Up at the altar, but not quite married

Celebrations were slightly muted at the offices of Coopers & Lybrand and Price Waterhouse on Wednesday last week, even though the European Commission had blessed the pair’s planned marriage.

It’s been a difficult 10-month engagement, but the end is in sight. Come the beginning of July – insiders say the real party will be based around the US’s Independence Day celebrations – ?Newco? will become reality.

It’s not too late for the whole deal to fall apart. It’s never too late. Arthur Andersen’s audacious bid to take over Coopers’ Brazilian firm is a clear sign that major problems still exist. Andersens is also said to be in talks with Coopers in Spain and Sweden – both partnerships that have been far from forthcoming in their praise of the merger.

But Coopers and PW are still snowballing towards unity and the status of being the world’s undisputed number one provider of business services.

Come July, and whether it’s called Price Waterhouse Coopers, Coopers PW or whatever, the world will be witness to a firm with global fee income of #8.2bn, 850 partners and 135,000 staff. It will be literally billions of pounds ahead of its nearest rival, Ernst & Young, which tipped the scales last year at just #5.7bn.

So why weren’t Coopers and PW cracking open the champagne last week? Quite simply, because the hard work starts now.

With just six weeks to go before the self-imposed 1 July deadline, the firms must mould an effective organisational structure out of their two different business frameworks, make dozens of key appointments to head up business lines, reveal the combined firm’s new name to a curious client list and convince those clients that things are not just going to be the same, but they are going to improve dramatically.

It’s a tough call, but by no means impossible, especially given that the betrothed have been working on the merger for almost a year.

But little wonder it was a quiet celebration. More a sigh of relief, in fact, as for several months the rival merger between Ernst & Young and KPMG threatened to spoil everybody’s party.

Two of the Big Six merging was one thing, but for four of them to think about it set alarm bells ringing all over the world, and especially in Europe.

Merger spoilers and a host of big name finance directors claimed the double-whammy would cut choice down to an unacceptable level. Too often, they said, firms would be conflicted out, forcing FDs to use second-tier firms without global reach.

Added to that was the problem of sector dominance. Too many audits would be concentrated in too few firms.

When it came down to the European Commission’s decision, which followed approval by the rest of the globe’s regulatory authorities, audit was the sticking point.

As a statutory service there are few providers of audit work. For other services such as tax and consultancy, the Big Six faces stiff competition from a range of providers including lawyers, banks and, of course, the consultants.

The commission’s merger clearance report says about audit: ‘The existing high-degree of concentration in this market led us to examine the possibility of the creation of a position of single dominance, and also that of a position of collective dominance.’

It turns out Coopers and PW have the remaining Big Four to thank for their success. The commission’s report continues: ‘As far as single dominance is concerned, from data concerning both market shares and the outcome of the Big Six competitive bidding activities over a period of years, the commission found the merged firm will be constrained by the competitive behaviour of the remaining four.’

The threat of collective dominance was dispelled by a slow-growing market, lack of price sensitivity, homogenous service and a ‘low rate of innovation’.

It doesn’t make audit sound glamourous, but then nobody said it was. It also shows how Coopers and PW successfully argued there is more to accountancy than just audit.

As the firms enter a period of unprecedented change there is bound to be some fallout. The high-profile appointments to lead ‘Newco’ made many months ago are unlikely to have a major impact on the rank-and-file workers.

Instead it is the partners appointed to run the different business lines who hold the key to the firm’s continued profitability, growth and staff contentment. Rumblings of disquiet are already emerging among staff of both firms as to ‘who the new boss will be’.

Little wonder then that the firms plan to release a list of second-tier appointments as soon as possible. And with just six weeks to examine each other’s books, client lists and ensure a smooth transition Coopers and PW face their greatest challenge yet.

It is a challenge they must meet successfully in order to prove they really are the best firm in the world.

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