#TBT: The Failed Merger of Ernst & Young and KPMG

In the late 1990s there were 6 major accounting firms serving our capital markets with gusto. Then, in September 1997 the firms of Price Waterhouse and Coopers & Lybrand -- #4 and #6 respectively -- announced they would merge, creating the largest and integritiest firm in the world. 

Not to be outdone, #2 Ernst & Young and #3 KPMG announced they would be merging, one month later:

"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 PW/CL deal closed in 1998, however the KPMG/EY deal went south only 4 months after the initial announcement:
KPMG Peat Marwick and Ernst & Young said Friday that they canceled plans to merge and create the world's largest accounting and consulting firm, acknowledging that regulatory hurdles got in the way.
 
The cancellation comes a week after the European Commission began an extended antitrust probe of the proposed merger, which would have created a firm with sales of $18.1 billion.
 
"The regulatory thing was turning into a complete nightmare," said a senior partner at Ernst & Young, who declined to be named. "When you added it all up, it was just going to take a lot of time, a lot of money and a lot of blood, sweat and tears."
 
EC Commissioner Karel Van Miert raised concern that the combination--plus the planned merger of Coopers & Lybrand and Price Waterhouse--would have left businesses with too few choices of accountants. The two transactions would have whittled the so-called Big Six accounting firms to the Big Four.

Talk about a letdown. Two huge accounting firms decide to merge and then two more huge accounting firms in a perfectly reasonable kneejerk reaction decide to merge because WE CAN'T LET THEM GET AWAY WITH THIS. Honestly, I wish it would've worked to see what kind tomfoolery those two would've got themselves into. 

But what about a mega-merger today? I think it'd be kind of fun to see a couple of firms try it now. Everyone would care about accounting firms for all of five days or until Apple announced a platinum Apple Watch would be made available in 2016 whichever happened first. 

I say go for it, KPMGEY! It could really spice up the summer.

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