In the largest tie-up so far between a Hong Kong firm and a foreign firm, Koo and Partners has merged with Paul Hastings Janofsky & Walker – losing its name, and lawyers, in the process.

Effective from April 30, the Hong Kong firm is now known as ‘Koo and Partners – in association with Paul Hastings’, and will lose the ‘Koo and Partners’ name completely in three years time when the merger is formally approved.

With an application already submitted to the Chinese authorities to rename Koo and Partners’ Beijing office ‘Paul Hastings’, the Hong Kong firm has effectively been bought out by its US colleagues.

But senior partner Donald Koo, who will assume the role of Office Chair of the Hong Kong and Beijing offices of Paul Hastings, rejects suggestions that his firm will suffer from a lack of identity from the tie-up.

“Our clients are quite sophisticated,” he says. “We have already informed them about the merger and they have welcomed the idea of getting international support and services.”

One man who did not welcome the idea was Koo partner Anthony Chan. His partners’ decision to seal a merger with Paul Hastings spelled the end of his practice at the Hong Kong firm.

“Personal reasons” were cited by Chan as the reason why he quit Koo on the day of the merger announcement, but he later told ALB:

“This is a bit sensitive, but the partnership voted for it and I was bound to follow that. I do substantial referral work with the US so it wasn’t really feasible for me to stay on. I just felt it was time to make a move to a different firm, quickly.”

Chan, who specialises in project and asset finance, telecoms, aviation and commercial work, has since joined UK firm Barlow Lyde & Gilbert, where he will help develop the non-contentious side of its practice in Hong Kong and Shanghai.

Donald Koo did not wish to get drawn into Chan’s reasons for leaving, other than to say that he left “on amicable terms” and that “the departure was his own choice”.

Realignment
Others will not be so fortunate. Koo says his firm will realign its practice with Paul Hastings’ “strategic direction” to focus on corporate, commercial and banking work.

A press release on the Paul Hastings’ website quotes Koo saying: “The new focus of the combined practice means there will be jobs and staff portfolio displacement in Hong Kong”.

Asked what that meant, Koo says: “The other side of the coin with trading up our practice is to trim some areas. We are looking to phase out our low-end legal services like conveyancing.”

His comments come amid reports of discontent among some of the remaining partners at Koo. Chan is not surprised. “If you’re a lawyer in any firm going through a merger, that causes a lot of worries,” he says. “If you change people’s employment terms, that also is a worry.”

But Chan believes his old firm is doing the right thing. He says: “It was an opportunity to trade up the practice and this is the way forward for every firm, especially a young one. But it remains a great firm and will have a great time with Paul Hastings.”

The pairing of a US firm and local firm is unusual in Hong Kong, where UK firms have traditionally had a strong presence. Opportunities for the two firms to join forces to secure China-related work on the heels of the mainland’s WTO accession has been cited as driving the union.

Announcement of the merger follows the recent news that Koo and Partners is in the first batch of ‘second office’ licences awarded by China’s Ministry of Justice. The firm has an office in Beijing, and had targeted Shenzhen for its second base. However, Koo says: “Given the dominance of Shanghai and the fact that we were going to combine with an international law firm, we decided that Shanghai should be our choice.”

China
The move by Paul Hastings has highlighted the importance of opportunities in China to foreign firms’ international strategies. It is a quick way to establish local credibility, says Chan, “and that is why it is the correct move for Paul Hastings”.

“As a principle,” he says, “I guess US firms are looking to acquire local practices. It is the trend, but at the end of the day it really depends on whom you have in the firm to bring the fruits of the labour. Critical mass is getting more and more important. But the question is whether you have the right critical mass for China.”

Chan adds: “There will always be potential suitors and likely targets, although less so now. Hong Kong has gone through a very difficult time in recent years and so it’s not easy finding suitable practices.”

DLA partner Mabel Lui agrees: “I have seen this trend for American firms that wish to be in Asia, coming in and seeking out local partners. But the local potential candidates are drying up.”

Because of this, Lui’s colleague Stewart Crowther believes it was not surprising that Paul Hastings jumped at the chance of a tie-up with Koo. He says: “Koo’s connection with the Bank of China makes it a very attractive choice for Paul Hastings. You can understand why they’d be interested.”

Although the number of potential merger candidates on the ground in Hong Kong maybe few and far between for US firms, Baker & McKenzie’s managing partner David Fleming recommended caution.

In light of Linklaters’ Dutch member firm severing all ties with the UK firm, Fleming says: “I assume it is a deliberate strategy for a new entrant to the market as it is probably the most direct way to establish a presence and develop expertise. But while it is a strategy, it certainly comes with great challenges as you are merging entities with different cultures.”

Paul Hastings, meanwhile, is one of the largest firms in the US, with more than 840 attorneys in seven cities across the country. The merger will give the firm a significant leg up into Asia, adding a Hong Kong and Beijing presence in addition to its Tokyo office.

Koo and Partners, founded in 1993 to specialise in banking and finance related legal services, is a relatively young player in the Hong Kong legal market. It has more than 100 lawyers on staff and has developed practices in the areas of building and construction, litigation and dispute resolution, restructuring and insolvency, insurance, information technology and China-related law.