ACCOUNTANCY MONOPOLY?; LATEST MERGER PROPOSAL WOULD LIMIT CHOICES.

Byline: Reed Abelson The New York Times

The question facing regulators over the coming months as they review two mergers being pursued by the nation's largest accountants is simple: Are four major firms, responsible for looking over the books of nearly every large corporation in America, enough?

As expected, Ernst & Young and KPMG Peat Marwick announced plans to merge Monday, following similar news from Price Waterhouse and Coopers & Lybrand in September.

In addressing one of the first gatherings of the Independence Standards Board, a group recently formed by the accounting industry and the Securities and Exchange Commission to safeguard auditors' independence when they review a company's financial statements, the SEC chairman, Arthur Levitt Jr., emphasized the need Monday to evaluate the consequences of further concentration in the industry.

And though there was no official comment Monday from the Justice Department - preoccupied perhaps with its very public dispute with Microsoft - there is little doubt that antitrust regulators also will be looking at the proposed combinations to make sure that they do not result in an overconcentration of power.

``They're definitely going to take a look at it as they go from the Big Eight to the Big Six to the Big Four,'' said a leading antitrust lawyer, who insisted on not being identified for fear of displeasing a client. ``They will want to preserve consumer choices.''

A spokeswoman for the Federal Trade Commission, which also has antitrust authority, referred calls Monday to the Justice Department since the department had taken the leading role the last time there was merger activity in the accounting industry.

While Ernst had talked informally with several firms including Deloitte & Touche about the possibility of getting together, Philip Laskawy, the chairman and chief executive of Ernst & Young, called his counterpart at KPMG, Stephen Butler, a week after Coopers and Price Waterhouse made their announcement, making the pitch that led to Monday's deal.

Many of the details remain to be ironed out, including a name for either combination, but some management questions have been decided. At Ernst and KPMG, Laskawy will be chairman and Butler chief executive of the combined organization. Upon Laskawy's retirement in 2000, Butler will become chairman until 2002. A chairman and a deputy chairman, one from each of the firms, will then be elected for five-year terms.

Both men stressed that the driving force behind the merger was the need to become even larger as the businesses they serve undergo their own consolidations. ``We clearly both see increasing demands of the kinds, level and sophistication of services that these big global companies will expect from us,'' Butler said.

Contrary to predictions from industry analysts, he continued, the merger will not result in layoffs or significant cost savings. ``I think this is a combination that is very much based on growth,'' he said. The two firms employ about 163,000 people worldwide, 10,000 of whom work in the New York metropolitan area.

What is clear is that the combination of Ernst and KPMG, with combined worldwide revenue this year exceeding $18 billion, creates a much larger entity, one that would dwarf many of its peers. ``All of a sudden, you've got some super-players,'' said Jon Madonna, the former chairman of KPMG, who is now a vice chairman at Travelers.

CAPTION(S):

3 Charts, Photo

Chart: (1-3) A Commanding Share

The combimed client lists of Ernst & Young and KPMG would make the merged firm the dominant auditor by far in several industries.

The New York Times

Photo: Ernst & Young chairman Philip Laskawy, left, and KPMG Peat Marwick chairman Stephen G. Butler shake on a merger deal in New York.

Associated Press