L.A. Firm, in Merger Talks With Giant Ernst & Young : Accounting: Kenneth Leventhal was reportedly in negotiations Sunday. A deal could be announced today.

Kenneth Leventhal & Co., an accounting partnership based in Century City that is known for its Southern California real-estate expertise, was in negotiations Sunday to sell the firm to accounting giant Ernst & Young, according to sources familiar with the talks.

No terms of a proposed sale were available. It also wasn’t immediately known why Leventhal’s partners were entertaining a sale, although there have been several mergers in recent years among accounting firms trying to broaden their services.

Leventhal’s managing director, Stan Ross, did not return telephone calls placed to his office and home. Calls placed to executives at Ernst & Young’s headquarters in New York went unanswered Sunday.

However, two sources within Leventhal said the firm was in negotiations to be acquired by Ernst & Young, one of accounting’s “Big Six” firms. A third source said a deal could be announced as early as today.

If Ernst & Young does become Leventhal’s buyer, the deal apparently would enable Ernst & Young to climb one notch to become the world’s second-largest accounting firm behind industry leader Arthur Andersen & Co.

Andersen had worldwide revenue last year of $6.7 billion, followed by KPMG Peat Marwick at $6.1 billion and Ernst & Young right behind at $6.0 billion.

Leventhal, though considerably smaller and less known than the Big Six--its annual revenue is thought to be below $1 billion--is nonetheless regarded for its real-estate consulting prowess, customer service and such traditional accounting skills as auditing companies’ financial records.

Kenneth Leventhal himself, who hawked newspapers as a 10-year-old during The Depression and later graduated from UCLA, started the business in 1949 in his two-bedroom apartment and decided to specialize in real estate.

In 1961, he recruited a New York real estate deal maker, Ross, as his No. 2 executive, and both then built Leventhal into one of the nation’s 15 largest accounting firms by the mid-1980s.

Southern California home builders and developers, particularly in Orange County, have praised Leventhal’s firm for helping to build their businesses during the past three four decades. Leventhal’s Newport Beach office is among its busiest.

Ernst & Young itself is the result of the marriage of Ernst & Whinney and Arthur Young & Co. in 1989, when a merger wave swept through the accounting industry, reducing what was then known as accounting’s Big Eight to only six.

The firms merged for several reasons, including their desire to offer corporate clients not just conventional auditing services but also many other financial and consulting services covering a variety of topics, including employee benefits, potential acquisitions and real estate.

But competition in those areas is intense from such giant consulting firms such as McKinsey & Co. and Booz-Allen & Hamilton.

Amid that competition, the big firms joined forces through mergers to slash their operating costs and thus provide services at lower prices.

Yet the merger wave among accountants largely peaked in the late-1980s, after Arthur Andersen and Price Waterhouse considered a merger but abandoned the idea.