Andersen seeking refuge in KPMG

ANDERSEN is preparing to cut its stricken US business loose and merge other operations around the world with rival KPMG. The troubled accounting giant said on Monday that talks are focusing on a merger outside America.

KPMG said such a deal 'would generate considerable synergies in geographic coverage and expertise'. A deal could be announced as early as today. Andersen's London office has called a news conference for 10.30am.

But there are already signals that a tie-up could face regulatory obstacles. City watchdog the Financial Services Authority has reportedly said such a deal would damage competition and that it may ask the Competition Commission to investigate.

Talks broke down last week between Andersen and rivals Deloitte Touche Tohmatsu and Ernst & Young, over US liabilities following the collapse of US energy trader Enron. Andersen's 83 semi-independent offices around the world revolted.

The Spanish said they wanted to cut ties with the US-led global parent company. The Germans gave their office manager authority to sever links. In Beijing, the Chinese office said it was 'actively engaged' in talks with rivals while the Swiss said the same. The Poles were also looking at leaving.

In London, managing partner John Ormerod said a merger could be done 'on a coordinated basis for major parts of the practice'. His worries have been mounting. US prosecutors accused the London office of helping to shred Enron documents. The London office claims it shredded documents related to Enron only to make more room to work on the Enron audit. Andersen's UK partnership has denied claims that it was part of an orchestrated destruction of Enron-related materials.

UK staff are talking to headhunters, and rivals are looking to poach Ormerod's best people. Saving Andersen UK's 6,400 jobs and estimated £600m annual sales may involve a quick divorce from the US.

Andersen last year had £6.5bn in sales. The operations outside the US are certainly big enough to survive without the US. Western Europe saw 9% growth last year, Asia Pacific 7%.

A merger will raise the power of the remaining 'big four' accountancy groups in most countries. As the Enron affair produced widespread calls for more openness in accounting, this would be ironic. FSA managing director John Tiner reportedly said: 'From a regulatory point of view, if Andersen ends up being consumed into another firm or broken up, then you will end up with just four global firms. That would be quite damaging to competition.'