KPMG chief warns of chaos as Andersen break-up begins

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KPMG, the accountancy group stalking troubled rival Andersen, warned yesterday that a carve-up of the Enron auditor would cause chaos, after Andersen offices in Russia and China agreed their own deals with PricewaterhouseCoopers and Ernst & Young.

KPMG earlier this week confirmed it was in talks to buy the non-US operations of Andersen. Any deal would require clearance from competition authorities known to be concerned that the merger of two of the so-called Big Five auditing firms risks stifling competition in some territories.

Mike Rake, KPMG's European chairman, said yesterday a calculated break-up of Andersen among other members of the so-called Big Five would "cause chaos".

"We don't want it to go from five to four players. But Andersen is going anyway. This is not a traditional merger. We are rescuing the firm," he said.

However, he admitted there were still questions over whether it was possible to insulate regional Andersen offices from damages claims against the Houston office which audited the collapsed US energy giant Enron.

"We are not in the business of exposing ourselves to Enron liabilities. But the research is worth the effort. We have a long way to go," he said. "Suggestions that the legal issues are insurmountable should not be allowed to put us off the track."

Andersen offices in Hong Kong and China have agreed to merge with PricewaterhouseCoopers, the world's largest accountancy group. Andersen's Russian office unveiled plans to merge with Ernst & Young.

A spokesman for Andersen Worldwide, the holding company for the auditor's local partnerships, said: "Andersen Worldwide regrets the announcement by member firms in China, Hong Kong and Russia that they intend to pursue a combination with another firm [than KPMG]. Their decision will have no impact on the continuing effort to substantially complete transactions between Andersen Worldwide's non-US member firms and KPMG."

Andersen Worldwide reminded its members they had "certain obligations" to each other as well as the holding company, a thinly-veiled reference to the break fees members' firms must pay for quitting the holding company.

Andersen's German, Italian and some Asian businesses are still in talks with KPMG.

It also emerged yesterday there was some interest among rival Big Five firms in acquiring Andersen's entire non-US operations, in a similar deal to that being pursued by KPMG.