IBM to buy PWC Consulting for US$3.5 billion

IBM Corp. has agreed to buy PwC Consulting for US$3.5 billion in cash and stock, the companies announced Tuesday. The move will separate PwC Consulting from Big Five accounting firm PricewaterhouseCoopers, a separation previously intended to occur through an IPO (initial public offering) in August.

PwC Consulting, which has 30,000 employees worldwide and annual consulting revenue of around $4.9 billion, will be combined with IBM Global Services' Business Innovation Services division to create a new unit, the companies said. Ginni Rometty, now general manger of IBM Global Services Americas, will become general manager of the new unit, IBM said.

The acquisition remains subject to regulatory approval and the approval of regional PwC companies through partner votes. PwC Consulting and IBM said they expect the deal to close near the end of September.

PwC Consulting had been on track for an IPO intended to raise as much as $1 billion and a name change to Monday. Serious talks with IBM commenced just 10 days ago, PwC Consulting Chief Executive Officer (CEO) Greg Brenneman said during a conference call with analysts. The fit between the two companies was immediately obvious and "almost like magic," he said.

IBM first eyed PwC Consulting two years ago, around the time that Hewlett-Packard Co. mulled an $18 billion buyout of the organization. HP scrapped its bid, saying later that the proposed purchase price was too high. PwC Consulting reportedly spurned an IBM offer it considered too low.

The current market downturn made this an attractive time for IBM to go shopping.

"The market has set a good value for this acquisition," IBM Chief Financial Officer John Joyce said during the conference call.

Layoffs were not discussed during the call, though IBM executives said they consider PwC Consulting's staff the key asset in the deal. IBM is designing salary and stock compensation packages that it hopes will allow it to retain PwC Consulting's staff and 1,300 partners, executives said.

Brenneman, PwC Consulting's CEO of less than two months, will leave once the IBM deal is consummated and return to running TurnWorks Inc., a Houston-based company specializing in corporate turnarounds.

IBM will pay for PwC Consulting with $2.7 billion in cash, with the remainder of the $3.5 billion purchase price composed of stock and convertible notes. IBM expects the acquisition to shave $0.30 off its fourth-quarter per-share earnings, Joyce said, with some revenue gains coming shortly after the deal's close and income gains emerging by the end of 2003.

Integration teams are already at work, and IBM expects soon to begin discussing transition plans with PwC Consulting customers, executives said.

IBM Global Services is the industry's leading IT services provider, with about 150,000 employees worldwide.

PwC Consulting's significant staff and client roster could help push IBM even farther ahead of its rivals -- including HP. Gaining services bulk to compete more effectively against IBM was a key rationale offered by HP CEO Carly Fiorina for the company's merger with Compaq Computer Corp.

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