Beleaguered Accountancy Firm Andersen in Merger Talks With Rival

The embattled accountancy firm Andersen, facing possible criminal charges for its role in the Enron scandal, and an exodus of big-name clients, has offered itself for sale to its rival Deloitte Touche Tohmatsu.

Andersen's ability to survive the shockwaves of the Enron bankruptcy has been increasingly in doubt in recent weeks. There have also been reports of a rush for the door by Andersen workers who fear that their careers might be blighted by the Enron affair.

The power giant became the biggest bankruptcy in history in December and faces a wave of lawsuits and investigations for inflating its profits by hiding debts offshore. Andersen approved the accounts and subsequently admitted that its Houston, Texas, office had shredded Enron-related documents later sought by investigators.

Andersen approached Deloitte Touche after it became apparent last week that it might face criminal charges for obstruction of justice.

Julia Irvine, deputy editor of Accountancy Magazine, said: "It looks as though Andersen has thrown in the towel, and that will have a profound effect on the profession. They could have weathered this if they hadn't shredded the documents. That was fatal."

City analysts voiced concern that a merger would stifle competition and increase the stranglehold of a select few accountancy firms on the auditing of the UK's largest companies. A merger would mean that the global auditing business would be reduced to just four large companies.

Government contracts could also be affected. Accountancy firms are heavily involved in private finance projects and a reduction in the number of firms bidding for work could raise questions of price fixing.

Andersen is the world's fifth largest accountancy firm, with revenues of $9.3bn (£6.5bn), and employs 85,000 people in 84 countries. Deloitte Touche is the second largest, with revenues of $12.4bn. Combined, the two would still not match the size of the market leader, PricewaterhouseCoopers.

Andersen has lost at least 36 clients since Enron went under. The exodus has gathered momentum in recent weeks, with companies including the drugs group Merck and Delta Air Lines switching auditors.

It swiftly sacked the accountant in charge of the document shredding, David Duncan, and demoted several other workers in its Houston offices. But congressional investigators believe that people higher up in the organisation may have known what was going on.

The takeover discussions depend on the complex issue of how Deloitte Touche could avoid taking on the liabilities facing Andersen. As well as possible criminal charges, it faces myriad lawsuits.

Patrick Dorton, a spokesman for Andersen, refused to comment directly on the discussions. "Andersen is considering many options," he said. "We are committed to making changes to our business that will restore the public's trust."