Andersen starting to crumble in U.S.

CHICAGO - The Arthur Andersen accounting empire, already fast breaking up abroad as a result of the Enron debacle, now is starting to crumble at home in the United States. <br> <br> Thousands of layoffs may be next. <br> <br> Paring down operations to raise revenue and trying to stay alive, Andersen announced a tentative agreement Thursday with Deloitte & Touche for a ``significant&#39;&#39; number of its U.S. tax partners and professionals to join the rival firm. <br> <br> Terms were not announced, and both firms said details remain to be worked out. But splitting off much of its tax unit - which employs about a quarter of its U.S. work force of 28,000 and brought in $1.27 billion in revenue last year - shows that the firm will be much smaller if it manages to survive an indictment and other continuing fallout from the Enron scandal. <br> <br> Industry analyst Arthur Bowman said Andersen desperately needs cash from the Deloitte deal and others to stay in business and endure the crush of lawsuits by Enron shareholders and others. <br> <br> ``It&#39;s probably the best thing they could do for their people and the firm itself,&#39;&#39; said Bowman, editor of Bowman&#39;s Accounting Report. ``It&#39;s better to sell it as a unit and get revenue.&#39;&#39; <br> <br> However, he said, the sale signals Andersen&#39;s formal acknowledgment that it is breaking up its powerful, 89-year-old U.S. operations. <br> <br> Andersen, the fourth-largest U.S. accounting firm based on last year&#39;s revenue, derived 32 percent of its $3.97 billion in U.S. revenue from tax services in 2001. Deloitte & Touche, the No. 2 firm with $5.58 billion in revenue, was last among the Big Five accounting giants in tax revenue with $1.20 billion. <br> <br> ``This transaction is fully consistent with our commitment to move quickly on the Andersen reforms initiated by Mr. Volcker,&#39;&#39; said Larry Gorrell, managing partner of Arthur Andersen LLP, the U.S. arm of Andersen Worldwide. <br> <br> Former Federal Reserve Chairman Paul Volcker is head of an oversight board attempting to reform Andersen and keep it alive as an independent firm by refocusing it solely on auditing. The consulting practice may be the next to be sold. <br> <br> Acquiring a large chunk of Andersen will likely give Deloitte & Touche the biggest U.S. tax practice - with revenues worth an estimated $2.2 billion annually, according to Bowman - while enabling it to close the gap on No. 1 PricewaterhouseCoopers in overall revenue. <br> <br> Adding professionals from Andersen, New York-based Deloitte & Touche said, ``gives us the opportunity to accelerate the growth of our client relationships in this important service offering.&#39;&#39; <br> <br> Andersen&#39;s employees, meanwhile, were bracing for possibly imminent layoffs. Spokesman Patrick Dorton said late Thursday that no final decision had yet been made on a total, which persistent reports in recent days have pegged at 6,000 to 7,000. But the subject reportedly came up on a nationwide partners&#39; teleconference Thursday, and Dorton reiterated that job cuts are ``inevitable.&#39;&#39; <br> <br> Several Andersen employees interviewed outside the firm&#39;s Chicago headquarters late Thursday afternoon said they have been expecting pink slips for some time, so the mood is no longer distraught. About 5,300 people work there. <br> <br> ``People are dealing with it as though it&#39;s business as usual,&#39;&#39; said Joseph Smith, a paralegal. ``But they are keeping in mind that they (layoffs) are coming.&#39;&#39; <br> <br> Andersen has 1,700 U.S. partners in tax, consulting and audit services. It was not clear how many would go to Deloitte. Andersen said it anticipates a closing date of as soon as April 30. <br> <br> Andersen has been trying for weeks to sell some of its units to raise money. Previous efforts in the United States snagged on the issue of liability from Enron litigation. <br> <br> Overseas, Andersen Worldwide conceded defeat this week in its strategy of merging its non-U.S. operations en masse with those of KPMG after several countries&#39; Andersen affiliates bolted on their own. Affiliates in Australia, China, Hong Kong, New Zealand, Russia, Singapore, Spain and Thailand all decided to broker their own deals. <br> <br> The firm also has lost 127 U.S. public audit clients this year - two-thirds since it was indicted March 14 by a federal grand jury on a charge of obstruction of justice for allegedly destroying Enron documents. Clients are leaving daily in the face of an Andersen trial that starts May 6 unless the Justice Department backs off and reaches a pre-trial agreement with Andersen instead. <br> <br> Earlier Thursday, Andersen Worldwide named the chairman of its board of partners as acting chief executive, with the key task of trying to manage an orderly dismemberment of those non-U.S. operations. Aldo Cardoso succeeds former CEO Joseph Berardino, who resigned last week.