Ernst & Young can officially begin the difficult task of integrating some of its largest offices, after the European Commission cleared the proposed merger between Ernst & Young and Andersen in France and in Germany.
In Germany, the Commission decided at the end of August that the merger of the German businesses and associated law firms Menold & Aulinger and Andersen Luther would not lead to competition problems in the market, as the combined firm will still be smaller than both KPMG and PricewaterhouseCoopers. Then, on September 5, the Commission cleared the merger of most of Andersen France's business, leaving the path clear for the two to create France's biggest professional services firm.
The Commission decided that the French merger would not lead to competition problems for audit and accounting services to large and quoted companies headquartered in France, and that there was no danger of creating a single dominant position for the merged firm.
Christian Chochon, the president of the former Andersen, France and the deputy managing partner of the combined firm says: ?The Brussels agreement allows us to consolidate the decision taken several months ago to combine with Ernst & Young.?
The two firms requested regulatory clearance on July 7 this year for the amalgamation of Andersen's businesses including audit and accounting, tax and legal advice, and corporate finance with Ernst & Young. Andersen France's business consulting division was not included in the transaction.
The Commission cleared the merger for several reasons. First, Andersen France has lost clients because of the damage to Andersen's reputation. Second, both firms will probably lose clients anyway because French rules require a company's accounts to be subjected to two independent audits. In addition, the Commission's investigation indicated that most French companies launch tender procedures before appointing their statutory auditors, and that all of the big four firms would be credible bidders.
Finally, the Commission decided that even if the merger between Andersen and Ernst & Young did not take place, the big five would end up as four. This is because, as an independent, Andersen, with no global network, would not be able to compete with the other four professional services firms or provide multinational clients with the cross-border services they require.
According to Patrick Gounelle, the president of Ernst & Young, France, and the managing partner of the combined firm, the firm will not face difficulties with auditor independence issues. He says: ?We will attach great importance to maintaining equilibrium between our major professions, those of auditors and lawyers. We are convinced that specialization will meet the requirements of our clients, and the demands for transparency from the market and regulatory authorities.?
The Commission has already approved all of the other European Andersen mergers and integration is underway.
