VideoOver the years, management at Arthur Andersen has provided advice to clients that were eager to sell their businesses. Now it looks like Andersen itself may be needing some guidance in that department.
According to an article in The Wall Street Journal, Andersen management is considering selling all or part of the firm to a rival Big Five consultancy. The Journal cites sources who claim that Andersen has already approached executives at Deloitte Touche Tohmatsu about a possible deal.
Whether Deloitte, or any other Big Five firm, would be interested in Andersen remains to be seen. Ever since the Enron scandal broke, Andersen has seen a number of its top 25 clients leave. That list includes: Merck (Andersen's biggest client at $40 million), Freddie Mac (number 6), and Delta Air Lines (number 18).
And as CFO.com reported last week, it looks like the Department of Justice may file charges against Andersen for allegedly shredding documents related to the firm's Enron audits. If management at the Big Fiver cannot convince the DOJ to settle those charges, industry-watchers say a passel of Andersen's clients will likely dump the firm. What's more, if an indictment is indeed brought against AA, expect to see a stampede of partners out of Andersen's headquarters in Chicago.
GE Brings Fees to Light
Pressure continues to build to separate auditing and consulting functions—for both the providers and buyers of these services. In fact, it seems many corporate managers have decided that better disclosure is the key to soothing the nerves of jittery investors.
Case in point: General Electric Co. Managers at the manufacturing giant took the unusual step of itemizing the $60.6 million the company paid consultant KPMG for auditing work in 2001. "The company and its affiliates retained KPMG and many other accounting and consulting firms to provide various advisory, auditing, and consulting services in 2001," said GE management in its proxy released Friday.
Company management added it does not use KPMG for internal audit work: "GE's use of KPMG for non-audit services declined significantly in 2001."
Specifically, the conglomerate said it paid KPMG $23.5 million in audit fees for its annual audit and quarterly reviews. It paid KPMG another $2.1 million in fees for the design and/or implementation of hardware and software for the company's financial information systems.
GE also paid KPMG $17.5 million for tax services, including $13.8 million for nonfinancial statement audit services such as due-diligence procedures associated with mergers and acquisitions, including the ill-fated Honeywell deal. The company reported that it paid the consultancy $3.7 million for all other services.
SEC Not Wild About Enron's New CEO
Now that Ken Lay, Jeff Skilling, and Andrew Fastow are long gone, the Securities and Exchange Commission is getting tough with Enron Corp.
On Friday, Reuters reported that the commission opposes the bankrupt energy company's hiring of turnaround specialist Steve Cooper as interim chief executive. The reason for the commission's opposition? Potential conflicts of interest, as well as Cooper's $1.3 million salary, according to Reuters.
Reportedly, Enron also wants to allow Cooper to hire another 15 associates or so and pay each of them $864,000 a year, according to Dow Jones.
The SEC said it "believes that many of the terms of Enron's agreement with Cooper are overreaching and are inappropriate in the context of a Chapter 11 bankruptcy case," according to the report, citing papers filed with the U.S. Bankruptcy Court of Southern New York.
According to a Dow Jones account, the SEC argued it is "inappropriate for Cooper and his associates to be paid CEO-level salaries, have CEO-level authority, and be indemnified by the estates when they owe no fiduciary duties to the estates."
The SEC reportedly argued that Cooper's contract with Enron "should make clear that Cooper and his firm will be recused" from any dealings with former clients. Cooper is a partner at turnaround consultancy Zolfo Cooper. Before co-founding that advisory firm, Cooper was a partner at Touche Ross & Co.
WorldCom's Poison Pill
- Management at WorldCom, concerned the telco will become a target of a hostile takeover, said it is adopting a shareholder rights plan. The plan will be triggered when a person or group buys at least 15 percent of the company's stock. WorldCom management pointed out it is not currently aware of any efforts to acquire control.
Under the poison-pill plan, each shareholder would receive one preferred stock purchase right for each outstanding share of WorldCom group stock and MCI group stock. "The rights entitle the holder of each share of WorldCom group stock to purchase one one-thousandth of a share of Series 4 preferred stock and the holder of each share of MCI group stock to purchase one one-thousandth of a share of Series 5 preferred stock, at an exercise price of $60 and $40, respectively," the company noted.
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