Andersen Breakup Accelerates
By Greg Cresci and C. Bryson Hull
Thursday April 18, 3:40 pm Eastern Time
NEW YORK/HOUSTON (Reuters) - Ailing accounting giant Andersen , crippled by its role in the Enron Corp. scandal and scrambling to settle lawsuits, is unraveling fast as U.S. partners consider joining their overseas colleagues in bolting the firm.
Rival firm KPMG , which already has courted Andersen's international staff, has a tentative deal to hire 150 partners and 2,000 employees from Andersen offices across the United States, sources familiar with the situation said.
The Washington Post reported on Wednesday more than 80 percent of Andersen's 1,700 U.S. partners have signed nonbinding letters of intent to pursue positions at other firms or in new companies.
Those defections, if they occur, would deprive Andersen of auditors at a time when its main strategy is to retool itself into what it has called ``the auditing firm of the future,'' centered on an elite corps of auditors whose only job is to review the books of corporate clients.
That vision, championed by former Federal Reserve Chairman Paul Volcker, means selling off lucrative consulting and tax advisory businesses. Volcker was brought in earlier this year to overhaul the Big Five accounting firm.
``I don't hold out a lot of hope that the firm of the future is going to be a particularly successful firm,'' said Robert Willens, an analyst at Lehman Brothers. ``Tax partners and tax personnel are an integral part of the audit team. I don't see how you can perform an audit without having tax expertise.''
Andersen and KPMG spokesmen declined comment.
SPLINTERS AND LAWSUITS
Andersen affiliates overseas still were cutting deals on their own on Thursday, as three more European units neared merger deals with rival firms. Meanwhile, high stakes legal wrangling in the United States approached a critical point.
The difficulties of the 89-year-old Chicago firm have grown with dizzying speed since its criminal indictment last month on an obstruction of justice charge related to its shredding of Enron (Other OTC:ENRNQ.PK - news) documents.
In Germany, Ernst & Young said it was in merger talks with Andersen's local unit, going head to head with KPMG, which just a week ago said it hoped to ink a deal there with Andersen.
Andersen's Belgian arm said it would merge with Deloitte & Touche while its Austrian unit said it was in talks with rivals.
The merger deals came as Andersen's negotiations with its opponents in civil and criminal cases near critical junctures where possible settlements may be at risk, sources said.
Talks between the accounting firm and the U.S. Justice Department have slowed as Andersen starts to think its weak financial health makes the deal on the table less tenable, the sources said.
Andersen has lost some 200 audit clients so far this year, including companies such as Delta Air Lines and Halliburton Co., pinching much-needed revenue.
Other legal sources said a second day of negotiations, in a major class action suit stemming from Enron's collapse, ended without a deal on Wednesday.
Those talks, conducted in New York under the supervision of a court-appointed mediator, began to break up after beginning with what some called a hopeful note. It was not clear whether the talks were off completely, the sources said.
The negotiations to settle the felony obstruction of justice charge, described as fluid, are getting to a point where a deal must emerge soon or all bets may be off, the sources said. ``Everybody's talking...That doesn't mean that we're heading toward anything,'' said one source close to Andersen.
A Justice Department spokesman declined comment.
Andersen wants simultaneous settlements with the Justice Department, the U.S. Securities and Exchange Commission and the plaintiff's lawyers suing it in the Enron class action suit.
``They almost all...have to be like dominoes that line up, and they all fall at once or they don't,'' a legal source said.
PARTNERS
Andersen's remaining partners want a clearer picture of what their post-settlement firm will look like. The firm recently announced it was cutting 7,000 jobs, or more than a quarter of its U.S. staff. And Andersen's U.K. unit on Wednesday announced plans to slash 1,500 jobs.
With Andersen's reach severely curtailed by defections spanning the globe, and future business limited to audit-only functions unlikely to include tax services, many partners might decide it's better to go elsewhere.
``These people all know what an accounting firm must offer in the way of even minimal services to a client in order to be competitive,'' said Lehman Brothers' Willens. ``I think Andersen's domestic auditors realize that (audit-only) is not a viable model for an accounting firm. It just isn't.'' |
