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. Last Updated: 07/27/2016

Struggling Andersen Looks for Buyer

NEW YORK -- Arthur Andersen, facing the defection of employees and clients as it struggles under the weight of a potential criminal indictment, is in negotiations to sell itself to another Big Five accounting firm, Deloitte Touche Tohmatsu, and an announcement of a deal could come as soon as this week, people involved in the discussions said.

The negotiations between the two accounting giants were said to have begun in earnest last week, about the time Andersen learned that it faced potential indictment on charges of obstruction of justice in the Enron investigation as a result of the large-scale destruction of documents last fall in its Houston offices. The firm is now talking to prosecutors to see if a resolution of the criminal case can be reached before an indictment is made public, possibly as early as this week.

Terms of the potential deal with Deloitte are still fluid, people involved in the discussions said, and no decision has yet been reached whether Andersen would be sold in whole or in pieces. Either way, they said, the Andersen name would be certain to disappear from the accounting industry once the deal is done.

Talks between the two sides have been taking place in New York, led primarily by the firms' chief executives, Joseph Berardino from Andersen and James Copeland Jr. from Deloitte. They have been joined by a handful of partners from the two firms, as well as legal and financial advisers.

Unlike most such negotiations, which turn primarily on price, the discussions between the two accounting giants are focusing instead on the enormously complex issue of how Deloitte can avoid assuming the legal and financial liabilities Andersen faces for its role in the Enron debacle.

In addition to confronting potential fines from criminal charges, Andersen is also facing possible regulatory action by the Securities and Exchange Commission as well as myriad lawsuits from companies and individuals damaged by Enron's collapse.

Essentially, Deloitte is interested in acquiring Andersen without contracting the problems that crippled its financial health and threatened its survival. A deal in which Deloitte assumed Andersen's legal liabilities would therefore be unacceptable.

"The primary issue is how do you isolate" the U.S. liability, one person with knowledge of the negotiations said. "There are a number of strategies that have been gamed out to deal with that."

A probable solution is to arrange the deal as a sale of assets rather than as a merger or full acquisition, the people involved said. Deloitte might acquire all but Andersen's American operations, allowing that unit to temporarily stand alone while negotiating a resolution of its Enron problems.

Regardless of how a deal might be ultimately structured, people involved in the talks said, some Andersen entity would have to continue to exist in the United States for the purpose of negotiating that resolution and paying all fines and penalties. While Andersen's American operations could survive as a stand-alone subsidiary of Deloitte, a number of other approaches are also being examined.

"This is much more of a legal issue than a banking issue," one person involved in the talks said.

Patrick Dorton, an Andersen spokesman, declined to comment on any negotiations. "Andersen is considering many options to enable us to continue to successfully serve our clients and promote the career opportunities of our people," he said.

A spokesman for Deloitte, Paul Marinaccio, also declined to comment. Deloitte "has been conducting ongoing scenario planning in response to the current and projected state of the profession," he said. "It is not our practice to discuss the details of any such planning in public."

Accounting industry experts said Andersen has little choice but to seek a partner among the other Big Five firms. In recent weeks, the firm has lost a number of prominent clients, including Merck and Delta Air Lines. An approaching tide of internal defections could not be halted, experts said, if Andersen survived as an independent entity.

"They are doing the one thing they had to do," Itzhak Sharav, an accounting professor at Columbia Business School, said when told of the negotiations.

"Arthur Andersen's days as an independent firm are numbered. It seems to be a sinking ship, and this is a way for them to right themselves," he said.