Ernst & Young Grabs Another Piece of Andersen

The global empire of embattled auditor Arthur Andersen showed further signs of fragmenting on Friday as Ernst & Young said it had reached agreement to merge its New Zealand operations with its Big Five rival. 

A day after Andersen teams in Hong Kong and China said they would join with PricewaterhouseCoopers, while Ernst & Young said it planned to absorb Andersen's Russian business, Andersen's New Zealand operations also looked set to split from the group. 

The moves come despite a strategy set out earlier in the week for Andersen globally to link its non-U.S. operations with KPMG, a stance it is fighting to preserve as partners in an increasing number of centers agree separate deals. 

Ernst & Young welcomed its second success in picking up Andersen assets. "This is exciting news for Ernst & Young and will end a difficult period of uncertainty for Andersen clients and staff," said E&Y's Chief Executive John Judge in a statement. 

The agreement flew in the face of comments on Thursday from Andersen -- which is fighting the U.S. Department of Justice over its role in the collapse of U.S. energy trader Enron -- that international partners are not at liberty to bolt the firm. 

"They are not completely free to do so," said Andersen spokesman Charlie Leonard. "They have very specific obligations to the other member firms within Andersen Worldwide, financial and otherwise." 

Meanwhile the acute nature of Andersen's problems was again highlighted by two more U.S. groups -- Waste Management and Chicago Mercantile Holdings, parent of the Chicago Mercantile Exchange -- saying they planned to drop it as their auditor. 

In Brussels, European competition experts said KPMG could probably win regulatory approval to buy parts of Andersen, but noted it needed to move quickly as units around the world do their own deals and the risk grew of a hemorrhage of staff. 

Experts said a reduction in the number of leading global accountants to four from five would not previously have been acceptable, but approval for KPMG could be hastened since the move was being forced on the firms. 

"The move to the Final Four has not been created by political will, it's been create by reality," said competition lawyer Clive Stanbrook of Stanbrook and Hooper. 

The KPMG plan, promoted by Andersen partners in Germany and other European centers, emerged on Tuesday as a rescue route for Andersen units outside the United States. 

Andersen Worldwide, the Switzerland-based umbrella organization that represents Andersen's 85,000 employees around the globe, is seen as having no future as an independent entity due to the woes of its key U.S. component. 

Chicago-based Andersen, which pleaded not guilty on Wednesday to an obstruction of justice charge stemming from its shredding of Enron-related documents, faces billion-dollar lawsuits and a exodus of important clients. 

As the bleeding continues, the firm is reaching for various tourniquets, including a quick trial with U.S. prosecutors and the KPMG merger deal that would separate the firm's international operations from its tarnished U.S. practice. 

On the trial front, a Texas judge agreed to a rapid time frame on Wednesday and said court proceedings would begin May 6. On the merger side, however, the KPMG plan risks being overtaken by events. 

KPMG and Andersen face the complex task combining the two firms' accounting partnerships spanning more than 80 countries as far-flung partners head for the exits. 

Andersen's Spanish affiliate Garrigues & Andersen has been trying to break off from the worldwide group, although Andersen in Spain said on Thursday it was still in talks with KPMG. 

Partnerships in other European countries such as Italy and France seem prepared to join with KPMG. 

Andersen has lost some 60 clients since the beginning of the year, according to Auditor Trak, including well-known companies such as Merck & Co. and Delta Air Lines -- accounting for more than half of the total client losses among the Big Five since then.