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EY partners likely to vote on splitting the firm by January

EY partners likely to vote on splitting the firm by January

“We haven’t progressed through this first gate…should we progress through that first gate, there’s the second gate, and this is ultimately the decision gate. And that is, if it’s a ‘go decision’, partners will be involved in a voting process and there will be partner information sessions. There’ll be staff information sessions, partners will all receive a partner information document with a significant level of detail to support understanding and decision-making processes.”

Mr Larocca strongly indicated that the firm’s leadership felt it was their duty to allow partners to vote on the split.

“In some ways, I’ve been saying to our partners, and in some ways a ‘go decision’ at this gate is a big decision. But in some ways, a ‘no decision’ is a bigger decision, because we would effectively as a leadership team be saying, on behalf of the partners, there’s no need for you to look at anything. We’ve decided on your behalf to not bring it to you,” he said.

“So I’m very conscious of our fiduciary duty as a leadership team to think about what is best for the firm and what we put through our partners.”

The staff briefing was described to The Australian Financial Review by multiple attendees. EY declined to comment.

The proposal being examined by the firm involves splitting the firm into an auditing arm, AssureCo, which would have estimated revenue of $US18 billion and be 100 per cent owned by partners staying in that business, and a consulting arm, NewCo, will have estimated revenue of $US24 billion and be a new corporate entity majority-owned by EY partners moving to the new standalone advisory business.

Split would trigger cash windfall

The firm’s local leadership also denied the move to split the firm – known as Project Everest – as a cash grab by partners, but acknowledged that one concern was giving audit partners so much money as part of the sale that they “make different choices” and leave the firm.

“So if you’re a partner who ends up being part of the AssureCo business, you’ll continue the relationship that you have at the moment. Those people will continue to be partners in the partnership as it stands at the moment. And they will receive the proceeds from the transaction in a cash form. So they will take cash,” Craig Robson, EY Oceania’s chief operating officer, said.

“If you’re a partner who ultimately becomes part of the NewCo business, then you’ll cease to be a partner of the existing EY partnership, and you will become an employee of the global corporate that we’re calling NewCo at the moment…the deal proceeds that will go to ‘NewCo partners’ in inverted commas will be equity in the new entity.

“So, NewCo will be a globally listed, publicly owned entity…roughly 75 per cent of [NewCo] will be owned by the existing…NewCo partners in the business. At the moment on day one, roughly 11 per cent will be the part that’s the subject of the IPO, the free float, and the other 14 or 15 per cent will…[be] for the benefit of future distributions to staff, partner-equivalents, those that are promoted into the partner equivalent role within NewCo.”

Mr Robson said that a key concern of the global leadership is that any payout to audit partners wasn’t so large they left the firm.

“We’ve got to be really careful around how the arrangements are structured so that we don’t lose good partners because they’re simply in a monetary position that they can make different choices. We have to make that a really important part of the detail that’s been worked through at the moment,” he said.

The briefing did not touch on the potential payouts that would be available to AssureCo partners or the likely pay cut NewCo partners would have to take.

Modelling of the split reported in June showed EY audit partners could be in line for a typical cash payout of $US2 million ($2.8 million) while consulting partners could receive shares in a newly floated advisory company worth up to $US8 million.

EY’s consulting partners have been separately told they might have their cash pay cut by up to 40 per cent as part of the cost reductions if they split off into a standalone company. This will be offset by the consulting partners receiving shares worth as much as seven to nine times their annual income, estimated to be worth as much as $US8 million.

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