The UK arm of Andersen, the troubled auditor, has signed a rescue deal with rival Deloitte & Touche that could see thousands of jobs axed if it gains regulatory clearance.
Deloitte's move comes after merger talks between Andersen and KPMG petered out this week amid worries over litigation relating to Andersen's work for the collapsed US energy giant Enron.
The deal is structured as a transfer of assets and people, with Deloitte paying a nominal sum for Andersen UK's equipment and hiring en masse its 6,300 staff. Andersen's brand in the UK will vanish.
In the process, Deloitte will gain blue-chip clients including BSkyB, Cadbury Schweppes and the advertising giant WPP.
John Connolly, Deloitte's UK managing partner who is to head the enlarged business, said he was "absolutely confident" Deloitte was insulated from damages claims made against Andersen.
"Under UK partnership law the liabilities are already ringfenced without having to do anything too fancy," he said. Structuring the deal as an asset transfer added a further level of insulation.
Decisions on job cuts cannot be made until UK and European regulators back the deal. John Ormorod, Andersen UK's chief, met Mr Connolly last night to discuss his and other Andersen partners' future roles.
Andersen's regional partnerships operate as members of a global holding company, Andersen Worldwide, and share both profits and marketing costs. Earlier this week, Andersen's new global chief executive Aldo Cardoso abolished a break fee that member firms would normally pay for leaving the global organisation.
Deloitte rival KPMG is thought to have got cold feet over a deal with Andersen UK because of difficulties insulating itself from damages claims from Enron creditors and investors.
Two Andersen UK partners, Philip Randall and Roman McAlindon, were named in a class action lawsuit in the US filed on Monday, although there was no suggestion they were involved in fraudulent activity.
David Duncan, the former Andersen partner responsible for auditing Enron, pleaded guilty on Tuesday to charges he obstructed justice by helping shred Enron documents.
But Mr Connolly said he was satisfied that partners at Andersen UK were free of any links to improper shredding of Enron documents.
Were Andersen not facing ruin, the combination of its UK interests with any of the other so-called Big Five auditors would almost certainly be blocked, although the tie-up would still leave the firms behind PricewaterhouseCoopers in the UK. The Department of Trade and Industry said it would review the deal and then consider referring it to the European Commission.
One leading competition lawyer, who declined to be named, said Deloitte and Andersen were likely to call on the so-called "failing firm" defence, whereby a merger that would ordinarily be blocked is approved because one of the parties is going bust.
"There are precedents, but it can be a difficult defence," he said. "You would have to prove that one side is going under, that there could be no better partner and that the purchasing company would in any case pick up all of the failing company's market share."
Ernst & Young, which also discussed merger with Andersen UK, said: "We will continue to explore possible combinations [with Andersen] in other countries outside the US. KPMG declined to comment on Deloitte's move yesterday.Reuse content