Hogan Lovells and Shearman & Sterling have called off merger talks that would have created a legal behemoth with more than 3,000 lawyers globally and revenue in the region of $3.6bn.

The firms revealed the decision not to proceed with what would have been one of the most significant - and ambitious - law firm mergers to date in a joint statement late on Thursday (2 March).

The move to end talks comes as Shearman's 20-strong Munich office, led by partners Florian Harder, Florian Ziegler and Jann Jetter, decamps to set up a Munich arm for Morgan Lewis. The departures, which were confirmed by Morgan Lewis this morning, are the latest of a series of defections from Shearman's European and Middle East offices in recent months.

It was in Germany that news of the merger talks with Hogan Lovells first surfaced, courtesy of a report in German legal news specialist Juve in December.

“Our firms have been in preliminary and exploratory conversations regarding a possible combination," the two parties confirmed in their statement. "After careful consideration, we have mutually agreed that a combination at this time is not in the best interest of either firm. We have been deeply impressed with each other’s business, practices and people and wish each other continued success.”

Tony Williams, principal of Jomati Consultants, said: “This shows the complexity of big deals; it is why we see so few. Large law firm mergers are horribly complex, there are so many moving parts and potential conflicts between different practice areas and offices. Also, lawyers are trained to see the downside of everything and getting them to appreciate longer term gains can be very difficult.”

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There was an evident strategic logic to the deal, given the two firm's complementary strengths in the US and the prospects of Washington DC-based Hogan Lovells' market leading regulatory practice combining with Shearman & Sterling's traditional Wall Street practices, including its coveted status as elite M&A advisers.

However, there were also significant areas of overlap, not least across both firms' international networks and including in London, where Shearman's longstanding City arm is dwarfed by Hogan Lovells' London office, a legacy of the merger between top 10 UK firm Lovells and Hogan & Hartson in 2010 to create the transatlantic firm.

A flurry of partner departures in London from Shearman suggests the office may have been unsettled by the talks, even if Hogan Lovells would have regarded its transatlantic transactional prowess as complementary. Last month, Shearman’s EMEA and Asia M&A head Phil Cheveley left for Sidley Austin shortly after restructuring partner Helena Potts moved over to Paul Hastings. 

This week it has been reported that heavyweight finance duo Korey Fevzi and Philip Stopford are heading for Cravath Swaine & Moore to start a UK law practice for the elite Wall Street firm. Partners have also left Shearman’s Paris, Dubai and Abu Dhabi offices in recent months for rivals including King & Spalding and Gibson Dunn & Crutcher.

Last month, meanwhile, Hogan Lovells posted a muted set of financial results, underlining the challenges it faces navigating difficult global markets. 

Global turnover at the firm fell 6.7% to $2.43bn against an 8.2% drop in PEP to $2.28m. While a merger with Shearman would have handed the firm greater heft in New York - an enticing proposition - the challenges associated with bedding down such a deal would have been legion.

Williams said: “On paper, I wouldn’t criticise the firms for having the discussion, it seemed thoroughly sensible and you could argue that the leaders would be failing in their duties not to explore the opportunity. And both firms should be given credit for ending the discussions quickly and professionally.”