Merger Collapse – FDs’ sigh of relief

Business leaders welcomed the collapse of merger talks between KPMG would have brought down competition in the market. and Ernst & Young claiming it was a victory for common sense.

The 100 Group of top finance directors claimed the decision would benefit all large organisations that used Big Six firms as auditors.

Christopher Pearce, the group’s chairman, said competition between the major accountancy firms would have been restricted if the merger had gone ahead. ‘It’s good news. We have said from the beginning these mergers restrict choice, particularly in audit and audit-related services like due diligence,’ he said.

The Financial Services Authority, the new City watchdog, is also understood to be relieved that a sharp decline in the number of reporting accountants available to banks and other financial institutions has been halted.

But an insider said there was still concern accountants operating in the City would face increasing conflicts of interest should the Price Waterhouse merger with Coopers & Lybrand go ahead because PW had a large slice of the audit market among large banks.

The FSA’s fears were supported by comments by a senior source in one of the firms to call off their merger who said the decision would benefit their audit and forensic accounting departments.

‘Conflicts of interest are very important to us,’ he said. ‘We were concerned when the Bank of England said its use of Section 39 reports could be compromised by the mergers. We could have lost a lot of work in that area, but now if the Coopers/PW merger goes ahead there will be even more work as we pick up the spoils from their conflicts.’

The 100 Group is believed to have told the European Commission the two mergers would be anti-competitive.

FDs feared the steady decline in audit prices would end as the Big Four operated almost as a cartel. In some cases, they argued, bids for work could be restricted to one or two firms after conflicts of interest forced rivals to drop out.

Related reading