EC statement on Deloitte/Andersen

In a statement released today the EC said: ‘The European Commission has granted regulatory clearance to the proposed acquisition of most of Arthur Andersen UK’s business by UK-based Deloitte & Touche.’

The Commission examined the merger’s impact particularly for large companies quoted on the London Stock Exchange, which tend to choose one of the Big Five players to audit their accounts.

It concluded that the disappearance of Andersen UK was inevitable in view of the serious problems facing Andersen US, which has been convicted of obstruction of justice in a US probe into the collapse of energy trader Enron.

The statement read:

‘A number of UK customers also defended that the acquisition was preferable to the disorderly disappearance of the UK Andersen partnership.

‘On May 29, Deloitte & Touche UK, requested regulatory clearance from the European Commission for the acquisition of the various assets ofAndersen UK which comprise equipment, furniture and leashold properties andthe rights under service contracts.

‘D&T is also offering partnership or employment to most partners and employees of Andersen UK. This acquisition must be seen in the context of the disintegration of Andersen Worldwide following the Enron bankruptcy and the ensuing damage for Andersen US, which audited the company’s accounts.

‘Earlier this month Andersen US was convicted of obstruction of justice in the US government probe of the Enron collapse.

‘As a result, Andersen’s national practices worldwide have sought separatelyto join one of the other four big players : PriceWaterhouseCoopers (PwC),KPMG, Ernst & Young and D&T. Andersen France and Andersen Germany, forexample, have in the meantime separately teamed up with Ernst & Young. Asfar as the European Union is concerned, some of these deals will be examinedby the European Commission whereas others will be looked at by nationalcompetition authorities depending on their size.

‘In the present operation, the Commission examined the acquisition’s impactin the United Kingdom and particularly regarding the market for audit andaccounting of large quoted companies, which usually use the services of theBig Five.

‘The Commission asserted that there was no danger of a creation of a singledominant position given that Andersen and D&T are the smallest of the Fivein the UK. PwC is by far the biggest firm in audit fees, followed by KPMG,E&Y, AA and D&T whether the market concerned is the FTSE 100 or FTSE 350firms.

‘However, the Commission also examined the extent to which there could beconcerns about the reduction to four of the big auditing firms as it haddone in 1998, in the examination of the merger between Price Waterhouse andCoopers & Lybrand, prior to which there were six big firms.

‘A careful analysis has shown that although Andersen UK might be able tocontinue as an independent audit and accounting services firm for smallerclients, it could no longer service its large clients. Large clients demanda global network, a high degree of international expertise and a reputationthat only the remaining Big Four firms can offer. Andersen Worldwide wasable to offer this, but Andersen UK on its own cannot.

‘Therefore, and as far as large, quoted clients are concerned, a reduction tofour was inevitable and would have occurred whether Andersen UK was takenover or simply desintegrated.

‘The acquisition of Andersen UK by second-tier UK auditing firms, such as BDOor Grant Thornton would not be able to replicate a global network and thereputation required to enter the market for quoted and large companies.It should be noted that a number of Andersen UK’s customers expressed theview that the merger between Deloitte & Touche and Andersen UK would bepreferable to a situation whereby Andersen UK’s partners, teams andexpertise would be spread around in a disorganised manner.

‘Taking all these elements into consideration, the Commission concluded thatthere were no grounds to begin an in-depth investigation and cleared theoperation.’