Andersen Faces Break-up As KPMG Talks Fail

Andersen KPMG

A source close to the negotiations said the KPMG merger talks, started just two weeks ago, had collapsed after Andersen Spain decided to link up with rival Deloitte and Touche.

Spain, Andersen's largest practice in continental Europe, was seen as the key to the KPMG deal. "Latin America will now go with Deloitte as well," the source said.

He said Singapore, Philippines, Malaysia and Taiwan looked set to merge with Ernst and Young, which is already combining with Andersen in Australia and New Zealand.

KPMG was unable to comment. A merger with Andersen outside the United States would have created an accounting giant with over $12.2 billion in revenues and 140,000 staff.

Andersen, indicted in the United States for its role as auditor of collapsed energy trader Enron, faces billions of dollars in lawsuits and has suffered a mass exodus of U.S. clients.

The collapse of the KPMG talks came as Andersen Worldwide's board met in London to pick a successor to Joseph Berardino, who resigned as chief executive last week.

Aldo Cardoso, chairman of Andersen Worldwide's 18 member board, has been tipped as a possible replacement.

BREAK-UP

KPMG had been trying to put together a block deal with Andersen partnerships outside the United States. But individual partnerships have been rapidly defecting to rival firms.

Andersen Spain now plans to merge with Deloitte and Touche, Andersen Singapore is in talks with Ernst and Young, while negotiations between Andersen and KPMG in Japan appeared to run into difficulties over the weekend.

Hong Kong and China have done a deal with PricewaterhouseCoopers, Russia, Australia and New Zealand have joined up with Ernst and Young.

The rest of Andersen in continental Europe, including the UK, France and Germany, have yet to decide their future in the light of Spain's defection, the source said.

The board of Andersen Worldwide, the umbrella organisation for Andersen's partnerships around the world, is expected to continue meeting in London on Tuesday and talks could extend into Wednesday, he said.

Berardino stepped down last week as former U.S. Federal Reserve chief Paul Volker tried to put together a rescue for the beleaguered accounting firm's U.S. operations.

An Andersen UK spokesman said the Andersen Worldwide board, the coordinating body for Andersen partnerships, would probably meet through most of Tuesday and possibly into Wednesday.

A BETTER FIT WITH DELOITTE

Andersen Spain said in a statement it was attracted by the similarities in business practice adding the union would offer Spanish clients a comprehensive service in the United States, where Deloitte is the second largest accounting firm.

"The partners of Andersen Spain decided to analyse different merger options with the aim of creating a solid organization of professionals with the resources to fully meet our clients' needs, and we have opted for Deloitte and Touche," said Andersen Spain President Carlos Gonzalez in the statement.

Andersen in Spain serves around 23 of the companies on Madrid's IBEX index of the leading 35 shares, including top banks Santander Central Hispano and BBVA and telecoms heavyweight Telefonica.

Its union with the Spanish arm of Deloitte and Touche will create a firm of some 4,500 employees, the statement said. Deloitte and Touche has a $12.4 billion worldwide business covering some 140 countries.

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