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PricewaterhouseCoopers decided against merging its Israel operations with Arthur Andersen affiliate Luboshitz-Kasierer due to cultural gaps.

"During the negotiations to merge with Luboshitz-Kasierer, we reached the conclusion that there were deep cultural differences between it, and PricewaterhouseCoopers and its representative in Israel, Kesselman & Kesselman," Sam DiPiazza, the CEO of the world's biggest accounting company, said in an interview at the Davos economic conference.

During March and April 2002, PwC held intensive talks with Luboshitz-Kasierer through Kesselman & Kesselman, after the Arthur Andersen chain collapsed in the wake of the Enron scandal.

The talks had been led by Kesselman & Kesselman PwC's chief, Avi Berger, opposite Luboshitz-Kasierer's head, Yossi Bachar. The deal was all but done, but fell apart at the last moment, leading Luboshitz-Kasierer to merge with Kost-Forer of the Ernst-Young group instead.

Asked if ego clashes, such as the status of Berger and Bachar in the resulting company, had been a factor, DiPiazza said the subject never even arose.

"The situation of the Arthur Andersen representation in Israel was clear: It had to be sold to somebody, and it was clear in the talks between us which would be the big company and which would be the smaller acquired company," DiPiazza said.

DiPiazza made the ultimate decision to pull back in conjunction with Berger, he says, based on the vast cultural differences between the two companies regarding "commitments to people, growth, and quality."

The PwC team decided to opt out at a very advanced stage of the talks. "The merger would have deflected us from our focus on quality and commitment to our people, so we decided to leave the table," DiPiazza said.

Asked if the major accounting firms, including PwC - which came to Israel during the peace boom - are reconsidering their involvement, DiPiazza said that although Israel's situation is grave, its underlying economic performance is good. He added that the country is well-positioned to contend with the hard times in the Middle East.

"We will adopt a highly conservative policy toward Israel, but are highly committed," he said.