KPMG, Andersen talk merger

Indicted auditor aims to combine foreign partners

March 19, 2002|By BLOOMBERG NEWS

FRANKFURT, Germany -- Arthur Andersen LLP and KPMG International are in talks to merge their businesses outside the United states as Andersen tries to survive a criminal charge, client losses, partnership defections and suits by Enron Corp. shareholders.

"We are sounding out the possibility of merging our business activities in the most important countries in Europe, Africa, the Middle East, Canada, Asia and Latin America," said Harald Wiedmann, chairman of KPMG Germany.

Andersen, indicted on a charge of obstructing justice after its employees destroyed Enron documents, has lost 46 U.S. clients this year and is trying to keep overseas affiliates from pursuing independence or joining another rival.

More than half of its revenues last year were from outside North America, according to Andersen's Web site.

Andersen's Spanish and Chilean businesses have said they will leave the firm's network, and others might also do so.

"If they don't do a deal soon for the foreign affiliates, they're going to lose them," said Jonathan Hamilton, editor of Public Accounting Report. "They need to do this now or there's not going to be anything left."

Andersen's Spanish business, which has 4,500 employees and audits Spain's largest banking and telephone companies, has no choice but to join another accounting firm to stay in business and keep clients, said Jose Villacis, a professor of business at University San Pablo-CEU in Madrid.

"Andersen has no chance to remain independent [in Spain]," he said.

Combined with KPMG, "we'd still be able to offer a wide range of services," said Christoph Gross, chairman of Andersen Germany. "This is a chance we want to use in the interest of our clients and employees."

KPMG and Andersen hope to complete due diligence in June and reach an agreement by October.

KPMG International is an association of legally independent national firms. New York-based KPMG LLP is the U.S. affiliate. Andersen Worldwide is the network of Andersen affiliates, some of which pay a licensing fee to use the Andersen name.

The federal criminal charge filed against Andersen on Thursday is the first stemming from the collapse of Enron. The Houston trading company filed for Chapter 11 protection Dec. 2, becoming the largest bankruptcy in U.S. history.

The indictment has accelerated Andersen's client losses. Drug maker Wyeth Corp. said yesterday that it had replaced Andersen with PricewaterhouseCoopers LLP. Andersen also has lost two other drug makers, Abbott Laboratories and Merck & Co. Inc., and FedEx Corp., Freddie Mac and Delta Air Lines Inc.

The client losses have cost Andersen "hundreds of millions" in fees, said Arthur Bowman, editor of Bowman's Accounting Report. "The big deal here is the trend. These large-name clients are setting a trend that others are going to follow."

Last week, Ernst & Young LLP and Deloitte Touche Tohmatsu ended talks to acquire parts of Andersen, fearing its legal liabilities in the Enron case.

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