Andersen feud at key point
Arbitrator's decision nears in bitter Andersen Consulting-Arthur Andersen rift
NEW YORK (CNNfn) - The bitter dispute between Arthur Andersen and Andersen Consulting is coming to a head, with each side asking an international arbitrator to award it more than $1 billion as part of a proposed break between the firms.
Hearings to settle the corporate divorce were concluded Nov. 12. A decision by Guillermo Gamba, who was appointed by the International Chamber of Commerce, is due by March.
Jim Wadia, the global managing partner of Arthur Andersen, one of the world's largest tax-and-audit accounting firms, was quoted in Monday's Wall Street Journal as wanting to keep the two firms linked in some manner. But an official at Andersen Consulting -- the management advisory and information technology specialist that brought the original claim to separate the two units -- said it is not interested in saving the unusual corporate marriage.
"We believe Arthur Andersen is not happy with the way the hearings have progressed and is using the media to air their side of the story rather than waiting for the arbitrator's objective ruling," said Roxanne Taylor, director of media and analyst relations at Andersen Consulting.
"Our partners voted unanimously for the arbitration in 1997," she said. "There has been absolutely no change in the partners' dedication to this course of action. We're very pleased with how the hearings went. We've put our case in hands of an independent arbitrator. We expect a fair ruling."
Officials at Arthur Andersen had no comment on Andersen Consulting's stance, nor to questions about the Journal article.
A difficult and unusual marriage
The two firms are joined under a corporate umbrella known as Andersen Worldwide, formed during a 1989 reorganization -- although each firm is owned by its own partners, not Worldwide. A spokesman for Andersen Worldwide said its policy is not to comment on the ongoing dispute.
Under an agreement at the time of reorganization, there is profit sharing between the two firms that has resulted in payments by Andersen Consulting to Arthur Andersen in all but one of the years since 1989.
But Andersen Consulting charged in its December 1997 arbitration filing that the decision by Arthur Andersen to grow its own management consulting and information technology business, rather than leaving the field to Andersen Consulting, is a breach of contract and should negate the need for future payments.
According to a statement from Anderson Worldwide last week, Arthur Andersen posted revenue of $7.3 billion for the fiscal year ended Aug. 31, up 19 percent from the prior year. Revenue at Andersen Consulting rose 16 percent to $9.0 billion. But Arthur Andersen's consulting business has been the fastest growing part of the business, rising 36 percent to $1.4 billion in the fiscal year.
Arthur Andersen's consulting business produced only $12.6 million annually for Arthur Andersen at the time of the reorganization, according to an Andersen Consulting official who spoke on background. So it has grown from about 1/90th the size of Andersen Consulting's business base 10 years ago to about one-ninth of the size of its business today.
Billions in damages
Andersen Consulting is seeking at least $140 million in damages from Arthur Andersen for its decision to actively grow its consulting business. Andersen Consulting also wants the return of earlier profit sharing, plus interest, equal to $457 million, and about $502 million in profit-sharing payments that Andersen Consulting paid or expects to pay into an escrow for 1998 and 1999.
In response, Anderson Worldwide filed a contingent counterclaim in April 1998 asking that Andersen Consulting, if successful in forcing a separation, pay 150 percent of its annual revenue as a break-up fee and give up the name Andersen and some of the technology.
But officials with both Andersen Worldwide and Andersen Consulting say the Wall Street Journal's story Monday is incorrect in indicating there was a new counterclaim filed seeking $14.6 billion from Andersen Consulting.
Andersen Consulting officials say they are not worried about the counterclaim.
"The Andersen Worldwide counterclaim is as illogical today as when it was originally filed 19 months ago," Taylor said.
"There is absolutely no basis to award any damages against Andersen Consulting unless Andersen Consulting breached the parties' agreements," she said. "And Andersen Worldwide has never claimed that Andersen Consulting breached the parties' agreements. Arthur Andersen itself has never asserted any counterclaims against Andersen Consulting in this matter."