KPMG Interested in Andersen’s Overseas Units

Acquiring AA's European operations would push KPMG to second spot in Big Five. Also: BDO Siedman sniffing around, Ford ups offering, and why did the SEC halt trading of ACLN?


Managers at KPMG and Andersen confirmed Monday they are discussing a possible deal involving the firms’ non-U.S. operations.

“We are continuing to work together to consider possible ways in which to combine our operations throughout the major markets of Europe, Africa, Middle East, Canada, Asia and Latin America,” said Mike Rake, chairman of KPMG EMA Region, in a statement. “Such a combination would be complementary in terms of geographic coverage and industry expertise.”

Added Aldo Cardoso, chairman of the board of Andersen Worldwide: “Any such combination would create a global network that can continue to provide outstanding service in every part of the world and represents an outstanding opportunity for our partners and people.”

Managers at the two firms said the completion of a transaction is subject to further negotiation. Any merger, they noted, will be implemented through combinations of member firms around the world, each of which will require appropriate approvals from local partners and regulatory authorities. Industry watchers have already pointed out that regulatory officials at the European Union might take a dim view of an Andersen-KPMG combination.

Still, the deal makes a whole lot of sense for KPMG: Andersen’s strong tax practice would be a nice fit. According to Bowman’s Accounting Report, KPMG’s tax practice accounted for only about 25 percent of the firm’s $10.8 billion in global revenues in 2001. By comparison, KPMG generated nearly half of all its sales through its accounting and audit practice.

What’s more, picking up Andersen’s European operations would vault the accountancy back into second place among the Big Five accounting firms. KPMG currently ranks third on that list, trailing PricewaterhouseCoopers and Deloitte Touche Tohmatsu. Global sales at KPMG fell to $10.9 billion in 2001, a 13 percent decrease from 2000.

Admittedly, much of that falloff came from KPMG’s spinning off of its consulting business. Nevertheless, revenues at closest rival DTT increased to $11.3 billion last year, an 11 percent hike. That surge pushed Deloitte ahead of KPMG in worldwide sales in 2001. PwC dwarfs its Big Five rivals, with worldwide sales of nearly $20 billion last year.

In a related story, press reports indicate that second-tier accounting firm BDO Siedman may be making a bid to replace Andersen as a member of the Big Five. Management at the Chicago-based firm is said to be interested in buying individual parts of Andersen’s U.S. operations. If Andersen is sold or goes bankrupt, BDO (currently the sixth-largest accounting firm in the United States) would jump to fifth on the list. Management at Grant Thornton, another second-tier firm, said it is not interested in any of Andersen’s practices. You can understand that.

As reported last week, a number of second-tier accounting firms have picked up former Andersen clients. Mostly though, those local and regional firms are getting the business of Andersen’s privately held clients.

So far, Andersen has been dumped as auditor by 46 major publicly traded clients. The list includes Merck, Federal Express, Freddie Mac, Delta Air Lines, and Sara Lee. Yesterday, Wyeth also nixed Andersen as its independent auditor. Wyeth, formerly American Home Products, had employed AA as its auditor for 33 years. According to industry watcher Bowman’s, Wyeth paid Andersen $5.6 million in audit fees and $4.8 million in consulting fees in 2001. All told, Bowman’s estimates that Andersen has lost some $200 million in fees with the recent defections. The embattled accountancy has about 2,255 corporations left on its roster of publicly held clients. Expect that number to drop dramatically over the next few months.

In the Nicosia of Time: SEC Suspends Big Board Stock

The SEC announced the temporary suspension in trading of shares of ACLN because of concerns about the accuracy of publicly available information about the company.

The commission noted this was the first time in about 25 years that it has halted trading in a NYSE stock. ACLN, which operates out of Cyprus and Belgium, ships used cars sold in Belgium and the United States to buyers in Africa and the Middle East.

The commission said in a prepared statement that it is concerned about a number of claims the company has made, including the revenue and income obtained from its new car wholesale business. Other SEC concerns: ACLN’s claims concerning the revenue and income obtained from arranging the transportation of used cars; the business relationship and the nature of financial transactions between ACLN and Matina Forwarding and Trading, a related entity; and the source of funds claimed by ACLN as a corporate asset and deposited at the BNP Paribas Bank, Luxembourg.

“This action reflects the commitment of the commission to police the accuracy and completeness of the information provided to the investing public, whether by a domestic or foreign issuer,” said Paul Berger, associate director of enforcement at the SEC.

Short Takes

>> Global Crossing reported that John Legere, chief executive officer, and Dan Cohrs, chief financial officer, were requested to testify before the Subcommittee on Oversight and Investigations, of the U.S. House of Representatives Committee on Financial Services, on Thursday, March 21. In letters addressed to Legere and Cohrs, chairwoman Sue W. Kelly stated the purpose of the hearing was “to examine the effects of the Global Crossing bankruptcy on investors, financial markets, and employees.” One likely effect: investors and employees no longer like Global Crossing.

>> Ford Motor Credit Co. added $2 billion to its existing global notes. The automaker tacked on $1 billion to its existing 6.5 percent notes due on January 25, 2007, and $1 billion to its existing 7.25 percent notes due on October 25, 2011.

> Advantage Payroll Services filed for an initial public offering of up to $143.8 million of common shares. It did not disclose a price range or number of shares. Advantage Payroll, which provides outsourced payroll processing and related services to small businesses, said it will use the proceeds to repay debt, to redeem all outstanding preferred stock, and for other general corporate purposes. A party would be nice.

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