinking ahead to his retirement down the line.

Where Singapore fits

But the key consideration to the talks is how Singapore will fit into the wider Asia-Pacific economy. Certainly, it remains debatable how a firm the size of Allen & Gledhill – which has around 130 partners and focuses entirely on local law – would mesh with an international partner.

Indeed, rather than being upstaged by its London rival, Linklaters had been approached first by its long-time local ally with a view to closer links in the past. Despite the unquestioned strength of Allen & Gledhill, there appears to have been no appetite to integrate due to the lack of demand for Singapore law advice from Linklaters' international clients.

And while Singapore has positioned itself as an increasingly effective hub for Southeast Asia, the liberalisation that has supported its growth raises awkward questions for the largest local firms.

There are already expectations that Singapore will further liberalise in the near future – possibly through offering unlimited licences to practise or by making it easier for foreign lawyers to re-qualify as local advocates. This would mean local leaders facing their domestic market being opened up swiftly while they have limited means to service the foreign law demands of key clients. This outlook apparently directly led Allen & Gledhill to conclude it should seek out a foreign partner. Other major Singapore firms like Rajah & Tann and the WongPartnership will be weighing up similar issues.

The likely end of Linklaters' formal local alliance leaves the City giant considering its options locally, which could span a full local launch, another JV or – like many rivals – a reliance on referral relationships for local law coverage.

A&O faces a calculation on whether the Singapore firm would be an unmissable strategic asset or a large institution that will be hard to fit within its global network. Allen & Gledhill must decide if it has found a suitable partner or can credibly remain independent in a rapidly changing market.

Either way, the rapid evolution of Singapore – and the wider Asia region – promises to present many of the world's leading law firms with similarly high-stakes decisions in the years to come.