Search the Internet          Tips  Sites: Finance, Investment

Andersen faces court showdown, break-up talks

Andersen is preparing for its showdown with the US government on Wednesday, as the embattled accountant faces charges it obstructed justice by shredding papers relating to its audit of collapsed energy trader Enron Corp.

A defiant but mortally wounded Andersen, which has called the indictment a death sentence and refused an offer to cut a plea deal, is set to answer the charge at its arraignment in Houston federal court. It is the first criminal proceeding in the string of prosecutions expected to rise from Enron's fall.

As the legal battle starts, Andersen was still in talks to sell its non-US operations, in an attempt to break up the firm on its own terms, and it was reported that Deloitte Touche Tohmatsu was interested in buying Andersen's US non-audit operations.

ANDERSEN WILL FIGHT

Andersen has signaled it will fight the US Department of Justice allegation it obstructed justice by destroying thousands of Enron-related documents and records after being notified of a Securities and Exchange Commission investigation. But it will likely be a difficult war to wage.

"If the facts alleged are true, this is like taking candy from a baby. You could not invent better facts to demonstrate obstruction of justice," said Richard Kuniansky, a former federal prosecutor who runs a Houston practice specialising in white collar criminal defense.

Meanwhile, non-US units of Andersen intensified rescue talks with rival KPMG, announced on Monday, as senior partners in Andersen's Asian and European businesses came out strongly in support of a merger.

The Wall Street Journal also reported that Deloitte was in talks to buy Andersen's US tax and consulting operations -- which are expected to be split from its US audit operation. Andersen did not return calls seeking comment on the report. Deloitte declined comment, but a source close to the firm said Deloitte was still looking at opportunities.

Andersen is widely expected to spin off, or sell, its tax and consulting operations in the United States, in line with recommendations by Paul Volcker, the former Federal Reserve chairman that Andersen hired to advise on ways to resolve its internal problems.

Critics say cozy relationships between firms and their auditors, helped along by hefty consultancy fees on top of audit work, compromises the quality of the audit, and can lead to situations like Enron. Securities regulators in the United States are considering similar industry-wide rules.

BIG FIVE BECOMES BIG FOUR?

If successful, a deal with KPMG could be a shot in the arm for Andersen's finances and, ironically, help Andersen survive as an independent US firm because it could focus its energies on beating the criminal charges and shareholder suits.

A merger of Andersen and KPMG would create a powerful force, with about 140,000 staff and $12.2 billion in revenues outside the United States.

Andersen, the smallest of the Big Five accountants, currently has 85,000 employees and $9.3 billion annual revenues worldwide, while KPMG has 100,000 staff and revenues of $11.7 billion globally.

A merger would add about $5 billion in Andersen non-US revenues -- just over half its total -- to KPMG, which has $7.4 billion in non-US revenues, and bring 57,000 Andersen staff to KPMG's 82,500 outside the United States.

Andersen partners are keen on the deal, but any transaction risks being scuppered by Enron liabilities, and objections from competition regulators around the world.

A spokeswoman for the European Commission, the European Union's competition watchdog, said the details of a deal would determine whether an investigation would be launched.

"If there is a deal and if it matches our thresholds and the companies file a proposed transaction then we will consider it, she said, adding that if the company were taken over piecemeal it might be a matter for national authorities instead.

Keen to ensure that no single audit company controls the accounting of all the major firms in any one sector, the Commission demanded four years ago that Ernst & Young and KPMG shed clients in their proposed, but failed, merger.

And in the sprawling, nebulous structure that characterizes international consultancies, the deal will have to be struck on a number of local levels, with KPMG holding all the trump cards.

ALSO READ:
The Rediff Budget Special
Money

Tell us what you think of this report