NEW YORK (CNN/Money) - Arthur Andersen is in talks to merge its non-U.S. operations with KPMG but a deal has not been finalized, a KPMG spokesman told CNN/Money.

Andersen spokesman Paul Flemming in London said the firm had merged its non-U.S. units with KPMG. However, KPMG countered Monday that such an announcement is premature since it is still conducting due diligence. A KPMG-Andersen merger, if completed, would also need the approval of KPMG partnerships in each country involved, a KPMG spokesman said.

Chicago-based Andersen, currently the subject of a criminal indictment, entered concrete negotiations with KPMG Monday regarding a combination. The transaction would primarily be comprised of Andersen's European operations, the KPMG spokesman said.

"We are continuing to work together to consider possible ways in which to combine our operations throughout the major markets of Europe, Africa, Middle East, Canada, Asia and Latin America," Mike Rake, chairman of KPMG EMA Region, said in a statement, issued earlier Monday.

The Andersen units will remain part of Andersen Worldwide SC, the global parent firm, until Oct. 1 or until the agreement is final, Andersen said in a statement. Andersen Worldwide is based in Geneva, Switzerland.

"We appreciate the benefits of discussions between Andersen's member firm partners around the world and KPMG," Andersen said.

Andersen's search for a merger partner nearly failed after Deloitte Touche Tohmatsu and Ernst & Young opted out of talks.

But Andersen continued negotiations with KPMG and a combination would be on a "country by country" basis, the KPMG spokesman said. CNN/Money reported last Friday that talks between KPMG and Andersen were continuing.

The news of a possible merger comes as yet another client dropped Andersen as its outside auditor Monday. Wyeth (WYE: Research, Estimates), a pharmaceutical and health care products company formerly known as American Home Products, switched accountants after 33 years with Andersen and hired PricewaterhouseCoopers.

Last week, Sara Lee Corp., one of Andersen's 20 largest clients, switched firms as did Northeast Utilities, Abbott Laboratories and Brunswick Corp.

The client defections follow an indictment against Andersen. The Justice Department charged Andersen last week with obstruction of justice for shredding Enron Corp. documents, the first indictment related to the collapse of the energy trading company.

Andersen also held merger talks with Chicago-based rival BDO Seidman, a source told CNN/Money. By the end of last week, those talks were focused on BDO negotiating for Andersen practice lines or specialty areas, such as bankruptcy or litigation support, a source familiar with the negotiations told CNN/Money.

"Any talks now would be for pieces of Andersen such as speciality areas," the source said.

BDO Seidman is currently ranked as the No. 7 U.S. accounting firm but places sixth worldwide.

Andersen Worldwide acts as the coordinating head for Andersen firms worldwide, an arrangement under which each firm is its own entity, but a member of the brand network. The units in the network share revenue, technology and strategy.

And those units fear the continued exodus of Andersen clients and the potential impact on their own businesses globally, since many of the departing companies are multinational and expect their accountants to have corresponding branches.

"We have to find a way out of the problems caused by the U.S. Andersen," said a German Andersen partner at a meeting in Frankfurt, according to the report.

Delta Air Lines (DAL: Research, Estimates), Merck & Co. (MRK: Research, Estimates) and FedEx Corp. (FDX: Research, Estimates) are some of the companies that have left Andersen recently.

Another option, if Chicago-based Arthur Andersen is convicted, is for Andersen Worldwide to sever its relationship with the U.S. business and keep the rest of the network intact, according to the Wall Street Journal.