Ernst & Young and Andersen vote yes to merger

The merger of two of Australia's largest professional services firms will proceed following approval from the competition watchdog.

The Australian Competition and Consumer Commission (ACCC) said it would not oppose Ernst & Young's takeover of Andersen Australia, which was approved by partners after separate votes from both companies on May 16. The takeover is set to take place on May 27.

"The ACCC considers that the proposed merger is unlikely to result in a substantial lessening of competition," the ACCC said.

The merged firm - with combined revenues of $700 million - will be Australia's second-largest professional services organisation next to PricewaterhouseCoopers.

The question of how Ernst & Young Australia will integrate Andersen Australia's information and IT systems is being discussed by senior IT and facilities management staff, the specifics of which the firm will reveal early next week, a spokesperson indicated.

The companies would not be drawn on how the combined firm will address issues like duplication of IT consulting services in terms of business process, methodologies and expertise.

Ernst & Young would say only that both firms were working towards a seamless integration.

ACCC said although Andersen and Ernst & Young each constituted one of the Big Five accounting firms, the merger was crucial to Andersen Australia's survival.

"Should the merger not proceed, it is doubtful that Andersen will remain a vigorous and effective competitor in the Australian market."

Andersen agreed to talks with Ernst & Young after the global network of its parent, Arthur Andersen disintegrated as a result of the Enron scandal in the US.

ACCC said there were potential concerns about competition in the market for auditing and accounting, where the Big Five have the strongest presence, "especially in relation to provision of services to the big end of town".

"However, it is unlikely that the ACCC's concentration thresholds will be crossed in the market and the merged firm will face vigorous and effective competition from the remaining major firms, as well as smaller global and accountancy firms," the ACCC said.

As the professional services market gets more competitive, the upshot will be aggressive pricing, industry analysts predict.

Todd Ellerman, president of US-based Systix Consulting, said companies will get much better service from smaller services providers that used to serve only the middle market.

He pulled no punches about what he sees as many instances of poor service from the Big Five's consulting divisions.

"It's an opportunity for mid-market companies like us to service these larger accounts."

Andersen Australia follows two other national Andersen operations -- New Zealand and Russia -- to join Ernst & Young. The merged Australian entity will have around 5000 employees -- 3000 from Ernst & Young and 2000 from Andersen. Both firms, however, refused to discuss the impact the deal will have on staff from both organisations.

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