Merger failure reignites accountants' legal plans

The sudden break-off of Ernst & Young's merger talks with KPMG took their competition lawyers by surprise, but it will make it easier for both firms to pursue a UK legal capacity, according to the men charged with the task.

Andrew Daws, recruited by Ernst & Young last year from Denton Hall to lead its move into legal practice, conceded that Ernst & Young's merger talks, announced days after his appointment, made talks with lawyers or firms "exploratory rather than decisive".

He said lawyers he had talked to "wanted to know what was happening to the merger".

Asked if Ernst & Young had reached a decision about seeking a tie-up with a law firm or building its own, he said: "The management here has been completely occupied by the merger for the last two-and-a-half months."

But he stressed that uncertainty over the merger would have ended in May in any case, when the EC competition directorate was due to rule.

KPMG board member Robert Berg, the tax partner charged with finding a law firm partner for KPMG, said that the regulatory hurdles to the merger over four continents had complicated the issue of finding a UK law firm partner, and that the ending of the merger talks would have simplified it.

Denton Hall partner David Aitman and senior assistant Sam Szlezinger were advising Ernst & Young on the EC competition issues of the merger while Slaughter and May partner Malcolm Nicholson was advising KPMG.

Szlezinger said his team had been surprised when merger talks were broken off and that it had been a commercial rather than a legal decision.

Nicholson said that he had always said the regulatory hurdles to the merger would be "challenging". But he added: "I'm always disappointed when my clients don't fight an issue through to the end."

When Price Waterhouse's planned merger with Coopers & Lybrand was announced, Nicholson told The Lawyer that the chances of it gaining EC competition approval were "slightly better than evens".

He claimed that Price Waterhouse and Coopers' chances might not be so good because of the widespread adverse publicity their plans had received.

The KPMG-Ernst & Young merger plan announced only two weeks after the Price Waterhouse-Coopers merger has been seen by some as a deliberate spoiler of their rival's plan.

Both firms, particularly KPMG, were pursuing the merger as a way of raising capital.

KPMG was talking last week about raising capital in the form of a bond offering.