Plans for a worldwide merger of beleaguered accounting firm Andersen with rival KPMG have fallen through. A merger in Germany looks likely.
Andersen's Troubles Started with Collapse of Texas-based Enron (AP Photo/Pat Sullivan)
The failure is being blamed on the unwillingness of all of Andersen’s regional units to sign up for the deal with KPMG.
A merger of the two giants would have created a firm with over $12.2 billion in revenues and a staff of 140,000. It was seen as the best hope of salvaging the parts of Andersen not tainted by the collapse of Enron. Andersen’s Houston office audited Enron’s books.
But Spain’s decision to go with rival Deloitte & Touche was a deal killer, according to sources close to the negotiations. Spain is considered one of Andersen’s star European businesses, where it audits 23 of the country’s top 35 quoted firms, and its participation was seen as crucial in any deal to bring all of Andersen’s non-US operations together with KPMG:
“In view of the decisions by certain individuals firms to pursue different directions, it is clear that a deal embracing all of the non-US firms is not achievable,” Andersen and KPMG said in a joint statement.
Andersen’s units in Singapore, Philippines, Malaysia and Taiwan look set to merge with Ernst & Young, which is already combining with Andersen in Australia and New Zealand. Russia has joined up with Ernst & Young as well.
Hong Kong and China are in the process of settling deals with PricewaterhouseCoopers.
But Mike Rake, KPMG’s chairman for Europe, the Middle East and Asia said talks were still going on in certain countries. He would not speculate what sort of deals could still be salvaged.
Andersen/KPMG Deal in Germany Probable
One of the countries where an Andersen/KPMG merger is on track is Germany. Talks between the two rivals are going on now in Frankfurt, where both firms report “good progress” is being made.
“In Germany we have both decided, independent of the development in other countries, to successfully conclude the talks,” KPMG and Andersen said in a joint statement released on Tuesday evening.
The companies announced two weeks ago that they planned merging operations in the future. The current talks are ironing out the legal details, stock market structure and possible anti-trust concerns, according to the statement.
Talks between the UK arms of KPMG and Andersen are also on-going.
Andersen is the smallest of the big five accounting firms. It is considered unlikely the company can survive on its own since US business is buckling under a criminal indictment over its role in the collapse of Enron.
Andersen is losing clients fast and furiously as both big and small firms decide the risk of being associated with it is simply too great. The Chicago-based firm has lost more than 100 clients since the start of this year.
Some of the big-name clients parting ways with Andersen include Delta Air Lines, FedEx, Merck and Sara Lee. Monday brought three more defections. Andersen is being forced to fight its battle for survival on several fronts. Besides the client defections, it is facing charges in the US relating to its Houston office’s decision to shred Enron-related documents even after a federal investigation had begun. And it is facing the potential of crippling lawsuits from disgruntled Enron shareholders, many of whom lost their pensions when the energy giant imploded.