Merger plans face EC hurdle

Clearing the regulatory hurdle of the European Commission is one of the biggest challenges facing the four Big Six firms planning to merge.

Partners in Coopers & Lybrand and Price Waterhouse around the world are due to complete their voting today, with results due in mid-December.

KPMG and Ernst & Young have yet to set a vote date, but both are confident of success.

If all goes well on the vote - and indications from insiders suggest partners will back the merger despite the odd dissenting voice - only the regulatory authorities will stand in the way of the global coming together. Submissions have already been made to the US and Australian regulators by Coopers and PW.

There is little doubt that both mergers qualify for scrutiny by Brussels, as they fulfill both of the Commission's criteria: aggregate worldwide turnover of over ECU5bn and community-wide turnover of more than ECU250m.

Yet, it is possible that in just four weeks after seeing the merger proposals, Karel van Miert, Europe's competition commissioner, will say the Commission has no objections to the marriages. Van Miert could release his initial findings at that time supported, theoretically, by the green light.

But what is far more likely, and surely too good an opportunity to miss, is that the Commission will launch an in-depth, four-month investigation into the merger plans.

Never before will an outside body have had such an opportunity to examine the financial nuts and bolts of four of the world's leading professional services firms.

The need to open their books to the regulators could be painful, particularly for PW which has increasingly withdrawn its national public financial statements over recent years. Tradition decrees accountancy firms are inscrutable when talking about their money.

Although the European examination will be conducted in secret, the European Council merger regulations state the Commission is empowered to:

- examine the books and business records (from the preceding financial year)

- demand copies or extracts from the books and records

- ask for an explanation on the spot

- enter any premises, land and means of transport of undertakings.

Failure to comply with the Commission's demands, the supply of misleading or incorrect information or breach of the Commission's decision could lead to a series of fines up to 10% of the aggregate turnover of the firms.

The submission process began in earnest last week for Coopers and PW's European firms as they dropped off a unique draft merger proposal to the Commission. It was a task made more complex by the need to translate it into each recognised European language and provide copies of each for the raft of officials who began their study of it immediately.

Background talks between the Commission and the firms have been going on since the merger was announced. But the draft, according to Coopers, will allow the Commission to get to grips with the complexities of the merger.

It is designed to ease the Commission's path when it looks at the final document - which Coopers say will contain 'a lot of data' - as it has not dealt before with a merger between partnerships or professional services firms.

A spokesman for Coopers said: 'The draft will reveal whether we have covered all the things the Commission is looking for. If it doesn't, we can add to it in the final submission. This document, which will put the facts rather than make an argument for the merger, will be made in a week.'

For its part, the Commission has already completed a substantial amount of spadework into the background of the merger. It has split Europe into regions and sectors for the purpose of the merger and is likely to reach a verdict based on whether the merged firm will hold too much of a monopoly in any one of those areas.

While the firms are hoping for approval en bloc, the Commission can demand that certain countries or sectors, such as utilities, are excluded from the deal if it is to go ahead.

The arguments for the merger have been well-rehearsed by partners. Their public statements have insisted they do not hold a monopoly on financial services and are subject to competition from other firms, lawyers, banks and other providers.

The Commission is maintaining a diplomatic silence on the mergers until it has the full merger documents in. But it is keen to stress that the tie ups will be dealt with separately and on their own merits.

A spokesman, who denied the unique form of merger would pose a problem, said: 'We do not know exactly what kind of contract the firms will sign, but our examination of it will be based on the European merger regulations.'