IBM to buy PricewaterhouseCoopers

Associated Press

NEW YORK — Technology giant IBM Corp. said yesterday that it will buy the consulting and technology services arm of PricewaterhouseCoopers for $3.5 billion in cash and stock.

PwC Consulting will join IBM's Global Services unit — already the world's largest technology services provider — which has overtaken the hardware division as IBM's largest revenue earner.

In recent weeks, PwC considered a similar deal with Hewlett-Packard Co., which like IBM is trying to cast itself as a one-stop destination for corporate computing services.

"We view this as a real game-changer in the industry," said IBM chief financial officer John Joyce. "This opportunity came along and it just fit right on our strategy."

The announcement also comes at a time when accounting firms such as PricewaterhouseCoopers are under pressure to separate their auditing and consulting businesses because of accounting scandals at Enron, WorldCom, Global Crossing and elsewhere.

The acquisition, subject to federal approval will add some 30,000 employees to the Global Services unit, which already accounts for about half of IBM's approximately 320,000 workers. In a conference call with analysts, IBM and PwC executives said the deal — broached just 10 days ago — was consummated with surprising speed and will likely be concluded around the end of the third quarter.

Greg Brenneman, president and CEO of PwC and the former airline executive who earlier this year failed at an attempt to merge Hawaiian and Aloha Airlines, said this time the two companies' visions came together "like magic." Timing also helped, with the market downturn slashing company valuations and making PwC an affordable target, Joyce said.

Analysts said the proposed deal steers IBM further from its focus on computer hardware, the company's core competency until last year, as profits from the sale of computer hardware and components continue to shrink.

"In one fell swoop, IBM became the largest consulting, systems integration and professional services firm in the world," said Sam Albert, a consultancy analyst in Scarsdale, N.Y., and former IBM executive.

Forrester Research's services analyst Christine Ferrusi Ross cautioned that the acquisition comes at a time of shrinking spending on systems integrating.

"It's a good solid deal, but not the barnburner everybody says it to be," Ross said.