Two Big Five accounting firms that were considering rescuing competitor Arthur Andersen LLP from drowning in Enron Corp.'s pool found the water to be too hot for their taste.
Deloitte Touche Tohmatsu and Ernst & Young International Ltd. have decided to abandon their respective plans to buy all or parts of fellow Big 5 accounting firm Arthur Andersen, whose survival is in question as a result of its role in the collapse of energy trader Enron.
In addition to auditing, Arthur Andersen provides a wide variety of IT consulting services, and the future of the IT consulting unit remains cloudy.
Deloitte and Ernst & Young separately entered into preliminary discussions with Arthur Andersen recently to explore scenarios for acquiring all or parts of the embattled company. But the legal problems and liabilities that Arthur Andersen faces prompted both suitors to end the talks on Wednesday.
"Deloitte was unable to continue to the next stage of discussions due to Andersen's unresolved litigation and legal issues," Deloitte said a press release, in which it added that it hoped Arthur Andersen found a way to survive as an independent company.
"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," Ernst & Young's statement reads.
Chicago-based Arthur Andersen was Enron's auditor, and its involvement in the fall of the energy giant -- including the shredding of documents and allegedly improper accounting practices -- has won the accounting firm civil lawsuits, an exodus of important clients and employees, and, according to published reports, investigations from U.S. federal government agencies, including the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice.
This week, an independent oversight board, created by Arthur Andersen to reform the company's operations, mandated that the accounting firm stop offering consulting services not related to auditing, including most of the firm's IT consulting services. How Arthur Andersen chooses to rid itself of its consulting practices, including the IT services team, is up to the company, the board said. Options would include selling the consulting units to other companies or spinning them off into independent companies. Arthur Andersen hasn't returned repeated calls seeking comment on the oversight board's report and on the future of its IT consulting business.