D&T and AA in Negotiations

Deloitte would bring most of Andersen's tax partners on board; deal would give big boost to firm's tax practice.


It’s ten days from April 15, and that can mean only one thing: time to hire most of the tax partners at an indicted accounting firm.

Yesterday, management at Andersen, which is under indictment for obstruction of justice in connection with its alleged role in shredding sensitive Enron-related documents, said “a significant number” of its U.S. tax partners would indeed join D&T.

The announcement came the same day that Andersen named a new chief executive for its worldwide operations.

The Deloitte deal is expected to close by the end of this month, according to published reports, citing an Andersen spokesman. The acquisition would give Deloitte the largest domestic tax practice among all U.S. accounting firms. According to industry watchdog Bowman’s, Deloitte’s tax service generated about $1.2 billion last year, or around 22 percent of the firm’s total revenues. The firm’s consulting business brought in more then $2.5 billion in sales last year. Picking up Arthur Andersen’s domestic tax business would likely double Deloitte’s tax practice revenues.

(To see which Big Five firm has the largest domestic tax practice, see “Ranking the Big Five.”)

From a liability standpoint, the deal makes sense. By only hiring Andersen partners — rather than the firm’s actual tax practice — Deloitte may be able to shield itself from lawsuits stemming from Andersen’s audit work at Enron Corp. Around 27 percent of Andersen’s 28,000 U.S. employees currently work for the tax group. If the deal goes through, the Andersen partners are expected to start work at Deloitte on April 30.

Meanwhile, as CFO.com reported yesterday evening, Andersen Worldwide SC said Aldo Cardoso has been named acting chief executive officer. Cardoso will continue to serve as chairman of the Andersen Worldwide Board of Partners.

“Cardoso’s key objective as acting CEO will be to direct an orderly process by which the individual member firms of Andersen Worldwide can pursue transactions that provide the best opportunities for their partners, employees and clients,” said the company in a statement.

For his part, Cardoso said in a statement, “This new role is a natural extension of my responsibilities as chairman of the Andersen Worldwide board of partners. I will continue to work with our partners around the world to help them achieve as quickly as possible the best outcome for their people and their clients.”

Cardoso has been chairman of the Andersen Worldwide board of partners since 2000, and a board member since 1998. Based in Paris, he is country managing partner of the France member firm.

Cardoso succeeds Joseph Berardino, who announced on March 26 that he would soon be resigning from his position. Berardino was elected managing partner and CEO in January 2001.

Andersen Worldwide SC is a coordinating entity for its autonomous member firms, which have agreed to cooperate in the market with a common brand, philosophy, technologies and practice methods. Each Andersen Worldwide member firm has its own governance and capital structure and its own leadership.

The individual member firms of Andersen Worldwide collectively employ approximately 85,000 people. Arthur Andersen LLP is the member firm of Andersen Worldwide in the United States.

More Andersen news: Connecticut Bancshares Inc. terminated the engagement of Andersen, effective Tuesday, according to an SEC filing. Connecticut Bancshares switched to, coincidentally, Deloitte & Touche.

And Zurich-based cement company Holcim AG said it may drop Arthur Andersen AG as auditor. “We’re looking at whether we will keep Arthur Andersen, and we will announce the decision in due course,” Chief Executive Markus Akermann reportedly told reporters at a media conference in Zurich .

Deloitte Sued

While Deloitte & Touche negotiates to bring over most of Andersen’s tax partners, the company got slapped with a major lawsuit yesterday. The suit stems from the collapse of the now-defunct InverWorld investment companies, according to Dow Jones.

The suit accuses the Big Five accounting firm of gross negligence and accounting malpractice in its audit of I.G. Services LTD , a principal of InverWorld. The tort seeks damages of at least $200 million plus unspecified punitive damages, says the report. However, the total award being sought “is probably going to be in excess of $300 million,” Houston attorney Allan Diamond told Dow Jones.

Diamond filed the suit Thursday on behalf of Len B. Blackwell, a PricewaterhouseCoopers auditor who is currently the official liquidator and Chapter 11 bankruptcy trustee for I.G. Services. I.G. Services filed for Chapter 11 bankruptcy in 1999.

Deborah Harrington, a spokeswoman for Deloitte & Touche, told the wire service the firm will “vigorously defend” itself in the case. As you may recall, investors slapped D&T with a $350 million lawsuit two years ago by investors. Deloitte & Touche-Cayman Islands was also sued.

About 1,200 InverWorld investors, including many wealthy Mexican clients, lost a total of $325 million from the allegedly fraudulent investment scheme, according to published accounts. Last April, InverWorld Chairman Jose Zollino and President George Fahey were arrested and charged with concocting a conspiracy to defraud investors by creating a Ponzi scheme.

Fahey pleaded guilty in December to investment fraud and conspiracy to launder money. The pleas was part of a deal to testify against Zollino. Zollino is expected to go on trial as early as this summer.

Adelphia BankersUp

Adelphia Communications Corp. management said it has engaged three major investment banks — Salomon Smith Barney, Bank of America Securities and Credit Suisse First Boston — as the company’s financial advisors.

It also said Adelphia and those advisors will explore opportunities to reduce Adelphia’s debt, strengthen the company’s balance sheet and build value for Adelphia shareholders by various means including, in particular, potential cable asset sales.

ThecCompany has also engaged media specialist Daniels & Associates as a special advisor. Adelphia also reported it hired the law firm of Fried, Frank, Harris, Shriver & Jacobson to advise it on various matters.

“We want our shareholders to know that both Adelphia and the Rigas family are committed to building the value of the company for all Adelphia shareholders,” says John J. Rigas, CEO of Adelphia. “We believe that the steps we are taking to reduce debt and deleverage our balance sheet through potential cable asset sales will result in a stronger company better-positioned to build shareholder value.”

Adelphia added there can be no assurance that the exploration process the company and its financial advisors have launched will result in any asset sale or other transaction.

As CFO.com noted yesterday, the SEC is investigating off balance sheet loans made to partnerships controlled by the Rigas family, Adelphia’s founders. Last week, the company disclosed it had made $2.3 billion of those loans.

Today’s SEC Blotter

Management at Qwest Communications International Inc. said it was informed by the SEC that the Commission has approved a formal order of investigation of the company. “The order covers the same subject matters as the SEC’s informal investigation that Qwest previously disclosed,” Qwest said in a statement.

The company added it is cooperating fully with the SEC and will continue to do so. The SEC is investigating how Qwest recorded revenue from a swap of optical capacity.

Meanwhile, Xerox Canada Inc. said it has begun a process to determine whether it must restate its financial reports following a previously announced agreement in principle reached by its controlling shareholder, Xerox Corp., and the Division of Enforcement of the U.S. Securities and Exchange Commission.

The agreement calls for Xerox to restate its financials for the years 1997 through 2000 as well as an adjustment of previously announced 2001 results.

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