Ernst & Young executives finalize plan to split up accounting firm

Ernst & Young executives finalize plan to split up accounting firm
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  • Executives at the Big Four accounting giant have been considering a move to split up its businesses since this spring.
  • The Wall Street Journal reported that EY executives are expected to approve the proposal this week.
  • After a plan is finalized, it will trigger a vote among EY’s 13,000 partners, the Journal reported.

Ernst & Young’s Executive Committee, responsible for a global organization with more than 300,000 employees working in areas such as auditing, consulting and financial advisory, is finalizing a plan to split the Big Four giant into two separate companies.

The group of EY executives met on Labor Day to finalize the details of a plan that would separate the firm’s accounting business from its consulting services. This was reported by Jean Eaglesham of the Wall Street Journal. The proposal is expected to be approved by the committee later this week, which will then trigger a vote among EY’s 13,000 partners, sources familiar with the matter told the Journal.

EY is currently auditing some of the world’s largest companies, including Amazon, Apple, Alphabet, Coca Cola and General Motors. Sources told The Wall Street Journal that the separation of the firm’s core businesses would allow the consulting practice to pursue lucrative opportunities that are currently limited due to EY’s existing accounting relationships.

EY is expected to post more than $45 billion in revenue when it reports full-year results this fall. reported the Financial Times in July. The mechanics of the proposed transaction would result in 60% of this revenue base being spun off into a new consulting firm, while the other 40% would continue to audit businesses and retain the EY brand. The Journal reported this June. The consulting firm would raise about $10 billion by selling a 15 percent stake in the public markets over the next year and would also borrow about $17 billion, according to the detailed Journal report.

EY is a partner in both the consulting and auditing business are the clear winners of the deal, called “Project Everest” within the company. In accounting practice, average partners in the US and UK could receive millions of dollars in payouts from the split, depending on the stock multiple, the Journal reported in June. Within the newly founded consulting firm, the partners receive shares in the separate company worth around seven to nine times their annual compensation.

Headquartered in London, EY’s vast network of regional and national offices spans around 150 countries. Once the prospective split is finalized by the company’s board, voting on the plan by the partners in those offices will take place between around late this year and early next year, sources told the Journal, adding that talks are also under way at that time the US Securities and Exchange Commission and other global regulators would begin.

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