Legal Services

July 2003

Foreign law firms eye merger & acquisition deals in Japan. Foreign law firms are hoping to expand their operations in what they see as a potentially lucrative corporate law market in Japan. Foreign companies merged with or acquired a total of 129 Japanese firms last year, a six-fold jump from 10 years earlier, a development that points to increased opportunities for foreign law firms. A special registration system for foreign lawyers allows foreign law firms to practice in Japan if they work with domestic law firms when they take on individual cases. Even though Japan's Big Five firms have yet to become involved in such deals, the number of such partnerships has totaled 27 since 1995. The Big Five Japanese law firms are Nagashima, Ohno & Tsunematu, Mori Hamada & Matsumoto, Nishimura & Partners, Anderson Mori and Asahi Koma Law Offices. Legislation is expected to be revised during the current Diet session to abolish the partnership system within two years. This would enable foreign firms to directly employ Japanese lawyers. If such Japanese lawyers become partners, the foreign firms can offer legal services under Japanese law on their own. Unlike investment banks that charge a fee equivalent to a certain proportion of the value of merger and acquisition deals, law firms charge by the hour, an arrangement which could be used flexibly to beat deflation and secure a steady earnings stream. When Vodafone Group Plc negotiated the sales of shares in Japan Telecom Co. to U.S. investment firm Ripplewood Holdings Llc, the British mobile phone company was represented by Linklaters and Anderson Mori, while Simpson, Thatcher & Bartlett Llp and Nagashima, Ohno & Tsunematsu handled the case for Ripplewood. After the above legislation is amended, foreign companies can have law firms in their home countries handle M&A cases in Japan without the participation of Japanese law firms, thereby simplifying the relevant procedures. The top 10 foreign law firms each employ over 1,000 lawyers and boast sales of over Y100 billion, eclipsing their Japanese counterparts which usually have staff of less than 200 and sales of just under Y10 billion. The situation might leave Japanese companies little choice but to partner with foreign law firms if they are to survive the shifting business environment. Nagashima, Ohno & Tsunematsu is considering boosting its staff to 300 within five to six years. Faced with the growing presence of foreign firms, will Japan's Big Five merge with one another or go under the wings of foreign companies? The answer to that question will become clear within a few years. (July 4, the Nikkei Financial Daily)