Deals face EU probe

European competition authorities are set to take a tough line overoming from the EU and US, while Jonah Bloom discovers that merger mania has a bloody history. merger plans set out by four of the Big Six accountancy firms.

The decision by Ernst & Young and KPMG to merge following a similar announcement last month by Coopers & Lybrand and Price Waterhouse will spark a thorough investigation, a spokesman for EU competition minister Karel Van Miert said this week.

But a preliminary examination of the deal is likely to be delayed until next month because the firms have yet to lodge an official notice of their intentions with the commissioner’s office.

‘They usually call our people very soon after they go public, but we are still waiting for them to send in the details. We assume they want to sell it to their partners before they come to us,’ said the spokesman.

He also said any inquiry would take into account both merger plans, fuelling reports that E&Y’s merger plans with KPMG are an attempt to push the competition regulators into a full-blown inquiry of the Coopers/PW deal.

Under EU regulations, the commission is given one month to decide if the merger proposals breach competition rules. A further four-month probe is carried out if officials believe the deal needs closer scrutiny. The deals will be put on hold once the investigation starts.

The spokesman emphasised that officials have already collected information on the market for accountancy services. Audit services are likely to come under the closest scrutiny.

‘We will produce a breakdown of the markets they operate in – on a regional level and on a industry-by-industry level for instance – to see if they have a dominant position that breaks the rules,’ he said.

The decision to look at particular markets could force the merged firms to spin off part of their business, even if it fails to scupper the deals altogether.

The Big Six are particularly dominant in the UK. They are also dominant in industries such as financial services.

But attempts by the EU to draw a ring around large companies, using measures like the FTSE 100, are likely to be challenged as arbitrary. E&Y already dominates the audit business in the oil and gas industry, while KPMG can lay claim to the largest slice of the banking sector.

In the US, the Department of Justice anti-trust unit is already looking at the proposed merger of Coopers and PW. A spokesman for the department said this week it was too early to say if the planned merger of E&Y and KPMG would be investigated, but hinted that the effect of a Big Four would at least spur a preliminary investigation.