Henry Kravitz on Line One?

Is there anything interesting to be said of the potential Pillsbury/Shaw-Pittman merger? 

Regular readers will know that I approach mergers with a jaundiced eye, given their frankly embarrassing track record of destroying rather than creating value in corporate-land.  And, as is also my wont, I ask why their record in law-firm-land should be any different.  (If anything, the common wisdom would have it that their track record should be worse among law firms given (a) the gnarliness of melding two or more partnership cultures; and (b) the extreme portability of each firm's primary assets—its key lawyers.) 

But I find myself viewing this proposed tie-up with a benign and charitable outlook.  Why? 

• Shaw-Pittman is a fundamentally sound, albeit low-visibility, firm.  True, its revenue has flat-lined since 2001 and it has suffered declines in headcount and profits per partner, but its outsourcing and Northern Virginia hi-tech practices are strong.  As one of their partners nicely put it, "We're proud of our firm.  But we're not as well-known as we should be."  Certainly compared to the outside-the-Beltway profile of a Covington or a Hogan & Hartson, this is true.  And the remedy, if Shaw-Pittman remains independent, is scarcely clear.
• Pillsbury, conversely, is amply capable and strong in California and in New York, but it lacks the third leg of the requisite US-national presence:  Washington.  Problem solved.
• According to an anonymous source, while talks are still underway, the truly difficult issues of management and compensation have been resolved, and the primary issue still on the table is the (relatively) innocuous one of client conflicts.

So the merger would achieve critical strategic goals for both firms:  Pillsbury gains instant Washington credibility and becomes poised to pursue its (clearly stated) expansion goals internationally; and Shaw-Pittman elevates its lawyers and practice groups to a national presence which, as I said, it's unclear they could so quickly achieve single-handed.

But all that deals with the merger qua the competitive positions of two law firms.  I have another, more fundamental, reason I think it's promising:  It reminds me of the 1980's LBO and recapitalization financial re-engineerings.  Huh, you're asking? 

It should not surprise you to learn that I view that era as one of the recent golden ages of creative destruction, where under-utilized and misallocated assets were liberated, albeit at times violently, into more productive uses.  (Cf. the European and Japanese experiences, where an insane proportion of companies are the walking dead, propped up by governmental and regulatory arteriosclerosis; and more pointedly compare the relative performance of the US and European/Japanese economies since then.) 

And the Pillsbury/Shaw-Pittman deal bodes well to achieve some of the same efficiencies and economies.  Pillsbury has a reputation for having centralized, bottom-line-oriented management that can be decisive and quick.  As Ward Bower of Altman-Weil puts it, "Pillsbury is a much more intense place."  KKR they're not, but all things are relative.

Bonne chance.