March 18 (Bloomberg) -- Linklaters, a London-based law firm that ranked second in providing legal advice for international takeovers last year, is in talks to merge with Mitsui, Yasuda, Wani & Maeda, to gain access to Japan-qualified lawyers.

The two firms have held discussions that may lead to a merger, said Mitsuhiro Yasuda, a Mitsui, Yasuda partner, in an interview. Talks may resume after Linklaters concludes its global partners' meeting next month, Yasuda said, adding that a law permitting such tie-ups goes into effect next year.

Corporate mergers involving a Japanese buyer or seller rose to $78.8 billion last year from $49 billion in 2002, Bloomberg data shows. International firms without Japan-qualified partners are at a disadvantage in competing for such business, as well as advisory work on stock and bond sales, lawyers said.

``Global law firms who don't have Japanese law capabilities will find themselves at a competitive disadvantage once the law comes into effect,'' said John H. Steed, chairman of the Tokyo office of Paul, Hastings, Janofsky & Walker LLP. ``It'll be helpful to clients because of our ability to deliver seamless service'' regarding Japanese law issues, he said.

Linklaters is searching for Japanese partners to work on cross-border mergers, in part because its business has been restricted by the absence of locally qualified lawyers, said Tony Grundy, a Tokyo-based partner at the U.K. firm. Grundy declined to comment on whether Linklaters may merge with Mitsui, Yasuda.

Linklaters, which has 500 partners worldwide, advised on 129 international mergers last year, valued at $53.7 billion, or 15 percent of the cross-border merger market, according to Bloomberg data. Clifford Chance, which also has its headquarters in London, ranked first among international mergers advisers.

Alcan, Pechiney

Linklaters' biggest transaction last year was Canada-based Alcan Inc.'s purchase of France's Pechiney SA, valued at $6.2 billion, which created the world's second-largest aluminum producer.

Mitsui, Yasuda has 76 attorneys -- only three of whom are members of a foreign bar association, according to its Web site.

Chambers & Partners, which ranks the world's top law firms, placed Mitsui, Yasuda sixth among Japanese firms in providing mergers and acquisitions advice. The firm was ranked behind two rivals in capital markets coverage, Chambers & Partners said in its 2003-04 rankings posted on its Web site.

Anderson Mori, Nagashima Ohno & Tsunematsu, Nishimura & Partners and Mori, Hamada & Matsumoto -- Japan's four largest law firms -- rank among the top four in most categories.

Anderson Mori, which employs more than 120 attorneys, has the highest proportion of foreign clients among all Japanese law firms, Chambers & Partners said on its Web site. The firm's clients include International Business Machines Corp.; Shinsei Bank Ltd.; Goldman Sachs Group Inc.; Morgan Stanley; and J.P. Morgan Chase & Co., it said.

`Stronger Connections'

``Some of the top Japanese law firms involved in finance matters may want to become a part of larger international organizations to get stronger connections,'' said Osamu Inoue, an attorney at Tokyo-based Ushijima and Partners. ``The benefit is references and assignments that will be referred to them by overseas head offices.''

Some foreign law firms, such as Baker & McKenzie and Morrison & Foerster, have established so-called Qualified Joint Enterprise Offices with Japanese counterparts to advise both overseas and local companies in an international transaction. They have to maintain separate operations and accounting records.

The law that will go into force by the middle of next year will allow full mergers, Yasuda said.

``We see big possibilities in mergers and acquisitions activities involving foreign companies in Japan,'' Yasuda said. ``The Japanese market will need merged firms that can provide good services in financing and corporate matters to foreign investment-banking customers.''

To contact the reporter on this story: Rajat Bhattacharya in Tokyo at rbhattachary@bloomberg.net

Last Updated: March 17, 2004 22:20 EST