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EY Leadership Approves Breakup

By:
S.J. Steinhardt
Published Date:
Sep 9, 2022

Top leaders at Ernst & Young have voted in favor of a plan to divide the firm into two main business entities, auditing and consulting/advisory services, The New York Times and others reported

The plan, reported earlier this week by The Wall Street Journal and others, now goes to a vote of the firm’s roughly 13,000 partners. In a statement released Thursday, the firm said, "EY’s strategic review of its businesses has progressed, and EY leaders have reached the decision to move forward with partner votes to separate into two distinct, multidisciplinary organizations. The next steps include ongoing engagement with partners to provide them with more information in advance of the voting process. We expect this phase to continue through the end of the year, with voting expected to begin on a country-by-country basis in late 2022 and conclude in early 2023."

As previously reported, the proposed split would free consultants from independence rules that restrict the work of accounting firms for audit clients. The estimate is that consultants would be able to compete for new business that could be worth billions of dollars.

A favorable vote could result in each audit partner’s making an average “windfall” of a million dollars, The Journal noted. That is in addition to average earnings of $850,000 to $900,000 per partner. Consulting partners are promised shares in the new company, which are predicted to be worth seven to nine times their annual compensation, paid out over five years.

The Times reported that EY could spin off its consulting arm into a company that could file for an initial public offering. The auditing business would probably remain a private partnership.

EY Global Chairman and CEO Carmine Di Sibio told The Journal that the firm is planning to raise about $11 billion in a public sale of a 15 percent stake in the consulting company, which will also borrow some $18 billion.

The firm will also have to figure out how to divide its big and lucrative tax unit, parts of which will go to both firms, and other practice areas, according to The Journal.

EY’s greater China practice will not be part of the deal, The Financial Times reported, because the firm “has failed to devise a deal structure deemed satisfactory by Chinese regulators.”

That practice covers mainland China, Hong Kong, Macau, Taiwan and Mongolia, and employs about 22,000 people across 29 offices. It will continue to be part of EY’s network.

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