Accounting firms Andersen and KPMG yesterday ditched plans for a global merger of their non-US operations, which will allow rivals to cherry-pick pieces of Andersen's international business.
The two groups, which began talks only two weeks ago, said a global deal was no longer possible because of defections by individual Andersen partnerships. The latest was its Spanish operation, which is to merge with rival Deloitte & Touche.
Andersen has been indicted by the US government for its role as auditor to failed energy trader Enron. The US firm has become the target of billion-dollar lawsuits and has suffered a mass client exodus.
"In view of the decisions by certain individual firms to pursue different directions, it is clear that a deal embracing all of the non-US firms is not achievable," Andersen and KPMG said in a joint statement.
Mr Mike Rake, KPMG's chairman for Europe, Middle East and Asia, said talks were still going on in certain countries. "Clearly we are not going to achieve a wide-ranging combination," he said in a statement.
Mr Rake said that KPMG continued to have discussions in certain countries that were important to KPMG and where Andersen had high-quality practices.
Questions remained as to whether a global merged group would be vulnerable to US litigation.
"We will not do anything which exposes us or our clients to risk or otherwise damages our reputation," Mr Rake said.
A merger with KPMG and Andersen outside the United States would have created an accounting giant with over $12.2 billion (€13.86 billion) in revenues and 140,000 staff.
The KPMG talks failed as the board of Andersen Worldwide, the umbrella body for Andersen in the US and overseas, met in London to choose a replacement for Mr Joseph Berardino, who resigned as chief executive last week.
Mr Aldo Cardoso, chairman of the 18-member board, has been tipped as a possible replacement.
A source close to the KPMG negotiations said the talks had collapsed after Andersen Spain, which was seen as key to the KPMG deal, decided to link up with rival Deloitte & Touche.
"Latin America will now go with Deloitte as well," the source said.
