THEN THERE WERE FOUR
As recently as September, Ernst & Young Chairman Philip A. Laskawy said he had no appetite for a merger. But after the Sept. 18 report that Price Waterhouse and Coopers & Lybrand would merge, Laskawy got hungry. That day, he approached Deloitte & Touche, says Deloitte & Touche Tohmatsu International Chairman and CEO Edward A. Kangas. When that didn't work, Laskawy called KPMG Peat Marwick Chairman Stephen G. Butler on Sept. 25. And on Oct. 20, the firms announced plans to merge. What once was the Big Eight is now becoming the really Big Four.
But please don't call them accountants. These new giants are being created to pursue the fast-growing ''professional services'' business--a combination of auditing and such services as high-tech consulting. The new Ernst-KPMG entity will be top dog, with $18 billion in revenues, says Laskawy, followed by Price-Coopers, Andersen Worldwide, and Deloitte & Touche. Executives at the merging firms say they simply need more bodies to meet clients' needs for services worldwide. Says James J. Schiro, CEO of Price Waterhouse: ''There is an almost insatiable demand for intellectual capital.''
CONFLICT OF INTEREST? But will supersizing pay off? ''It's not like manufacturing ball bearings, where there are obvious synergies to combining,'' says Robert Willens, tax and accounting expert at Lehman Brothers Inc. And the distraction of merging could give second-tier firms an opening. Says Richard A. Stuart, partner at Grant Thornton: ''We're not exactly turning back flips, but we're pretty excited.''
There is also the question of conflicts of interest. Will the new giants, for example, go easy on audits in hopes of winning consulting work? ''This creates much more compliance between auditors and clients,'' says Melvyn I. Weiss, senior partner at Milberg Weiss Bershad Hynes & Lerach. KPMG's Butler says it's not a concern: ''Our auditors are extremely professional and independent.''
A more present danger: the Justice Dept., which may scrutinize the deals to make sure audit prices don't rise. But clients have raised few red flags. Indeed, Brad Hintz, chief financial officer of Lehman Brothers Holdings Inc. and an E&Y client, says he's ''quite optimistic'' about lower fees.
For now, Andersen Worldwide is mum about merger plans, and Deloitte & Touche says it has no interest. ''It diminishes competition,'' says Chairman Kangas. ''And it can cause too many conflicts of interest.'' Sour grapes--or sage advice?
By Jennifer Reingold in New York, with Richard A. Melcher in Chicago
Updated Oct. 23, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.