6th Andersen Unit Joins Rival
An agreement to merge the overseas operations of accounting firm Andersen with KPMG unraveled Tuesday after the Spanish unit of Andersen reached a separate agreement to combine with Deloitte Touche Tohmatsu.
Andersen Worldwide and KPMG said in a joint statement that they are still talking about combining some operations outside the United States but added, “In view of the decisions by certain individual firms to pursue different directions, it is clear that a deal embracing all of the non-U.S. firms is not achievable.”
The Andersen partnership in Spain is the sixth of the 84 individual firms that make up the Andersen Worldwide confederation to craft a business combination with a rival other than KPMG.
Analysts said repudiation by the Spanish partnership of the KPMG agreement was significant because it was the first European firm to ignore the deal and because of its dominant market position. It audits 23 of Spain’s top 25 companies.
Moreover, sources said the agreement is expected to pave the way for Deloitte to pick up Andersen partnerships in much of Latin America, which because of its historical ties, still has intricate relationships with the business community in Spain.
“This shows that Andersen Worldwide no longer has any pull with its affiliated firms,” said Jonathan Hamilton, editor of the Public Accounting Report, a trade journal.
Hamilton said the defection of the important Spanish firm underscored how Andersen has been crippled by liability from its work for Enron Corp. and subsequent criminal indictment for its destruction of documents sought in the federal probe of Enron.
Separately, the 18-member management board of Andersen Worldwide met in London on Tuesday but failed to name a interim leader to replace Joseph F. Berardino, the Andersen chief executive who resigned last week.
Berardino will remain with Andersen until a CEO is named.
An Andersen spokesman said Berardino’s successor will fulfill a legal and administrative role, overseeing the dismantling of the worldwide confederation. The individual will not be a “global leader in the chief executive sense,” he said.
Berardino stepped down last week so that former Federal Reserve Chairman Paul A. Volcker could launch a rescue plan for the accounting firm.
Volcker’s plan is dependent on getting the Justice Department to dismiss or suspend its indictment. A trial in the criminal case is scheduled to begin May 6.
He also must reach a settlement agreement with the class-action plaintiffs who have claims against Andersen for its Enron work. Attorneys for Enron investors and employees are scheduled to file revised consolidated lawsuits in the cases Monday.
KPMG and other firms that make up the accounting industry’s Big Five have balked at acquiring all of Andersen, including its U.S. partnership because of the legal and liability fallout from its Enron work.
Already, Andersen firms in Australia, Russia and New Zealand have agreements to merge with Ernst & Young. The offices in China and Hong Kong plan to combine with PricewaterhouseCoopers.
“We may eventually see a lot of firms join with KPMG, but they could be mostly the smaller ones like Croatia which just are not that important in terms of the size of their business,” Hamilton said.
Arthur Bowman, editor of Bowman’s Accounting Report, said each of the overseas Andersen partnerships is looking at its own markets and deciding how it can get the best deal.
Andersen continues to suffer from the defection of major clients as well as overseas affiliates.
Cummins Inc. of Columbus, Ind., said Tuesday that it revoked its recent appointment of Andersen and plans to use PricewaterhouseCoopers as its auditor.
Andersen has lost about 10% of its more than $4 billion in U.S. business since December and is expected to lay off several thousand of its 28,000 domestic employees next week.
