IBM has agreed to buy PwC Consulting for $3.5bn (£2.2bn) in a bid
to expand its Global Services IT consulting division with business
expertise.
Two years ago, HP offered $18bn (£11.5bn) for PwC Consulting in an
attempt to build a rival to IBM Global Services. The merger failed,
leading to this latest bid by IBM.
Samuel Palmisano, IBM president and chief executive officer, said:
"Clients are not only looking for innovative ideas to improve their
businesses, they are seeking a partner with deep business expertise
and the ability to exploit leading open standards-based technology
to turn these ideas into bottom-line business benefits."
Particularly attractive to IBM is PwC Consulting's industry-focused
approach, with services and software packages tailored to markets
such as financial services and retail, Martino said.
IBM hopes PwC Consulting's expertise with CRM and ERP software from
Oracle, Siebel Systems and SAP - all PwC Consulting partners - will
complement IBM's existing strengths, he added.
But PwC Consulting's alliances with IBM rivals such as HP and
Electronic Data Systems, which holds the number two spot behind IBM
in the IT services market, are unlikely to survive the
organisation's planned absorption by IBM, executives
acknowledged.
IBM chief financial officer John Joyce said: "We would like to
continue consulting and systems integration work [with IBM
competitors], but we think the likelihood is slim."
The move will separate PwC Consulting from big five accounting firm
PricewaterhouseCoopers (PwC), a separation previously intended to
occur through an initial public offering (IPO) in August.
PwC Consulting, which has 30,000 employees worldwide and annual
consulting revenue of around $4.9bn (£3.1bn), will be combined with
IBM Global Services' Business Innovation Services division to
create a new unit.
Ginni Rometty, now general manger of IBM Global Services Americas,
will become general manager of the new unit, IBM said.
PwC Consulting had been on track for an IPO intended to raise as
much as $1bn (£638,000) and a changed its name to Monday last
month. Serious talks with IBM commenced just 10 days ago.
The fit between the two companies was immediately obvious and
"almost like magic", said PwC consulting chief executive officer,
Greg Brenneman.
IBM first eyed PwC Consulting two years ago, around the time that
Hewlett-Packard considered an $18bn (£11.5bn) buyout of the
organisation. 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.
PwC Consulting's significant staff and client roster could help
push IBM even further ahead of its rivals, including HP. Gaining
services bulk to compete more effectively against IBM was a key
rationale offered by HP chief executive officer Carly Fiorina for
the company's merger with Compaq.
HP representatives could not be reached for comment immediately,
but in a prepared statement the company said it passed up the
opportunity to buy PwC Consulting in recent months.
"Customers want an alternative to IBM. This announcement does not
change that and, in fact, may make customers even more anxious to
source an alternative," HP said.
IBM will pay for PwC Consulting with $2.7bn (£1.7bn) in cash, with
the remainder of the $3.5bn purchase price composed of stock and
convertible notes. Joyce said that IBM expects the acquisition to
shave 30 cents off its fourth-quarter per-share earnings, with some
revenue gains coming shortly after the deal's close and income
gains emerging by the end of 2003.
While integration teams are already at work, according to
executives, Martino said that detailed discussions with customers
about transition plans will have to wait until after the
acquisition's close.
PwC Consulting and IBM said they expect the deal to close near the
end of September.