The besieged Andersen accounting firm Monday stepped up efforts to sell parts of its business, negotiating to offload its United States operations to Chicago-based BDO Seidman even as its international partnerships were in merger talks with accounting rival KPMG.
Andersen executives have shopped the company to three global accounting firms in recent days, only to see a nearly completed deal with Deloitte Touche Tohmatsu fall through. Still, industry observers said it might be possible to arrange sales of certain parts of the Chicago-based firm, particularly its international affiliates, because they don’t have legal exposure to lawsuits resulting from the failure of Enron Corp.
“We have initiated talks” with Andersen, said Scott Univer, general counsel for BDO Seidman. “We are looking at a variety of areas, and we are in communication with a number of individuals.”
Univer acknowledged that Andersen’s legal liabilities, which include the civil lawsuits and a federal indictment, remain a significant factor. “It is something we are looking at just the way everybody else is,” he said.
Separately, Andersen and KPMG said Monday that they were in talks on a possible merger of their main businesses outside the United States. The two firms were seeking to combine their operations in Europe, Africa, the Middle East, Canada, Asia and Latin America, KPMG European Chairman Mike Rake said.
“Such a combination would be complementary in terms of geographic coverage and industry expertise,” Rake said.
Inside Andersen on Monday, a voice mail circulated by a senior executive to the firm’s employees confirmed that Andersen was negotiating with KPMG for parts of the European operations, one source said. The voice mail said the firm’s St. Charles office, which performs training and back-office functions, might also be included.
The executive’s voice mail indicated that Andersen was also in negotiations to sell its U.S. business consulting practice, although the message didn’t name a potential buyer.
Andersen also announced its intention to leave Andersen Worldwide, the Swiss-based international organization that provides support for Andersen partners here and abroad. Such a move would clear the way for Andersen’s international partners to merge with KPMG.
Andersen’s foreign partners have a great deal of autonomy from Andersen’s operations here. While the domestic and foreign partners steer clients to one another, the foreign partnerships can easily affiliate with different firms.
“We appreciate the benefits of discussions between Andersen’s member firm partners around the world and KPMG,” Andersen said in a statement. “While these discussions are under way, we will remain part of the Andersen Worldwide network until Oct. 1, 2002, or until this transaction is completed, and retain affiliation with our member firms throughout the world.”
In the United States, Andersen faces criminal charges, a one-year suspension on new government business and a swelling list of multinationals defecting to competing auditors. Pharmaceutical group Wyeth on Monday became the latest to drop Andersen.
The future of Andersen, a Chicago institution for 89 years, is in doubt because of the company’s role in the bankruptcy of Houston-based Enron. Andersen audited Enron and signed off on deceptive accounting that the energy firm used to inflate profits and hide debt. When the scheme unraveled last year, Enron spiraled into bankruptcy.
Now Enron shareholders are suing Andersen. And federal prosecutors last week announced that a Houston grand jury had indicted Andersen on a charge of obstruction of justice. The charge alleges that Andersen’s auditors in Houston, Chicago and other cities shredded tons of Enron documents to keep them from investigators.
Andersen has denied that the firm, as a whole, committed any wrongdoing and vowed to fight the government’s charge. Andersen blamed a small number of its employees for the shredding, and argued that the firm’s top executives knew nothing about it. Andersen voluntarily reported the shredding to federal authorities last fall.
On Monday, Andersen asked federal officials to rethink their decision banning the accounting firm from obtaining new government contracts. The government imposed the ban Friday, a day after prosecutors announced the indictment.
This year, Andersen has lost 53 clients and gained just six small- and middle-market companies, according to Auditor Trak, an accounting database. The latest defection, Wyeth, announced that it was abandoning Andersen, its auditor for 33 years, for PricewaterhouseCoopers. Chicago-based Sara Lee, which dropped Andersen on Friday, said it also had chosen PricewaterhouseCoopers.
With $2.20 billion in annual revenue, BDO Seidman ranks sixth among U.S. accounting firms. Andersen is the smallest of the Big Five accounting firms, but with $9.34 billion in revenue is still far larger than BDO Seidman.
Arthur Bowman, editor of Bowman’s Accounting Report, said he expects that BDO Seidman is interested in parts of Andersen, not the firm as a whole.
“They may be trying to position themselves for some of the people and practices at Andersen, which is a good strategy,” Bowman said.
It is unclear how or if BDO Seidman can acquire parts of Andersen’s U.S. business without assuming successor legal liability for the Enron lawsuits, which could exceed $1 billion.
The Big Five accounting firms of KPMG, Deloitte Touche Tohmatsu and Ernst & Young all have looked at Andersen’s U.S. operations and concluded the risk of legal liability outweighed the benefits of merger. In most states, when one firm buys another, it assumes that firm’s legal responsibilities.
