Oct. 29 (Bloomberg) -- The management committees of Lovells LLP, the U.K.’s sixth-largest law firm, and Washington-based Hogan & Hartson LLP recommended that their partners approve a merger that would create one of the world’s biggest law firms.

The combined firm would rank third by number of lawyers, with about 2,500, and eighth by revenue, with as much as $1.8 billion, according to figures compiled by the American Lawyer, a trade magazine. The firm would have 40 offices in the U.S., Europe, Asia, Latin America and the Middle East, Lovells and Hogan said today in a joint statement.

“This would be the first transatlantic merger of two top- 30 global law firms, creating a unique global firm covering the U.S. and other international markets,” Hogan Chairman J. Warren Gorrell Jr. said in the statement.

Both firms have strong corporate, merger-and-acquisition, finance, regulatory, dispute resolution and intellectual- property practices, said Lovells Managing Partner David Harris.

The proposed firm aims to be “genuinely global” and to continuously increase its breadth and depth in the U.S., the U.K., Europe and Asia, said Tony Williams of London-based Jomati Consultants LLP. Williams advised Hogan on the strategic aspects of the U.K. and international markets.

The merger proposal reflects a recognition that clients in the Fortune 100 have stronger international presences than ever before -- and are at the same time looking to use fewer primary law firms, Williams said today in a phone interview.

‘Level of Quality’

“There’s never before been a merger of two firms of this level of quality,” Peter Zeughauser, chairman of Newport Beach, California-based Zeughauser Group LLC, said today in a phone interview. He predicted that the merged global platforms “should attract quite a bit of work.”

Zeughauser, who advised Lovells on its assessment of the U.S. market, hailed Hogan’s “pre-eminent” regulatory practice in Washington and its New York corporate practice.

Lovells, based in London, is advising the trustee of Bernard Madoff‘s estate on asset-tracing matters in Europe, the government of Iceland on a $2.1 billion recapitalization of its banks, and BTA Bank in Kazakhstan on asset-recovery work in its restructuring, according to the firm. The firm’s clients also include the property and development company Segro Plc, Morgan Stanley, Citigroup Inc. and Jefferies International Ltd.

Clinton, Wolfowitz

Hogan last month lured attorney Robert S. Bennett from the firm Skadden, Arps, Slate, Meagher & Flom LLP. Bennett, 70, is a defense lawyer whose clients have included former U.S. President Bill Clinton; Paul Wolfowitz, former president of the World Bank; and the accounting firm KPMG LLP. The firm’s partners included John Roberts, before he became chief justice of the U.S. Supreme Court in 2005.

The managements of Hogan and Lovells will ask partners to approve the merger, the firms said in their statement. Voting is expected to take place in mid-December, with a target for completing the merger by May 1, according to the statement.

One of the possible obstacles to gaining full approval for the merger is deciding on a compensation model. Lawyers at Lovells are paid primarily based on seniority, or lockstep, while Hogan lawyers are paid mainly based on performance.

‘Groundbreaking Proposition’

“There’s never a merger without challenges, but this is a sufficiently exciting and groundbreaking proposition, and the pie is sufficiently big that I’m sure there will be flexibility all around” when it comes to working out a compensation model, Williams said.

If completed, the merger will likely spur other discussions between U.S. and U.K. firms, according to Sheena Brand of Hong Kong-based legal management consultants Professional Development Asia Ltd.

“Strategically, the merger makes a great deal of sense,” New York-based legal consultant Bruce MacEwen said in an interview today. “And if they get the synching of compensation models right at the beginning, when enthusiasm for the deal is at a peak, they’ll be well on their way.”

The merged firm will likely move away from lockstep toward merit-based pay, and many lawyers will leave in the first year or two, said MacEwen, who isn’t involved in the merger talks.

“If you were a beneficiary of lockstep and your compensation declines under a merit-based system, you have two choices: Step up your performance or find a new home,” MacEwen said.

To prepare for the next round of voting, partners at each firm will receive a prospectus explaining the rationale for the merger as well as the respective firms’ policies on matters such as technology, professional staffing and compensation, according to Zeughauser.

‘Secret Sauce’

“When you have two successful firms talking about merging, they worry, ‘Are we going to screw up our secret sauce?’” Zeughauser said. “Because partners are lawyers, they want to know all the details.”

Lovells had revenue of 531 million pounds ($849 million) during the year ended April 30, according to the firm.

Hogan, with revenue of $922.5 million in 2008, was 22nd among U.S. law firms, according to the American Lawyer. Average partner profits were $1.16 million at Hogan and 586,000 pounds at Lovells.

Both firms have offices in New York, London, Brussels, Beijing, Hong Kong, Moscow, Munich, Paris, Shanghai, Tokyo and Warsaw, as well as other cities around the world.

To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net; Cynthia Cotts in New York at ccotts@bloomberg.net.

Last Updated: October 29, 2009 17:00 EDT