Ernst & Young, KPMG Peat Marwick to merge New company would be largest accounting, consulting firm in world; Financial services


NEW YORK -- Ernst & Young LLP and KPMG Peat Marwick LLP said yesterday that they will merge, forming the world's largest accounting and consulting firm.

The companies expect the merger to be completed by the start of next year. The merged company, which has not yet been named, will operate in 135 countries.

The two firms are combining as mergers sweep the financial services industry. Banks, brokers, insurers and accountants are trying to boost profits and slash expenses by combining.

"The real emphasis now is to service the needs of global companies wherever they want to go in the world," said Stephen Butler, chairman and chief executive officer of the U.S. operations of KPMG, who will be the CEO of the new firm's U.S. operations. "Our clients require an organization that has greater financial strength and can deliver a wider array of services and products."

Together, Butler said, the combined company will have the money needed to invest in technology and in building accounting and consulting practices in China, the former Soviet Union, Latin America and Asia.

While the firms separately have seen revenue grow by 20 percent a year, Butler expects the combined company can grow by 30 percent annually.

The new firm will be run by Colin Sharman, who is now worldwide chairman of KPMG. Michael Henning, currently Ernst & Young's worldwide chief executive, will be the CEO of the merged firms. Philip Laskawy, U.S. CEO of Ernst & Young, will be chairman of the combined U.S. operations. The worldwide headquarters will be in Amsterdam, Netherlands.

The companies have been in talks since Sept. 25, Sharman said at a news conference in London. "The timing is of course influenced by the recent announcement of the merger of Price Waterhouse and Coopers & Lybrand."

The merger will move the new company ahead of industry leader Andersen Worldwide in terms of both revenue and partners. KPMG and Ernst & Young had combined revenue of $18.8 billion in fiscal year 1997 and will have 163,250 employees and 12,800 partners worldwide. Andersen's 1997 revenue is estimated at $11.3 billion.

The merged firm would also outdistance the combination of Price Waterhouse and Coopers & Lybrand LLP whose merger was announced last month. If both mergers are completed, the so- called Big Six accounting firms would be whittled down to four.

"There is magic in being the biggest," said Rick Telberg, editor of Accounting Today, a trade magazine for the industry based in New York. "You can stand still and business comes to you."

The combined firm will focus on a few industry groups as clients, Butler said: financial services, health care, information systems, communications and entertainment businesses. Ernst & Young is known for its health care accounting and consulting business and KPMG is among the biggest accountants for financial services companies.

The combination will require approval of the firms' partners, who analysts expect will support the deal, and regulators, including the U.S. Securities and Exchange Commission and Justice Department and European agencies.

The firms don't expect regulatory problems. The partners will vote on the combination in late November or early December.

Some clients will likely leave, said Jay Nisberg, an accounting industry consultant based in Ridgefield, Conn. Some companies wouldn't approve of sharing auditors with competitors, although it isn't unusual for accountants to serve more than one company in the same industry.

Pub Date: 10/21/97

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