Andersen reportedly seeks Big Five buyer

Talks are first held with Deloitte Touche, then Ernst & Young

Auditor loses 2 more clients

March 12, 2002|By BLOOMBERG NEWS

NEW YORK - Arthur Andersen LLP has begun talks with a second potential buyer, Ernst & Young International, as the fifth-largest accounting firm struggles to survive mounting client defections and the threat of criminal indictment, people familiar with the negotiations said.

Andersen Chief Executive Officer Joseph Berardino met with his Ernst & Young counterpart, James Turley, in New York the past two days, a source said yesterday.

Andersen also has discussed a buyout by Deloitte Touche Tohmatsu as the Justice Department prepares obstruction of justice charges over Andersen's destruction of documents related to its role as Enron Corp.'s auditor, people familiar with the talks said.

"They need someone to come to the rescue," said Jonathan Hamilton, editor of Public Accounting Report.

A transaction with one of the companies may be announced as soon as tomorrow, one person familiar with Andersen said.

Andersen is considering putting its U.S. unit under Chapter 11 bankruptcy protection to fend off legal claims, the source said.

Lawyers who are suing Andersen on behalf of Enron investors say they would oppose any transaction unless there is a provision to pay legal claims against the firm.

Andersen is seeking to settle Enron shareholder and investor lawsuits for about $750 million.

If it acquires Andersen, Touche would have almost $22 billion in revenue, surpassing PricewaterhouseCoopers LLP as the biggest U.S. accounting firm. A merged Andersen and Ernst & Young would rank second to PricewaterhouseCoopers. The fifth member of the Big Five is KPMG International.

FedEx Corp., the largest overnight delivery company, and Riggs National Corp., Washington's biggest local bank, dropped Andersen as their auditor yesterday, joining Delta Air Lines Inc., Freddie Mac, Merck & Co. Inc. and more than 25 other companies.

Separately, Paul A. Volcker, the former Federal Reserve chairman who was named to restore Andersen's credibility, said the firm must split its consulting business from its auditing operations.

"There is a strong public interest in a reformed Arthur Andersen able to restore and maintain leadership in the auditing profession," Volcker said.

Andersen spokesman Patrick Dorton declined to comment on whether the firm held talks with Deloitte. He didn't return calls about Ernst & Young.

Deloitte spokesman Matthew Batters said, "We are involved in scenario planning exercises to address the current and future issues facing the profession. It's inappropriate for us to discuss these planning exercises in public."

Lawyers representing Enron investors said they are monitoring the Andersen sale talks.

"If Andersen is going to disappear without any provision for liability, that's a material fact I'd want to deal with," said Tom Cunningham, a Houston lawyer who represents Georgia's state pension fund.

"It wouldn't surprise me if somebody ran to the courthouse to enjoin this," he said.

An Andersen failure would also cause headaches for regulators.

Unless Andersen is rescued, and the majority of its client relationships preserved, regulators would have to deal with more than 2,000 public companies suddenly needing new auditors, said Dennis Beresford, a University of Georgia accounting professor and former chairman of the Financial Accounting Standards Board.

Andersen, a privately held partnership with 85,000 employees around the world, had revenue of $9.3 billion in the fiscal year that ended Aug. 31.

Deloitte had $12.4 billion in revenue last year, while Ernst & Young had $9.9 billion. PricewaterhouseCoopers had global revenue last year of $19.8 billion.

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