Accounting Giants Call Off Merger Plan : Price Waterhouse, Arthur Andersen Cite ‘Differences’

Accounting giants Price Waterhouse and Arthur Andersen & Co. said today that they have abandoned a proposed merger that would have created the world’s largest accounting firm.

Merger talks “were discontinued because differences could not be resolved within a realistic time frame,” the companies’ chiefs said in a joint statement.

Joseph E. Connor, chairman of Price Waterhouse, and Lawrence A. Weinbach, Andersen’s chief executive, said in a brief statement that both firms “have emerged from the talks with great respect for one another and better insight into the professional service environment in which they operate.”

Confidentiality Agreement

The statement said confidentiality agreements had been signed by both firms, and “therefore there will be no public comment by either firm on details of the discussions.”

There was no indication if the firms might be willing to resume the talks later, and telephone messages left at both companies were not immediately returned.

The Wall Street Journal on Monday quoted unidentified parties close to both firms as saying differences over retirement funding threatened the merger plan. A dispute over the name of the combined firm and several other sticky issues also hampered the talks, it said.

The newspaper said Andersen accrues or sets up a reserve for its partners in advance of their retirement, and they generally receive $25,000 to $50,000 a year in benefits after they retire.

Better Pensions

Price Waterhouse does not fund its retirement benefits in advance and pays its partners about $100,000 a year after they retire, the newspaper said.

Neither Chicago-based Andersen nor New York-based Price Waterhouse would comment on the reports.

But industry observers predicted the consequences of staying apart would inspire the firms to overcome the hurdles that prevented the merger.

“I continue to see tremendous benefits to there being a merger and tremendous negatives to both firms if there is not a merger,” said James Emerson, publisher of Emerson’s Professional Services Review in Bellevue, Wash.

“To me,” he said, “that would indicate they would want to work these things out.”

Andersen and Price Waterhouse began formal talks early in July to explore the feasibility of a merger. The two firms announced on Sept. 5 that they would need more time to continue their negotiations.

A merger would have created the world’s largest accounting firm, reaping $5 billion a year in worldwide revenue and $2.7 billion in U.S. revenue.

Second Merger Attempt

For Price Waterhouse, the No. 5 U.S. accounting firm, failure to merge with Andersen marked its second merger attempt since 1984, when merger talks with Deloitte Haskins & Sells fell through. Deloitte combined with Touche, Ross & Co. earlier this year.

Without a merger, Andersen, the second-largest U.S. accounting firm, will be unlikely to regain the No. 1 position it lost earlier this year when Ernst & Whinney and Arthur Young & Co. combined their operations.