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Tuesday, Oct 22, 2002

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Estranged bedfellows

Pratap Ravindran

PUNE, Oct. 21

POLITICS, as anybody will tell you, makes for strange bedfellows. But what about estranged bedfellows? Well, they make for considerable discomfiture.

Ask Ernst & Young.

One of the Final Four accounting majors, it is a very, very privately held firm and, as such, its Chief Executive (Global Practice), Mr Richard S. Bobrow, on the finalisation of the partnership's annual report, chose on October 14 to disclose only that its global revenue in the fiscal ended June 30, 2002, was $10.1 billion, up by $300 million compared with the preceding accounting year. Period.

Unfortunately for Ernst & Young, a Superior Court judge in Hamilton County, Indiana, who is dealing with the divorce proceedings involving Mr Richard Bobrow and who is not bound by the minimal disclosure norms governing private partnerships, came out with a 45-page opinion detailing the firm's internal finances, much to the embarrassment of the accounting outfit, the glee of its rivals and, of course, the intense interest of other spouses involved in divorce proceedings in which the couples' assets include a stake in a private partnership.

The opinion revealed, among other things, that the firm had a total capital of $502.2 million as on March 31, 2000, and that Mr Bobrow had chipped in $1.1 million of that capital.

And then again, the judge included in his opinion documents, which indicated that Ernst & Young valued its consulting practice at $4.75 billion in early 2000 - and sold it to a French information technology enterprise, Cap Gemini, for $11.3 billion shortly thereafter.

The judge, for his part, valued Ernst & Young at $5.53 billion, a figure that does not include the massive premium that it loaded into the sale price of its consulting practice. Thus, in the case of the Bobrows, the couple's interest in the consulting practice prior to its sale was of the order of $10.1 million. And its value after the sale (by which time the Bobrows had split up) worked out to about $25 million.

Apparently, Mrs Jan Bobrow had had Ernst & Young's value appraised by an accountant at Arthur Andersen, one of the Big Five accounting firms until its recent collapse. The judge awarded Mrs Bobrow $1,00,000 in part to compensate her for the cost of pursuing discovery of the firm's financial information and noted that Mr Bobrow did not challenge those valuations.

However, both Mr Bobrow and Ernst & Young are understood to be fighting the disclosure of the value of the Cap Gemini transaction. And Mr Bobrow is appealing the judge's decision, awarding Mrs Bobrow 60 per cent of the couple's net worth which he put at $24.5 million of which she has received only a small part. The judge noted that Mr Bobrow's total income over the next decade would be $36 million to $54 million.

The Bobrows' divorce proceedings have set the cat among the pigeons because divorce proceedings involving a spouse's stake in a partnership have, hitherto, been negotiated in private. While it is the first of its kind in that the proceedings deal with a couple's combined interest in a partnership, the Bobrows case is not the first in which closely guarded corporate data has been made public.

It may be recalled that Ms Jane, former wife of Mr John F. Welch Jr, the retired Chief Executive of General Electric, peeved by the level of support that he was willing to give her, had also made public in court a long list of retirement benefits that Mr Welch had worked out, including the use of a Boeing 737 business jet. This disclosure had triggered a probe by the Securities and Exchange Commission (SEC).

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