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Tuesday, 2 April, 2002, 17:24 GMT 18:24 UK
Andersen-KPMG merger on the rocks
Andersen is still losing clients
Andersen has admitted that it has no chance of stitching together a worldwide merger with rival accountants KPMG, after failing to persuade all its regional units to sign up to the deal.

"In view of the decisions by certain individual firms to pursue different directions, it is clear that a deal embracing all of the non-US firms is not achievable," Andersen Worldwide said in a statement.

It insisted, however, that talks between the two firms continued at a country level in various locations, but did not speculate on what sort of deal could be salvaged.

The statement came after several days of speculation that the Andersen-KPMG merger could come off the rails - talk that intensified on Tuesday after the defection of certain key Andersen units.

Things fall apart

Andersen's consulting arm, source of about one-seventh of its revenues, confirmed that it will play no part in merger talks with KPMG, which in theory should cover all operations outside the US.

And its Spanish unit - considered one of its most important assets - also ruled itself out of the merger, following in the footsteps of a string of regional affiliates over the past couple of weeks.

A worldwide merger had been seen as the best hope of salvaging those parts of Andersen untainted by the effects of the collapse of Enron, the energy trader whose books were audited by Andersen's Houston office.

But the deal quickly ran into opposition among Andersen operations in Asia.

Offices in Australia, New Zealand and Russia now plan to merge with Ernst & Young, contractual difficulties make it look increasingly unlikely that Japanese staff will side with KPMG either, and Hong Kong and China operations are now talking to PricewaterhouseCoopers.

The defection of the Spanish office is the first in Western Europe, seen as the most important region for the two firms.

Wanted: Boss

These complications further obstruct the work of the Andersen board, which is currently meeting to try to find a new chief executive.

Former Fed chairman Paul Volcker
Volcker: Andersen's 'white knight'?
The company remains rudderless for the present in the wake of Joseph Berardino's resignation last week.

A conference call among Andersen partners last Thursday failed to produce a candidate to replace Mr Berardino.

Tuesday's meeting, in London, looks likely to extend into Wednesday. An Andersen spokeswoman was unable to say when any public statement might be forthcoming.

Under the gun

Andersen needs to fill Mr Berardino's shoes, not least because partners and staff in the US want the company to stay afloat as a going concern.

Andersen clients:
Staying or going?
Going:
Delta Air Lines
Dynegy
Equifax
FedEx
Freddie Mac
LML Payment Systems
Merck
Pacific Capital Bancorp
Sara Lee
Waste Management

Staying:
ADC Telecom
Alltel
Cinergy
Costco Wholesale
Hershey Foods
Mirant
Walgreen
Georgia-Pacific
But the firm faces a number of major problems which threaten its survival.

The company is still facing charges in the US relating to its Houston office's decision to shred Enron-related documents even after the federal investigation into the latter's collapse had begun.

Unless they are lifted - and according to the New York Times, Andersen will have to come clean in public about the shredding to stand any chance of that happening - the firm may well go out of business.

The case goes to court in Houston on 6 May amid accusations from prosecutors that the firm is trying to sway witnesses.

"Andersen has embarked on a massive campaign to flood the public record with slanted and outright false renditions of evidence in the case," the prosecution said in a brief filed last week.

More defections

On top of that, it is losing clients fast as firms big and small decide the risk of being associated with Andersen is too great.

Monday brought three more defectors, in the shape of household products firm Newell Rubbermaid, Pacific Capital Bancorp and SPX Corp, a maker of industrial and technical products,

That takes the number of clients lost to more than 100 since the start of 2002.

The survival plan pushed by former Federal Reserve chairman Paul Volcker - which received backing from the 1,700 US partners last week - is still seen as the firm's best hope.

But it only applies to the US arm of the business.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Minasha Tank
"The news came... as little surprise"
See also:

01 Apr 02 | Business
More firms flee Andersen
30 Mar 02 | From Our Own Correspondent
Andersen's angry accountants
29 Mar 02 | Business
Andersen backs rescue plan
27 Mar 02 | Business
Andersen chief steps down
05 Feb 02 | Business
Audit giants called to account
29 Jan 02 | Business
Andersen on the defensive
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