VideoTwo suitors said no to Arthur Andersen. Next to weigh in? The Department of Justice.
Just days after stories began circulating that Big Five accountancies were considering buying the besieged firm, two of those potential acquirers said no to a deal. Yesterday, management at both Ernst & Young and Deloitte Touche Tohmatsu (DTT) announced they are not interested in acquiring their foundering rival.
"After reviewing the possibility of combining with Andersen, Ernst & Young has concluded that as long as Enron and other Andersen litigation matters are unresolved, it is not in the best interests of our people, clients, and our firm to pursue such a combination," it said in a brief statement. "We informed Andersen's leadership of our decision this morning."
Said DTT's management: "Deloitte was unable to continue the next stage of discussions due to Andersen's unresolved litigation and legal issues."
Of course, any possible buyer of Andersen stands to get a much better deal if the company is forced into bankruptcy. Whether Andersen does eventually wind up in Chapter 11 will depend a lot on what happens today. Word is that the Justice Department is leaning heavily towards indicting the firm for destroying Enron-related documents last fall.
Andersen's lawyers have reportedly tried to hammer out a settlement with the government to head off an indictment. According to Arthur Bowman, who publishes Bowman's Accounting Report, the best deal for Andersen would be one in which the firm agrees to "pay a big fine, fires some senior partners, but does not admit guilt or innocence in the Enron case." Industry watchers say a guilty plea could raise serious doubts about Andersen's future as a going concern.
But reportedly the DOJ is pressuring Andersen to plead guilty—or face an indictment. In fact, Reuters claims one source close to the process said a grand jury had already handed up an indictment for obstruction of justice against Andersen.
More Andersen Defectors
Meanwhile, Andersen continues to lose major clients. The latest defector: consumer finance company Household International.
The company reported it dropped Andersen as its independent auditor, in favor of KPMG. "Due to the current uncertainty about the future direction of Arthur Andersen, Household's board of directors felt that it was in the best interest of the company to make this change," said Household management.
In addition, SAP AG, Europe's biggest software company, said it is considering dropping Andersen as its auditor, according to Reuters, citing a report in the Financial Times Deutschland. SAP's supervisory board is said to be meeting today to discuss the matter.
Earlier this week, two other major firms decided to dump Andersen: Kerr-McGee and Riggs National Corp.
In a statement issued Tuesday, Kerr-McGee said it appointed Ernst & Young as its outside auditor.
"Kerr-McGee conducted a rigorous selection process to determine its independent public accounting firm," it said in a press release. "Each year, the board's selection is submitted to shareholders for ratification. The board's selection is based on an in-depth analysis of services provided by top-ranked public accounting firms."
On Monday, Riggs named KPMG as its independent auditor for the fiscal year ending December 31, 2002, ending a 28-year relationship with Andersen.
Andersen did receive one bit of good news yesterday, however. Plastics company Spartech Corp. reported it has ratified Andersen as its independent auditor for 2002.
KPMG Consulting No More?
If you want to get a sense of how badly Enron has tarnished the reputations of accountants, consider this:
Yesterday, management at KPMG Consulting Inc. said it is changing the company's name. The reason? To help differentiate itself from its onetime parent, accounting firm KPMG LLP, according to an article in the Wall Street Journal. "The time is now to do this," Rand Blazer, CEO of the consulting firm, told the paper.
KPMG Consulting split from KPMG LLP a year ago. No word on whether Accenture, the former consulting unit of Andersen, is considering changing its name to NothingtodowithAndersen.
Moody's Sees Bottom in Commercial Property
If you're thinking about moving one or more of your offices, now would be a good time.
The U.S. commercial real estate markets are expected to bottom later this year and then rebound in 2003, concludes a Moody's report.
According to the rating service's new Property Cycle Index, U.S. commercial real estate scores hit their peak in 1997, meaning commercial real estate was at the top of the cycle in 1998. Moody's says its index score anticipates market conditions a year in advance.
The index also shows that the current bottom will not be as severe as the previous low in 1986. Moody's says its index tracks 20 years of the U.S. commercial real estate cycle across 50-plus markets nationwide by four major sectors: office, multifamily, shopping centers, and industrial.
The multifamily and shopping center sectors are expected to show the strongest gains in 2003, entering what Moody's calls the "green zone," signifying healthy markets. Over the same period, the office and industrial sectors will strengthen slightly but remain in the "yellow zone," or on the cusp of an imbalance between supply and demand.
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