Herbert Smith looks to reboot international ambitions with Freehills talks after European alliance break-up

Herbert Smith has become the latest UK law firm to set its sights on the coveted Australia market, with the firm entering into merger talks with Freehills.

The two firms are holding exploratory discussions about a tie-up, with all options under consideration – including a full merger, a Swiss verein-style deal or a joint venture agreement.

Herbert Smith partners received an internal note from management in recent weeks setting out the firm's ambitions in Australia; however, as discussions are still at an early stage, partners confirmed it has not yet been taken to any vote of the partnership.

In contrast, senior Australian lawyers have told Legal Week that Freehills held a vote at the close of last year canvassing partners on whether the firm should pursue discussions 
with Herbert Smith.

One Herbert Smith partner said: "There are talks going on at a very, very early stage and tentatively. It has not been discussed in a partnership meeting yet, and of course we have talked to other firms, too. This is something that is on the agenda as a possibility at the moment, but there are a lot of different views 
about it internally.

"It would obviously give us a greater pool of lawyers in the Asia-Pacific region. Australian firms are currently being forced to review their strategies because of the number of global firms that are moving into the region."

The initiative is being led by London-based Australian corporate partner Greg Mulley, with peers citing strong synergies between the two firms in litigation, where both Herbert Smith and Freehills are considered to boast top-tier practices, alongside high-performing energy groups.

If the pair were to merge it would create a firm with combined revenue of around £770m and rank 14th in the Am Law Global 100.

News of the talks comes after Herbert Smith last year held discussions with Australia's Blake Dawson, which subsequently agreed a deal with Ashurst that is expected to see the two firms merge in 2014, prompting some rivals to criticise Herbert Smith for not moving quickly enough.

A Freehills merger would give Herbert Smith new bases in Sydney, Melbourne, Perth and Brisbane, as well as two associated offices in Hanoi and Ho Chi Minh City.

Freehills also has a base in Singapore and three further associated offices in Shanghai, Beijing and Jakarta where Herbert Smith already has offices or associations.

A raft of other UK law firms, including Norton Rose, Allen & Overy, Clifford Chance and DLA Piper, have all launched offices in Australia over the last two years, with many targeting an Australian presence to help drive their wider Asia-Pacific strategies.

Australian giant Mallesons Stephen Jaques also entered into a much-touted tie-up in recent months with China's King & Wood, with the firms set to operate under a three-partnership Swiss verein structure from 1 March this year.

One managing partner at an Australian firm said: "My immediate reaction is to wonder why Herbert Smith is doing it. I don't understand what would be in it for them, as Freehills doesn't have any real Asia footprint to offer."

One senior partner at a leading City firm added: "It will be interesting to see whether Herbert Smith has learned any lessons from its experience with [former alliance partners] Gleiss Lutz and Stibbe.

"Alliances do not work in the long run, and in order to pull off a deal with Freehills the firm will have to commit to a full merger. However, I can imagine that Herbert Smith's management will be worried about the weight of Freehills' domestic practice."

Herbert Smith and Freehills declined to comment.

———————————————————————————————————————————————–

Further reaction

One Asia head of a top 20 UK firm: "This is not unexpected and was signalled in advance. How it will pan out depends on the culture fit, as Herbert Smith is traditionally very conservative. I am also not sure if Freehills have all their partners onside. Herbert Smith is already quite strong in Asia, so it is more of an Australia play for them."

A magic circle partner: "Herbert Smith will have done well if they get Freehills but Freehills will have sold themselves short."