Andersen and KPMG Close to a Merger Deal Outside US

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Big Five firms Andersen and KPMG have confirmed that they are participating in discussions surrounding merger opportunities whereby KPMG would acquire the non-U.S. operations of Andersen. "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," said Aldo Cardoso, Chairman of the Board of Andersen Worldwide. Andersen Worldwide is the organization that oversees the entire Andersen operation in 85 countries, including the United States.

According to reports in the British press, an agreement has been reached on a deal that will provide "size, stability, and opportunities." "Today we start the process of putting the last few weeks behind us," said Andersen U.K. managing partner John Ormerod, referring to the damage that has been done to Andersen's reputation in the wake of the Enron scandal.

The potential merger would include Andersen operations in Europe, Africa, the Middle East, Canada, Asia, and Latin America. Andersen's U.S. operation is not included in the merger talks. "Everyone is enthusiastic about going into the new home with KMPG," said John Prasetio, managing director for Andersen Asia. Andersen Australia is also negotiating with KPMG. Some reports suggest that Andersen practices in France, Italy and Spain are not ready to buy into the KPMG merger plan and want to continue negotiations with Deloitte & Touche.

The U.K.'s Financial Services Authority (FSA) warned that a merger of KPMG with the entire non-U.S. Andersen operation would be "damaging to competition" and indicated concern about limiting the choice of firms providing financial services for multinational companies. The FSA expressed similar concerns over the merger of Price Waterhouse and Coopers & Lybrand in the 1990s.

A week ago, it appeared that Andersen and Deloitte were about to ink a merger deal, but at the last minute, after a press statement announcing the merger plans was ready to be released, Deloitte called off the deal, stating that the legal risks were too great. Now, The Wall Street Journal is reporting that Deloitte Touche Tohmatsu has reentered negotiations to acquire Andersen's U.S. tax and consulting operation but not the auditing operation.

Andersen's criminal indictment

Andersen will answer to the federal indictment charge today when the firm appears before the Houston federal court. Indications are that Andersen will fight the charges issued last week by the U.S. Department of Justice relating to obstruction of justice in the Enron matter.

"Our attitude is going to be: 'Give us a trial right away,'" said Rusty Hardin, a Houston defense attorney who is among those representing the Chicago-based firm. Attorneys for Andersen will ask for a trial within weeks to challenge the government's charges.

"An indictment is just as bad as a conviction in terms of the company's reputation unless we get a quick trial and vindication," Hardin said.

Andersen asks employees for help in fighting back

Meanwhile, Andersen has reportedly sent an e-mail to all of its 28,000 U.S. employees asking for their help in lobbying Congress about the indictment and urging them to pose the question of whether it is "morally upright or good to destroy more innocent people at Andersen." The e-mail encourages "friends and family" to also contact their Congressman requesting a "voice of reason" to protect constituents who are unfairly being hurt by this indictment.

"Some of our people may do dumb things sometimes, but we are not bad people – we are not criminals," it says.

Andersen cuts universal settlement offer in half

Recognizing the economic realities of their ongoing ability to generate revenues as a firm, attorneys for Andersen have reportedly cut the offer to settle all claims in the Enron affair from $750 million to $375 million.

"It simply reflects their recognition that they can only deliver on the first year's installment," said Trey Davis, a spokesman for the University of California Board of Regents, the lead plaintiff in a class-action suit against Andersen by Enron shareholders.

Related Stories:
E&Y and PwC Join KPMG in Picking Up Andersen Pieces
Deloitte Back in the Picture in the U.S.

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