Andersen survival plan called dead

Several hundred partners may join smaller auditor, further clouding future


Arthur Andersen LLP is considering a range of business options including a bankruptcy filing and the sale of business units to smaller accounting firms, people close to the firm said yesterday. This would undermine hopes that an audit-only version of the firm might survive as a model for others in the industry.

The Chicago firm is talking with another Chicago auditor, Grant Thornton LLP, an accounting and consulting firm that handles midlevel companies. The possible combination involves several hundred Andersen partners, Edward E. Nusbaum, Grant Thornton's chief executive, said yesterday.

Such an arrangement would further shrink Andersen and reduce its chances of survival, as would deals that partners at numerous Andersen offices are trying to put together to join other rivals.

To prepare for restructuring - either in bankruptcy or out of it - Andersen has hired Bryan Marsal, a specialist from Alvarez & Marsal, a financial advisory firm that helped turn around Warnaco Group.

A spokesman for Andersen, Dan Hill, said yesterday that Marsal was only helping the firm reshape itself according to the plan outlined by Paul A. Volcker, the former Federal Reserve Board chairman.

"The firm remains committed to pursuing the reforms that he outlined," said Dan Hill, the Andersen spokesman, referring to Volcker's proposal. "The firm is not pursuing the bankruptcy option, and his hiring was a move to help them implement Volcker and reform the firm."

But a senior partner at Andersen said yesterday that Volcker's plan, under which the firm would spin off most of its nonauditing business and a board headed by Volcker would take over management, was essentially dead in the water.

Volcker conceded yesterday that Andersen had made no progress in becoming such an audit-only firm. But he added, "I don't give up quite so easily," and said he was not ready to step aside from Andersen.

Volcker said in an interview that none of the conditions for his plan had been met. These included Andersen settling lawsuits filed by Enron Corp. shareholders and creditors, reaching an agreement with the Securities and Exchange Commission, and finding a way to get the Justice Department to withdraw a criminal charge that it filed against the firm.

Andersen in two weeks faces trial on the criminal charge that it tried to hinder a Justice Department investigation of Enron's collapse by shredding audit-related documents.

Settlement talks with prosecutors broke down last week.

"The most important thing was getting a critical mass of partners who were ready to move forward with an audit-only firm," Volcker said, adding that he had thought such a group was available three weeks ago, when Andersen named officials who would supervise the firm's transition to the new form.

But now, he added, "it does not appear" that the will is there.

If Andersen disintegrated, it would set back efforts to create a model accounting firm that would avoid the potential conflicts of interest that arise when auditors sell other services, such as consulting and sophisticated financial advice, to their clients.

And without a remade Andersen as a role model for the industry, Volcker said, it would be harder to push other firms to change their practices.

But Volcker said he would continue to push for reform in other ways. "We remain interested in doing good," he said.

Marsal's focus is much more immediate, helping Andersen to continue to operate as its clients defect; so far, nearly 200 of the firm's public-company clients have switched to other auditors. Marsal, who was hired about a month ago, has addressed the firm's partners to advise them on, for example, reducing expenses, one partner said.

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