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. Last Updated: 07/27/2016

Andersen to Merge, Creating 'Big Four'

The Big Five will soon be the Big Four -- at least in Moscow.

Andersen Russia/CIS, a privately held Russian company partly owned by Andersen Worldwide, said Tuesday that it was in the advanced stages of talks with two other Big Five accounting firms on merging its operations.

Andersen Russia/CIS said that one of the two suitors was KPMG, which offered to acquire all of Geneva-based Andersen Worldwide's practices outside the United States.

Moscow's Andersen -- whose clients include oil majors LUKoil, Surgutneftegaz and Sibneft, national flagship airline Aeroflot, leading mobile operator MTS and the Railways Ministry -- declined to say who the other potential partner is.

"We can follow the worldwide proposal for combining with KPMG or we have another attractive local alternative to join a global network," the company said.

"In any event, we have secured Andersen CIS' membership in an international global network regardless of the events unfolding in the U.S. We will choose the best solution based on what is best for our CIS practice, our clients and our people," the company said.

Andersen Worldwide, which has 85,000 employees and annual revenues of $9.3 billion, said this week it would part with its U.S. Arthur Andersen arm in a bid to rescue its business in the aftermath of the collapse of former energy giant Enron.

Enron, once Arthur Andersen's main client and America's eighth-largest company, folded at the end of last year, swallowing billions of dollars in shareholder money and employees' lifetime savings and pensions. As its auditor, Arthur Andersen is facing criminal charges, liability suits and a massive loss of clients.

It appeared Tuesday that for most of Andersen's foreign branches in Asia and Europe, a merger with KPMG was the preferred option.

The Wall Street Journal reported in its online edition Tuesday that 13 AsiaPacific affiliates of Arthur Andersen will back a global merger with rival KPMG, citing executives from both companies in Singapore.

The journal quoted Aldo Cardoso, chairman of Andersen Worldwide's board of partners, as saying that a formal decision, which was expected late Tuesday, would give regional approval to the offer from KPMG.

Andersen officials in Moscow declined to comment further Tuesday, as did KPMG and the other three Big Five firms -- Deloitte & Touche, Ernst & Young and PricewaterhouseCoopers -- saying they would wait until Andersen officially announces its plans for the future, which is expected in the coming days.

According to Andrei Kapustin, general director of Rusaudit Group, the biggest domestic auditing firm, the effect of an Andersen merger will become clear if the Big Five do indeed turn into the Big Four and continue to dominate the market. So far, however, most of the discussions between major auditors concern the redistribution of clients, he said.

Kapustin said, however, that a reshuffle in the ranks of the leading foreign firms might also create an opportunity for domestic market players, including Rusaudit itself, to gain new clients.

"The quality of domestic firms is in no way any worse than the Big Five," he said.

However, Dmitry Vasilyev, the head of the Institute of Corporate Law and Governance, said whichever firm acquires Andersen will likely become the market leader.

"But the problem still is not the quantity of firms or the clients each of them has, but the quality of services -- the responsibility the firms bear for the necessary level of disclosure and the objectivity of the data they provide," Vasilyev said.

Vasilyev noted that companies' choice of an auditor is often based on brand name, rather than quality of service.

"So far, for anyone who wants to be present on the world markets or deal with foreign creditors, having a brand-named auditor is a must," he said.