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Coopers, Price Waterhouse Plan to Merge

Financial services: The union would create the largest accounting and consulting company in the world.

September 19, 1997| From Bloomberg News

Coopers & Lybrand and Price Waterhouse said they plan to merge to create the world's largest accounting and consulting firm.

The combination would vault Price Waterhouse and Coopers ahead of industry leader Arthur Andersen Worldwide, and second-ranked Ernst & Young, and whittle the so-called Big Six accounting firms down to five.

The merger plan comes amid consolidation in the financial services industry worldwide and would be the first to affect the accounting and consulting industry since two mergers at the end of the 1980s.

"Our clients require seamless global support and levels of expertise that, until now, were simply not available from any one organization," said Coopers Chairman Nicholas Moore. "We have complementary strengths, so we saw this as a good fit."

Moore would be chairman of the merged firm. James Schiro, chief executive of Price Waterhouse, would be its chief executive. The companies haven't yet decided on a name, but analysts said they expect that Price Waterhouse will be the lead name because it has a stronger brand name.

Being the largest is important because "it brings bragging rights," said John A. Higgins, who has been a spokesman in the accounting industry for more than 15 years. "There's a correlation in clients' minds between size and quality, so if you are big you must be better than everyone else."

Moore said one of the big drivers behind the merger was the fast-growing consulting business. "Consulting is a highly profitable business that is under-exploited" in both emerging markets and developed countries, he said.

The two New York-based firms have complementary strengths in the area, he said, with Coopers, for example, known for consulting on personnel issues while Price Waterhouse is strong in consulting on information technology.

The companies together would have gotten 25% of the total revenue from consulting in fiscal-year 1996, according to Arthur W. Bowman, editor of Bowman's Accounting Report in Atlanta. Both firms saw U.S. consulting revenue jump by about 20% in fiscal-year 1996.

"It takes them to a league above Andersen Consulting that would be very attractive to global clients," said Philip Abbott, chief executive of Industry Research Group, a London-based professional services consultancy. Andersen is the only one of the Big Six accounting firms that makes more than half its money in consulting.

Combined global fees of the two companies in fiscal 1997 exceeded $13 billion, the companies said in a statement. In fiscal-year 1996, the firms would have had combined revenue of $11.8 billion, compared with $9.5 billion for Andersen Worldwide and $7.8 billion for Ernst & Young International. All the firms are privately held by their partners and don't disclose profits.

Moore and Schiro said they couldn't yet provide targets of revenue growth for the merged group.

Sam Jaffa, head of media relations at Price Waterhouse, said the merger would complement both businesses. Coopers is stronger in Europe, while Price has the edge in Latin America and Southeast Asia. In industries, Coopers' strength is in telecommunications and mining, while Price excels in media and entertainment and utilities. Both are strong in oil and gas, Jaffa said.

While the merged firm might end up representing competing companies, that's not considered a conflict of interest. Companies may not like it, however. When Ernst & Young was created, for example, Coca-Cola Co. demanded that the firm choose between it and Pepsi-Co Inc.

The merger would not become official until the partners of both firms vote on it later this year. The companies said they wouldn't comment again on the merger until after it receives the approval of their partners. It is also subject to approval by regulators, including the Securities and Exchange Commission.

The combined firm would have about 135,000 staff members worldwide and 8,500 partners.

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