The Times - UK (2022-05-27)

the times | Friday May 27 2022 35

Business

Tom Howard

EY is exploring a global restructuring
that could see it spin off the audit divi-
sion from its advisory business.
The Big Four accountant confirmed
last night it was in the “early stages” of
separating the audit business from its
higher-margin consultancy arm. “We
routinely evaluate strategic options
that may further strengthen EY busi-
nesses over the long term,” it said. “We
are in the early stages of this evaluation
and no decisions have been made.”
Such a move, first reported by the
Financial Times and Michael West Me-
dia, an Australian news outlet, would
represent a far bigger change than the
“operational separation” of audit and
advisory functions that the Big Four
have agreed to in the UK.
Britain’s auditors have been under in-
tense scrutiny following the collapse of
BHS, the department store chain, and
Carillion, the construction group.
If EY does go ahead and hive off its
audit division, it would be the biggest
shake-up of a Big Four firm since short-
ly after the turn of the millennium,
when the sudden demise of Enron, the
American energy company, led to the
failure of its auditor, Arthur Andersen,
reducing the Big Five to the Big Four.
In the immediate wake of that, EY
and its peers sold off their consulting
businesses — although they have re-
built those teams since.
Regulators in other territories have
not yet gone as far as the UK’s Financial
Reporting Council, with only the Dutch
market operating in a similar way.
EY can trace its roots back to the 19th
century. It employs more than 300,000

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commoditiescommodities currenciescurrencies

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£/$

$1.2578 (+0.0044)

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32,637.19 (+516.91)

36,000

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Gold

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FTSE 100

7,564.92 (+42.17)

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world markets (Change on the day)

Brent crude (6pm)

$117.40 (+3.69)

Apr 25May 6 13 20 Apr 27 May 5 13 20 Apr 23 May 5 13 20 Apr 27 May 5 13 20 Apr 23May 5 13 20 Apr 23May 5 13 20

Britain’s largest train operator has
received a takeover approach valuing
the company at £1.22 billion.
FirstGroup, under threat from a
nationwide rail workers strike, said its
board was considering the offer from
the US private equity firm I Squared
after a “series of unsolicited, condition-
al proposals”, which had been rebuffed.
The offer, at 163.6p a share, is way

US private equity firm signals intentions with offer for FirstGroup

Robert Lea Industrial Editor ahead of where the shares have traded
since an emergency rights issue in 2013,
a £600 million fundraising to save the
then heavily indebted company from
collapse, after which confidence in the
stock never recovered.
Shares in FirstGroup rose 8.7 per
cent, up 10½p to 129¾p, suggesting at
least some pessimism that a deal can be
done at the upper end of I Squared’s
conditional offer.
The private equity firm is offering

118p a share for FirstGroup plus up to

another 45.6p a share depending on

extra money the business could receive

from the sale of its US businesses.

A year ago FirstGroup cleared most

of its debts with the sale of its city buses

and school yellow bus operations in the

US for £3.3 billion, most of which went

to clearing liabilities including to pen-

sioners and governments. Later that

year it sold its US intercity coach busi-

ness Greyhound for £125 million.

The 45.6p component of I Squared’s

covers up to £300 million FirstGroup

could receive from profits in the US bus

business and from the sale of Grey-

hound property, as well as £117 million

that could be released if its pension

schemes do not need topping up.

The approach from a US private

equity firm will excite interest in

Whitehall and at Westminster.

FirstGroup employs 30,000 people

in the UK, runs or co-runs the Avanti

west coast main line services and

others, and has been handed the keys to

run HS2 trains when the high-speed

line goes into service later this decade.

The group also has UK bus operations.

In a statement, FirstGroup’s directors

said they are “currently evaluating” the

latest I Squared offer, having rejected

its previous approaches, but added:

“Shareholders are strongly advised to

take no action in relation to the

approach from I Squared.”

Accountant explores split with consultancy arm

EY poised to

spin off its

audit division

people in 150 countries and provides

consulting, audit, tax and advisory ser-

vices. Last year the global business gen-

erated revenues of $40 billion.

Any overhaul would require the

backing of EY’s 12,000-odd global part-

ners. The auditors among them might

baulk at such a change, given the likely

hit to their profits in the absence of the

lucrative consulting business.

Someone with knowledge of the

matter said that bosses were aware of

this and planned to make sure both

businesses would be viable for all part-

ners in the event of a break-up. It is ex-

pected that one of the two separated

entities would retain the EY branding,

with the other being renamed.

One source close to the discussions

said that EY was hopeful of reaching an

initial decision on whether to proceed

within a month or two. It would prob-

ably take many more months before

matters got to the partner vote stage.

Regulators have been critical of per-

ceived conflicts of interest. In the past,

the firms would use relatively cheap au-

dits as a way into a business, then sell

their more lucrative services. EY’s pro-

posal would in part have been motivat-

ed by its desire to appease regulators.

In the UK, the accounting watchdog

is investigating EY for work on the au-

dits of NMC Health, the former FTSE

100 hospital operator, and Thomas

Cook, the tour operator. Globally, EY

has come under the microscope for its

work with Wirecard, the German pay-

ment firm suspected of fraud.

The other Big Four firms have not yet

said if they will follow suit. However, if

EY presses on with its changes, they

would be likely to have to consider it.

TETRA/GETTY IMAGES; HIGHWAYS ENGLAND

Eurotunnel National Highways has opted for a three-way joint venture to deliver the £1.25 billion contract for the proposed

Stonehenge tunnel under the A303 — the Spanish construction firm FCC, WeBuild from Italy and Austria’s BeMo Tunnelling

Union dials up the pressure on BT

Alex Ralph, Martin Strydom

Pressure was mounting on BT last

night after unions threatened the first

national strike at the FTSE 100 giant in

35 years and the government launched

a review into stakebuilding in the group

by a Swiss-based tycoon.

Kwasi Kwarteng, the business secre-

tary, exercised his “call-in power” under

the new National Security and Invest-

ment Act over the shareholding of

Altice, the telecoms group, weakening

shares in BT. The stock, down 5 per cent

at one point, yesterday fell 4¼p, or

2.3 per cent, to 185½p in London.

The government review comes three

weeks before the expiry of a self-im-

posed six-month lock-up period pre-

venting Patrick Drahi, 58, the owner of

Altice, from bidding for BT under Take-

over Panel rules, without the agree-

ment of the telecoms group’s board or a

third party announcing an offer.

City analysts said yesterday that the

review, lasting at least 30 days, could

deter Drahi, BT’s largest shareholder,

from raising his stake further and might

lead to divestments. HSBC analysts

said the government was signalling that

Drahi “is not a welcome owner of UK

strategic infrastructure”.

Mike Clancy, general secretary of

Prospect, the digital and technology

union, said that regardless of future

ownership “the government needs to

ensure that our national interest, infra-

structure and jobs are protected”.

The government’s review coincided

with the Communication Workers

Union, which represents telecoms

workers, yesterday warning it would

serve an industrial action notice to BT

on June 8 in a renewed dispute over pay.

The union said ballot papers would be

sent to members a week later.

The review into BT emerged a day

after the business department said it

was examining the acquisition of New-

port Wafer Fab, Britain’s biggest micro-

chip factory, by Nexperia, a subsidiary

of the Chinese company Wingtech.

Drahi revealed his 12.1 per cent posi-

tion in BT last June, and in December

increased it to 18 per cent. The tycoon,

who has refused to discuss his inten-

tions publicly, said he had “engaged

constructively” with BT management

and supported the company’s strategy.

Cut-off threat, pages 36-37

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