HP says it passed on PwC acquisition two weeks ago

With the professional services companies and their enterprise customers still adjusting to the news of IBM Corp.'s move to acquire PricewaterhouseCoopers Consulting on Tuesday for US$3.5 billion, HP dropped another bombshell on Wednesday saying it was approached only two weeks ago by PwC and turned down a similar deal.

According to Juergen Rottler, vice president of marketing of strategy and alliances at HP Services in Mountain View, Calif., PwC came to them two weeks ago offering to reopen the negotiations at about a similar valuation that clinched the deal between IBM and PwC.

"I don't know the exact number and talks never really got down to that level, but it was in the same ball park as what IBM is offering," said Rottler.

The deal was nixed at HP for both short- and long-term reasons, said Rottler. In the short term, companies are not looking for business process and strategy solutions, PwC's strong suit, but rather for technology solutions to integrate the various silos of existing technology within an enterprise.

In the long term, Rottler continued, HP believed it was better not to exclude the other four major services companies -- Accenture, KPMG, Cap Gemini Ernst and Young, and Deloitte Consulting -- from future partnerships or the niche players such as Capco in the financial services industry.

"Is it better to play in the entire ocean or build a fence around one part of the ocean and call it yours?" Rottler said.

Nevertheless, the addition of 30,000 people to IBM Global Service's capabilities will give IBM far greater depth in business processes consulting and major vertical industries such as financial and manufacturing, according to many industry analysts.

In addition, it is seen by some commentators as giving IBM access to higher levels of corporate management, something it has struggled with previously through its business information services group.

"IBM covers CIOs and below and they need to sell up and out to the CxOs, not the technology buyers," said Linda Cohen, managing vice president at Gartner in Stevensville, Md. "It is not an area where they [IBM] have permission to play."

On the services side, Accenture and EDS both lack this additional capability, as does HP which failed to acquire PwC in 2000.

"It will be interesting to see what it does to the Accenture strategy. They now have a gap. And of course, HP doesn't have a PwC, although they could have," said Cohen.

Cohen believes that for the most part the IBM acquisition will be a win as long as buyers are technology agnostic. The former Big Five consultancies were known for their business strategy and business process competency and the acquisition obviously adds this to Global Services offerings.

However, IT buyers who are more likely to be interested in technology agnosticism might not like the platforms and technology selected for them according to Cohen.

"They may have bought from PwC, services, thinking they are going to be objective. Now they are thinking are they are going to bring those pesky IBM people in here?" Cohen added.

The IBM move is a powerful display of brains and brawn, say many analysts. HP's acquisition of Compaq, which included business it bought from Digital Equipment, gave the combined company more robust services that to some extent were competitive with IBM Global Services. "The Compaq acquisition was HP's attempt to level the playing field, but now, IBM just raised the bar," Cohen said.

HP's failed efforts in 2000 to buy PwC must be seen in a different economic light, said Eric Rocco, VP of services at Gartner in Lowell, Mass. With PwC's valuations so much higher at the time, HP lost out with a bid in the double digit billions while IBM won at $3.5 billion. But regardless, IBM's move is a significant setback for HP, Rocco added.

Matt Berger contributed to this story.

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