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Tuesday, 26 March, 2002, 13:23 GMT
Analysis: Andersen's disintegrating deal
Andersen staff demonstrate
... and no one's going to tell us what to do
test hello test
By James Arnold
BBC News Online business reporter
line

A week ago, it was being touted as "an outstanding opportunity".

Now, the worldwide merger between accounting giant KPMG and its troubled rival Andersen looks in serious danger of coming off the rails entirely.

On 19 March, the two accountancy firms admitted that they were discussing a merger of all their operations outside the US, where Andersen is still struggling with a mass of Enron-related legal troubles.

Since then, many Andersen subsidiaries around the world have turned their backs on the deal, opting for the hands of other suitors.

KPMG bigwigs are currently in Singapore, attempting to salvage what remains of Andersen's Asian operations.

Things fall apart

Over the past week, a host of Andersen country units have flown the nest.

  • Andersen's Australian unit, one of its biggest country operations outside the US, has pulled out of talks with KPMG, citing a potential conflict of interest over their roles in the collapse of insurer HIH, and has picked Deloitte & Touche as a partner.
  • Andersen's New Zealand operation has rejected KPMG, and has opted for a merger with Ernst & Young.
  • The firm's affiliates in China and Hong Kong, representing 1,300 staff, have also rejected KPMG, this time in favour of PricewaterhouseCoopers.
  • Andersen's Russian unit has chosen to partner with Ernst & Young.

Who's next?

More defections from the deal are likely; certainly, the air is thick with rumour.

According to some press reports, Andersen's consulting business, which employs 12,000 staff worldwide out of the firm's total of 85,000, is hoping to split itself off as a separate unit.

The Sunday Times newspaper speculated that the business could combine with medium-sized rivals such as PA Consulting, or the consulting arms of tech firms IBM and EDS.

Separately, BDO, the world's sixth-biggest accountant, is reported to be sniffing around, and is running its slide rule over Andersen operations in the US, UK and Mexico.

European problems

The rebellion against KPMG is not universal: Andersen's large Canadian unit, for example, seems likely to fall placidly into its rival's arms.

And although Russia, China and Australia are certainly vast markets, the real focus of the deal for KPMG will be Europe.

But not all will be plain sailing here, either.

First, Europe is the market where KPMG is already most strongly represented, creating the potential for clashes with Brussels' competition authorities.

The problem is particularly bad in Germany, where the two firms have a combined staff of more than 11,000.

People power

Second, the past few days have underlined the trickiness of cajoling talented individuals into wholesale deals, a process seemingly akin to herding cats.

Taking control of a knowledge company such as Andersen is not just about writing a big enough cheque: individual empires need to be conquered, local power bases neutralised.

Andersen, although a tightly controlled global brand, is a pretty loose confederation of offices, each under the sway of powerful local partners.

KPMG seems to be realising this: on 22 March, European chairman Mike Rake warned of the "chaos" that could result from an insufficiently disciplined approach to a merger.

The KPMG-Andersen merger certainly does seem to be an outstanding opportunity - but so far, only for the two firms' rivals.

See also:

23 Mar 02 | Business
Andersen salvage plan set out
19 Mar 02 | Business
Questions over Andersen break-up
20 Mar 02 | Business
Andersen pleads not guilty
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