Andersen merges with E&Y in Oz

EMBATTLED accounting firm Andersen has continued to fragment, with the company today announcing an Australian merger with Ernst & Young. The deal, which will create Australia's second-largest professional services firm with annual revenues of A$700m (£259m), comes after KPMG and Deloitte turned down overtures from Andersen in Australia earlier this week.

Both companies were concerned about Andersen's potential Australian liability for its role in the A$5.8bn collapse of insurer HIH, currently being examined by a Royal Commission.

The merger caps a dramatic week for Andersen, which has imploded as a result of its involvement in the controversial failure of American energy giant Enron. Joseph Berardino, Andersen Worldwide's chief executive, bowed to mounting pressure and resigned earlier in the week as the company struggled to negotiate mergers with global rivals.

The splintering of the Asia Pacific partnerships puts an end to any hopes that Andersen can survive as a united entity in the region and overturns earlier plans to merge Andersen with KPMG in the Asia Pacific. Merger talks with KPMG continue in Britain and Deloitte is firming as a suitor in the US.

In Australia, merger talks with Deloitte collapsed early today. The company said it had failed to put in place a structure that would quarantine it from liabilities arising from the HIH collapse. Andersen was both HIH's liquidator and auditor.

The new merged Australian company will be headed by local Ernst and Young chief executive Brian Schwartz, who said the merger would 'provide certainty and opportunity for Andersen's people and clients'. The Andersen operation will effectively be merged into Ernst & Young and the Andersen name will disappear. The merger is expected to be completed by mid-May.

'The proposed integration is a positive move for both our firms, and will substantially strengthen the presence of Ernst and Young in the marketplace as a leader provider of professional services,' Schwartz said.

The Australian move comes after Andersen partnerships in Hong Kong and China joined forces with Pricewaterhouse-Coopers, and New Zealand also opted for Ernst & Young.