Preston Gates exploring merger

The oldest and most well-known law firm in Seattle may not be based here for long.

Preston Gates & Ellis announced yesterday that it is holding merger talks with Kirkpatrick & Lockhart Nicholson Graham, a Pittsburgh-based firm that has more than twice the revenues and double the attorneys of Preston Gates.

Kari Glover, the managing partner of Preston Gates, declined Monday to say which firm initiated the talks and said much work remains to be done before either side can decide whether to combine.

Still, Glover said that both firms hope to complete their due diligence on one another and, if talks are successful, to deliver merger proposals to their respective partnerships before the end of the year.

"It's early, but it's fair to say we need to know more," Glover said in an interview. "We're kind of excited about exploring it. There's enough natural complementary things about the two firms that it's a discussion of interest to us."

The merger talks received an early and vital endorsement from Preston Gates' most important client.

"Microsoft has deep ties with the Preston firm and these will clearly continue, whether there is a merger or not," said Brad Smith, Microsoft senior vice president and general counsel.

Preston Gates is well known for its close ties to Microsoft — and not simply because one of the firms' namesakes, Bill Gates Sr., is the father of Microsoft's chairman.

Preston Gates played a major role defending the company in its U.S. antitrust case. That work has tapered down, and the company has since increased the number of in-house lawyers who handle antitrust compliance.

Still, Bill Neukom, who served as Microsoft's top lawyer for 17 years, rejoined Preston Gates in 2002 and was named the firm's chairman in 2004.

Some members of the Seattle business community were more skeptical about the potential merger.

One Preston Gates client, who asked not to be named, said he was not excited about the prospect of the firm's headquarters moving to the East Coast.

"Anytime you have an out-of-state acquisition you lose local character," he said. "As a small business I personally would prefer to work with a locally based company."

Preston Gates attorneys quietly disclosed to key clients Monday that merger talks were going on, but Glover said the firm decided to make a public announcement because as talks advanced, more members of the firm needed to be involved.

Specifically, members of the two firms' various practice areas will be talking more intensely in coming weeks to assess chemistry, complementary areas of expertise and potential conflicts of interest.

Glover said the key will be whether a combination would improve Preston Gates' attractiveness to its clients.

"We'll look at growth, if we can enhance the kind of services we offer," she said. "Can we be a better firm? Will they find us more attractive?"

Geography is one obvious reason why a combination could make sense. Preston Gates has offices up and down the West Coast and in three locations in Asia.

Kirkpatrick & Lockhart has a strong East Coast presence as well as a large and growing office in London, which it touts as "one of the largest London offices of any Anglo-American law firm."

A strong European presence would likely be a boon to Microsoft, which has had its share of conflicts with European Union regulators in recent years, and more could be on the way.

The Wall Street Journal reported last week that Adobe Systems and Symantec have asked the EU to take action against Microsoft's new Vista operating system for features they complain will undercut their document-reading and security software, respectively.

Seattle Times reporter Brier Dudley contributed to this report. David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com

A merger of (un)equals?
Preston Gates & Ellis is a big dog on the West Coast, but it is less than half the size of its Pittsburgh-based suitor
	2005 revenues	Change from 2004	Size rank in U.S.
Kirkpatrick & Lockhart Nicholson Graham	$469 million	+26%	45th
Preston Gates & Ellis	$196 million	+7.7%	106th
Source: American Lawyer magazine