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PwC Deal Aftershocks

Sep 3, 2002
By

Brian Morrissey






A month after IBM struck a $3.5 billion stock-and-cash deal to buy PricewaterhouseCoopers' consulting unit, the reverberations are being felt at Big Blue.

On Tuesday, IBM was reportedly preparing to cut 4,000 jobs after the merger goes through, while rival HP will abandon its alliance with PwC now that it's part of the IBM fold.

The Wall Street Journal reported that the layoffs would come from the combined consulting operations at IBM, which has 50,000 workers in its Business Innovation Services unit. PwC Consulting will add another 30,000 employees, making the layoffs about 5 percent of the combined consulting units.


The Journal said most of the layoffs would come from redundant support staff. The acquisition is expected to close at the end of the month.

The layoffs would come as no surprise on the heels of the acquisition, which was hurried along by PricewaterhouseCoopers' desire to untangle its consulting and auditing businesses in the wake of the accounting scandals sweeping corporate America.

The market for computer services has remained sluggish, with researcher Giga Information Group recently reporting spending on IT services would remain flat this year after incremental growth in 2001. Services and outsourcing powered the technology-spending boom in 1999 and 2000, growing at a 20 percent clip.

Last month, IBM, which has the largest computer services practice in the industry, reported its global services revenue fell for the third straight quarter. No. 2 computer services company EDS has forecast revenue will only inch up in the third quarter compared to last year.

When IBM swallows PwC at the end of the month, PwC's relationship with HP will most likely be over. According to a Dow Jones Newswires report, HP plans to end its alliance on the grounds that IBM is its top competitor in everything from PCs to IT consulting. A company executive said HP would complete current projects with PwC, but would not take on any new business with PwC.

HP's recently closed acquisition of Compaq grew its services businesses greatly. The alliance with PwC would be the second partnership the company has moved to sever due to competition concerns in the wake of the merger.

In July, HP said it would end it reseller agreement with Dell, on the grounds that the computer maker was widely expected to enter the $5.8 billion printer business, in which HP rules the roost.


 

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