Linklaters has revised its Asia growth strategy, with partners confirming that the City firm is in discussions with Australian leader Allens Arthur Robinson (AAR) about a potential tie-up.

The pair started discussions over a strategic union last year, according to senior lawyers within the magic circle law firm, with one Linklaters partner indicating that an alliance is likely to be the preferred strategy.

An alliance rather than a merger would avoid problems associated with the disparity in profitability between the UK and Australian firm.

AAR, which is an established referral partner of Slaughter and May, posted revenues of $459.5m (£291m) in 2010, with profits per equity partner (PEP) of $1.1m (£696,000), according to the most recent global 100 compiled by The American Lawyer and Legal Week. Linklaters' revenues for 2010-11 stood at £1.2bn alongside PEP of £1.225m.

The Australian firm has 600 lawyers working out of 14 offices across Australia and Asia, including bases in Vietnam, China, Thailand, Indonesia and Singapore. Linklaters, meanwhile, has around 300 lawyers operating across six offices in the region: Beijing, Shanghai, Hong Kong, Tokyo, Singapore and Bangkok.

News of the talks comes after Linklaters' Singapore joint venture partner Allen & Gledhill entered into merger discussions with magic circle rival Allen & Overy (A&O) last year. Allen & Gledhill had previously approached Linklaters about a closer union but the magic circle firm declined due to a lack of demand for Singapore law advice from its international clients.

The AAR discussions make Linklaters the latest UK law firm to target the Australian legal market in recent months.

Ashurst formally united with Blake Dawson under the Ashurst banner yesterday (1 March), while Herbert Smith is currently in talks with Australia's Freehills over a tie-up. Partners expect the deal to take the form of a full financial merger, but with each partnership retaining its own remuneration structure.

Herbert Smith runs an eight-year equity ladder from 43 to 100 points with a seven point increase year-on-year and an eight point increase in the final year, while Freehills operates a merit-based remuneration structure.

Clifford Chance, A&O, Norton Rose and DLA Piper have all also moved into the market since 2010 while China's King & Wood last year agreed a merger with Mallesons Stephen Jaques, another of Australia's leading law firms.

One Mallesons partner told Legal Week that his firm had also been approached last year by Linklaters regarding an exclusive alliance before the firm secured its deal with King & Wood. However, the Australian firm regarded the terms on offer by Linklaters as unattractive. The same partner suggested Linklaters' deal with AAR could see lawyers from the Australian firm's Asian offices joining Linklaters, with the rest of the firm retaining an exclusive alliance with Linklaters.

AAR, which has also been linked in other press reports to a tie-up with Mayer Brown, is understood to be reviewing its international strategy in the wake of the upheaval in its domestic market, with the firm considering whether to align itself with a foreign law firm.