The division of EY was paused amid partner disputes over the fate of the tax experts
EY has ‘put on hold’ plans to split into two amid a heated debate over how much of its tax work should remain on the audit side of the firm.
Julie Boland, head of EY’s U.S. business and tapped to lead EY after EY spun off its consulting division, told partners on a call Wednesday that the deal needed to be reworked, according to people familiar with the matter.
The U.S. business accounts for about 40 percent of EY’s $45 billion annual global revenue, giving it strong bargaining power in internal separation talks.
The split was intended to free EY’s consultants and much of its tax practice from independence regulations that prevent them from advising the firm’s audit clients, which many say is hampering growth.
EY planned to spin off most of its tax practice into a new advisory and other advisory services group, leaving only a fraction of its tax professionals at the auditor-dominated firm after the split.
In the United States, however, auditors have campaigned to keep more of the tax practice within the audit branch after the split, people familiar with the matter said.
In September, EY’s global management decided to proceed with the spin-off and initial public offering of the consulting division, in a deal dubbed “Project Everest.”
But a vote on the plan for EY’s 13,000 partners has been repeatedly postponed as the firm tries to iron out disputes over the details of the split, amid falling market valuations. The latest plan was to hold a vote in roughly 75 countries in late April or May.
During a partner call Wednesday, Boland expressed his intention to move forward with the divorce, two people familiar with the matter said, although it was unclear how long the break could last.
But his comments are a clear indication of the tensions that flared during internal negotiations that effectively pitted the two sides of the deal against each other.
Issues discussed within EY in recent weeks have included liability for legal obligations, the terms of non-compete agreements and exactly how many of EY’s more than 150 countries should be included in the advisory arm.
Boland’s intervention will put pressure on EY’s global chairman and chief executive, Carmine Di Sibo, who has been tapped to head the standalone advisory business if the split goes through.
Under the current plan, the tax would have accounted for about 14 percent of the audit side of business globally, a figure that could now rise to about 20 percent or 25 percent, a person with knowledge of the negotiations said. .
This number is likely to be higher in the United States, where audit firms can offer more tax advice to audit clients than in many other countries.
EY’s US auditors have pushed to keep several of its overseas tax practices at the audit firm so they can work on international subsidiaries of crucial US clients.
According to the EY statement: “As part of our consideration and due diligence regarding the planned transaction, we are conducting a dialogue with the largest EY member companies in the country to determine the final form of the transaction.
“This transaction is complex, it will be a road map for the transformation of the profession, so it is important to get it right. We remain committed to the strategic rationale behind Project Everest and believe the deal can and should be closed.”