Andersen, KPMG Outline a Deal

The Andersen accounting firm, fighting for its life under a criminal indictment, on Monday reached the outline of an agreement for rival KPMG to absorb its international operations, according to executives at the accounting firms.

The deal is expected to stop the splintering of Andersen’s international confederation of accounting firms but leaves unanswered the fate of its U.S. business.

Andersen executives, however, said last week the foreign acquisition might pave the way for KPMG to acquire their U.S. operations once Andersen’s liabilities from its Enron Corp. audit are resolved.

Andersen has faced the threatened defection of its international partners after its federal indictment last week on an obstruction of justice charge for destroying documents sought in the investigation of its work for energy trader Enron.

Andersen Worldwide is a network of independent partnerships linked together through licensing and branding agreements. Although Andersen’s U.S. operations are part of this network, KPMG believes Andersen’s international partners are not likely to be held liable for the Enron audit.

In statements, both firms said they would benefit from joining forces. The firms would combine operations throughout the major markets of Europe, Africa, the Middle East, Canada, Asia and Latin America.

“Such a combination would be complementary in terms of geographic coverage and industry expertise,” Mike Rake, a senior KPMG executive, said in a statement.

Most of Andersen’s 84-member firms worldwide are expected to agree to the merger though there could still be a handful of defections, according to one source familiar with the talks.

“Any such combination would create a global network that can continue to provide outstanding service in every part of the world and represents an outstanding opportunity for our partners and people,” Aldo Cardoso, chairman of the board of Andersen Worldwide, said in a statement.

The agreement between KPMG and Andersen was negotiated over the weekend.

The firms decided to create due diligence teams that will start reviewing Andersen’s foreign operations April 1. That work is expected to be completed in June and the deal is scheduled to close Oct. 1, according to people familiar with the agreement.

Whether KPMG will eventually absorb Andersen’s U.S. operations is still unclear because of the large liabilities the firm faces for its Enron work, including suits from shareholders and employees who lost billions of dollars in the Houston energy company’s collapse.

Andersen offered to settle civil claims by paying $750 million over five years, but the deal was rejected by plaintiffs in the shareholder suit. Andersen also is seeking a speedy trial on its federal obstruction of justice charge so that it can resolve some of the uncertainty facing the firm.

Andersen has looked for ways to protect a potential merger partner from also taking on any Enron liability but has failed to come up with a plan that would reassure suitors.

Previously, merger talks with Deloitte & Touche and with Ernst & Young broke down over the liability issue.

Andersen continues to reel from erosion in its domestic business. On Monday, the giant drug manufacturer Wyeth announced it was taking its roughly $16-million account to PricewaterhouseCoopers, ending a 33-year relationship with Andersen.

Andersen has lost about 50 clients and about $200 million of its $4.3 billion in U.S. business since December.