“Talks to merge the non-U.S. practices of KPMG International and Andersen Worldwide are now ‘off the table,’ and Andersen instead is in merger negotiations on a global level with Ernst & Young Global, according to Andersen’s managing partner for Asia, John A. Prasetio,” writes Neel Chowdhury in today’s Wall Street Journal.

“Despite talks that began last month with KPMG, Andersen Worldwide has seen several of its key partnerships merge with other firms. Ernst & Young is merging with Andersen’s partners in Russia, Australia, New Zealand and is in talks with Andersen’s Singapore partnership. The Hong Kong and China partners for Andersen have announced plans to merge with PricewaterhouseCoopers.”

“Another blow to KPMG’s plan came Tuesday, when Andersen’s substantial practice in Spain — a key European practice KPMG had sought — said it is entering merger talks with Deloitte & Touche.”

“Andersen practices around the world have been eager to strike new mergers since the U.S. practice, Arthur Andersen LLP, became mired in criminal charges related to the Enron Corp. scandal. But completing those deals has been difficult, as some firms fear that a merger with Andersen could expose them to Enron-related legal liabilities. Legal experts in Asia have noted that a U.S. criminal investigation of Andersen could potentially ensnare Andersen’s overseas partners, though the U.S. government would have to enlist the cooperation of Asian-Pacific governments before, say, seeking to seize documents there. ‘Anyone considering merging with Andersen should also be thinking about punitive damages arising from civil lawsuits in the U.S.,’ said Cameron Scott, a Hong Kong-based partner with international legal firm Allen & Overy.”

“Another hurdle for a potential merger with Andersen’s Asian affiliates would be a class-action lawsuit filed in U.S. District Court in New York by shareholders of Asian Pulp & Paper Co. against Andersen’s U.S., Indonesian and Singapore practices. The Singapore-headquartered paper manufacturer, which was audited by Andersen, failed to disclose to investors in its financial statements several derivatives contracts that cost it $220 million.”

“In Spain, the merger of Andersen Espana Deloitte & Touche will create a company with about 4,500 employees, the firms said. Both companies will remain legally separate, but they will be run by a co-ordinating team created from their respective businesses, they said.”

“Andersen Espana is one of Spain’s chief accountancy firms, auditing for 23 of the country’s top 25 companies. It is also recognized as one of Andersen Worldwide’s most successful operations. Andersen Espana Chairman Carlos Gonzalez will become chairman of the merged company, and Miguel Zorita, the chairman of Deloitte in Spain, will be vice chairman.”