Norwich Union deal may cost E&Y £5m client.
Ernst & Young could lose out to PricewaterhouseCoopers following the £19bn planned merger of insurance giants CGU and Norwich Union. Although the deal is billed as a merger of equals, CGU is slightly larger than Norwich Union. It is valued at £10.4bn compared to its rival’s £8.4bn. And the move could see E&Y miss out on more than £5m in fees from its audit of Norwich Union if CGU auditor PwC picks up the audit of the combined company. E&Y took £1.7m in audit fees plus £3.82m in non-audit fees, according to the insurer’s 1999 annual report. PwC, which won the audit contract for CGU when the company emerged from the link-up of Commercial Union and General Accident in June 1998, made £18.8m – including £3.7m in audit fees – from its work last year with CGU. CGU’s Peter Foster, who was chosen to remain as finance director following Commercial Union’s merger with General Accident in June 1998, has already been made finance director for the merged group. Norwich Union FD Michael Biggs will take over the general insurance side of the business. The deal is expected to be accounted for as an acquisition under FRS 6 and could see the combined group take a goodwill hit on the difference between what is paid for Norwich Union and its book value. A spokesman for Norwich Union said a decision on auditors for the new group would be taken in May or June.