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KPMG efforts to hook Andersen beset by defections

KPMG's efforts to meld non-US operations with Andersen struggled further on Wednesday as the embattled accountant's Spanish arm said no formal talks had started and other options were being considered.

"The proposal from KPMG at an international level is interesting, but while it appears positive it is not the only option," a spokeswoman for Andersen in Madrid told Reuters.

"There are still no formal negotiations (with KPMG)," she added. "The Spanish partners are still analysing the different alternatives."

Andersen, the smallest of the big five accounting firms, is considered unlikely to survive alone as the US business buckles under a criminal indictment over its role in the collapse of energy giant Enron.

Chief executive Joseph Berardino quit on Tuesday, saying efforts to save the firm would be impeded if he stayed.

The Wall Street Journal reported on Wednesday that talks to sell its non-audit US operations were underway, with a price tag anywhere between $1 billion and $5 billion suggested.

Elsewhere, global merger talks outside the United States with KPMG were announced last week, but since then several Andersen units have struck individual deals with rivals PricewaterhouseCoopers or Ernst &Young.

The Andersen Worldwide board of managing partners is due to meet at the firm's London headquarters on Thursday.

The board is made up of 18 representatives of the various partnerships, including three from Asia. An Andersen spokesman could not comment on what would be discussed.

Spain, where Andersen audits 23 of the top 35 quoted firms, is widely regarded as its star European business and the unit is seen as a key link in holding together any deal to combine non-US operations with KPMG.

Mike Rake, chairman of KPMG Europe, Middle East and Africa, said on Tuesday talks were continuing despite a string of defections.

BREAKAWAY UNDER WAY

Partnerships in Russia, Hong Kong, China, New Zealand and Australia have already broken away.

Andersen's Hong Kong and China units are expected to sew up a deal with PricewaterhouseCoopers within two or three months, a senior partner of KPMG's rival said on Wednesday.

Despite this, senior Andersen executives said they would continue talks to salvage a proposed merger with KPMG in Asia after a regional meeting with KPMG in Singapore which included KPMG's Brussels-based international head Colin Holland.

But they admitted there were difficulties.

"Realistically, there are some challenges in a number of countries that we need to address. However, the opportunity that will be created from a successful combination of our practices is very attractive, particularly if we can maximise on our joint potential," John Prasetio, Asia Pacific managing partner at Andersen, said.

All Asian units of Andersen were present at the meeting except China, Hong Kong, New Zealand and Australia.

Andersen's New Zealand unit has reached agreement with Ernst &Young and its Russian business is also heading there while talks with KPMG in Australia broke down over a conflict of interest.

The Asia-Pacific merger would create Asia's largest accounting firm with about $2 billion in revenues and more than 28,000 staff.

Andersen's Indian arm is talking to KPMG but has not ruled out going it alone if a merger falls through, Bobby Parikh, country managing partner in India, said, adding "it will be difficult to continue under the Andersen name."

If a global deal outside the United States across so many individual partnerships eludes KPMG, it risks falling behind if competitors get their hands on Andersen units, which in many areas outside the United States are the top practices.

"Given that (KPMG) are in second place in a lot of these territories, what they wouldn't want is for one of the other firms to merge with Andersen and overtake them," an accounting industry executive said.

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