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The talks deadlocked over competing practice areas - Wolf, Block, Schorr & Solis-Cohen L.L.P. does substantial business suing insurers while its proposed merger partner, Akerman, Senterfitt & Eidson P.A., of Miami, defends insurers in many cases.
Were a merger to take place, making the firm one of the country's biggest, one of the firms would have had to walk away from its insurance business, worth more than $10 million to each of the firms, a huge loss of revenue in a struggling economy.
After years of significant growth, Wolf Block is projecting that its revenue will be essentially flat this year, about $170 million, even as costs are rising.
"The backstory is the bad economy; that is the context in which we tried to get this done," said Mark Alderman, chairman of Wolf Block.
Alderman concluded, along with the firm's executive committee, that the conflicts could not be resolved on a timely basis. That was determined Tuesday and partners at the firm were notified yesterday.
Andrew Smulian, the Akerman Senterfitt chairman, said he and his management team came to the same conclusion about the same time.
The merger negotiations, which began earlier this year, took place as law firms across the country scramble to either acquire or merge with other law firms or to poach entire practice groups from competitors.
Many firms, including the 317-lawyer Wolf Block, have taken the position that only bigger firms will be competitive in a few years as clients themselves pursue business opportunities around the world and demand that their law firms provide legal services in multiple markets.
The combined firm would have been run jointly by Alderman and Smulian; it would have had more than 800 lawyers, and it would have been one of the nation's largest.
The conclusion of negotiations with Akerman Senterfitt represented the second derailed merger attempt by Wolf Block in recent years. The firm called off talks with Cozen O'Connor, of Philadelphia, after the firms could not agree on how to reconcile different fiscal years and merge their pension plans.
Wolf Block's unfunded pension liability posed a potential difficulty early on in the current negotiations, said Brad Hildebrandt, chairman of Hildebrandt International, a consulting firm that advised both Wolf Block and Akerman Senterfitt.
But he said the issue was quickly resolved and had not been a huge stumbling block.
Far more problematic, he said, was the conflict issue. Both sides were intently aware of the problem early on, but they had hoped that clients on both sides would sign off on the merger and waive the conflict issue.
With that in mind, negotiators from Wolf Block and Akerman Senterfitt sought to work out other aspects of the deal, including merging the firm's finances, with an eye toward resolving the conflicts at the end.
That, however, was not to be.
"The major issue has always been a conflict, and it was a conflict that they thought they could solve," said Hildebrandt. "Most firms do not want to discuss this with a client until they have a merger proposal in hand."
Had the economy been stronger, there might have been more incentive to go forward, even if it meant that one of the firms would have had to lose a practice area. But even in a thriving legal market, Hildebrandt said, the changes would have been wrenching.
"This economy for law firms is not as strong as it was just a few years ago," Hildebrandt said. "And you have to be more careful in how you structure an arrangement."
Wolf Block partners learned that the talks were called off yesterday afternoon. "A core industry conflict could not be resolved without the likely loss of significant business," said a statement sent to partners. "Both sides agreed that this probable result was not in either firm's best interests and efforts to conclude the remaining issues have been ended."
Alderman said the end to the merger talks would not stop the firm from seeking to grow.
"Our basic strategy remains the same, and nothing that has happened has caused us to question that strategy," he said. "Our strategy is to grow. And a significant combination remains one way to grow."
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