Pillsbury, Madison & Sutro, an old-line San Francisco law firm that represents many of the city's bedrock corporations, and Lillick & McHose of Los Angeles said Monday that they have agreed to merge.
The union would be another in a wave of consolidations in the legal business, as firms have had to join forces to become more competitive. The merger itself is the largest ever, topping the 1989 joining of Houston's Fulbright & Jaworski with New York-based Reavis & McGrath.
Pillsbury, Madison & Sutro, with 454 lawyers, and Lillick & McHose, with 171, would together create the state's second-largest firm, after Los Angeles-based Gibson, Dunn & Crutcher, which has 674 attorneys. The merged firm would be the fifth largest in the nation.
Between them, the two are expected to have annual gross income of about $200 million, compared to Gibson Dunn's gross revenue last year of $280 million.
At news briefings in Los Angeles and San Francisco, T. Neal McNamara, chairman of Pillsbury, Madison & Sutro, said the merger will benefit both organizations because of their "complementary" geography and clients.
For Pillsbury, the union means quick strength in Southern California, a booming market for legal services where Pillsbury has had a relatively small presence, compared to Bay Area-based rivals such as Morrison & Foerster and Brobeck, Phleger & Harrison. Pillsbury, which has offices in six California cities and Washington, opened its Los Angeles office in 1986, years after other firms began building business there.
Lillick & McHose also brings to the union a high-quality roster of clients in the Pacific Rim, particularly Japan, where Pillsbury has very few clients. Lillick & McHose has offices in Los Angeles and San Diego, having split from what is now San Francisco's Lillick & Charles in January, 1989.
William K. Coblentz, a prominent San Francisco attorney, said of the merger: "It helps Pillsbury. It needs a presence in L.A."
For its part, Lillick & McHose would benefit from Pillsbury's greater financial resources and depth. Pillsbury numbers among its clients many of the elite corporations of San Francisco, including Chevron Corp. and Pacific Telesis Group. Lillick & McHose represents Security Pacific National Bank, Dai-Ichi Kangyo Bank, Union Bank and Wells Fargo Bank, among others.
According to observers of the legal scene, 115-year-old Pillsbury, once San Francisco's most prestigious firm, had suffered an erosion of profits in recent years because of complacency.
The firm has undergone a dramatic turnaround effort that included spending heavily on a much needed automation system. It has $30 million in debt as a result of that and the costs to open new offices. The debt was a prominent subject in negotiations with Lillick & McHose, which has financed its capital expenses with contributions from partners rather than borrowings.
Negotiations between McNamara and Charles Patterson, managing partner of Lillick & McHose, actually began in late 1987 but were tabled for two years. In January, they resumed. McNamara said Monday that more than 95% of the partners at both firms voted in favor of the merger.
McNamara said he does not expect a major shift of personnel to Southern California. "Contrary to many people, we still anticipate tremendous growth (in the Bay Area)," he said.
Steven Brill, editor and publisher of the trade journal American Lawyer in New York, said the merger is an example of a trend.
"What you're seeing is the mid-size firms in Los Angeles being wiped out," he said. Such firms have had difficulty hanging on to lawyers being lured by large New York-based firms in Los Angeles.
In 1988, for example, Baker & McKenzie, based in Chicago, absorbed the practice of Macdonald, Halsted & Laybourne, a mid-size firm with 70 lawyers in Los Angeles and San Diego.
The merged firm will be known as Pillsbury Madison Sutro Lillick & McHose in Southern California and Washington. In Northern California, however, it will be known as Pillsbury, Madison & Sutro because of restrictions imposed on the use of the Lillick name after its split from the rest of the firm.
The firm will be run by an eight-member executive committee, with McNamara as chairman and Patterson as vice chairman.
TOP 10 CALIFORNIA LAW FIRMS
The merged law firm of Pillsbury, Madison & Sutro and Lillick & McHose is expected to have gross revenue of about $200 million. Firms below are ranked by gross revenue for the most recent fiscal year.
Lawyers/ Gross revenues Rank Firm (City) Partners (in millions) 1. Gibson, Dunn & Crutcher (L.A.) 611/194 $280.0 2. Latham & Watkins (L.A.) 475/170 223.5 3. O'Melveny & Myers (L.A.) 449/145 198.0 4. Morrison & Foerster (S.F.) 481/168 168.0 5. Pillsbury, Madison 450/165 144.0 & Sutro (S.F.) 6. Paul, Hastings, Janofsky 356/112 123.0 & Walker (L.A.) 7. Brobeck, Phleger 339/98 121.0 & Harrison (S.F.) 8. Graham & James (S.F.) 313/124 85.0 9. Heller, Ehrman, White 274/104 84.5 & McAuliffe (S.F.) 10. Thelen, Marrin, Johnson 285/99 82.0 & Bridges (S.F.)
Source: American Lawyer's Am Law 100