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Tue 12 Sep 2000 04:00 AM

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HP in discussions to buy consulting arm of PwC

$16-$20 billion acquisition of PricewaterhouseCoopers division would give HP a consulting operation to rival IBM and Compaq, say analysts.

PricewaterhouseCoopers has confirmed that it has entered into discussions to sell the management-consulting portion of its business to Hewlett-Packard in a possible cash-and-stock transaction valued at between $16 billion and $20 billion.

This would be Hewlett-Packard's first major acquisition since chief executive Carly Fiorina joined the company last year. Fiorina is seeking to drive growth by offering more services to potential buyers of the company's computer systems. Pricewaterhouse wants to split its consulting business from auditing partly to address regulators' concerns about conflicts of interest.

The SEC in the US has been keeping a close eye on the world’s largest consultancies as their auditing and accounting operations increasingly find themselves working with the same clients as their consulting arms. "The Big 5 has let their relationships get tangled to a point where the consulting is too wrapped up in the accounting process," says Tom Rodenhauser, an analyst with Consulting Information Services.

For HP, the addition of a strong consultancy division would bring them more into line with IBM, Compaq and Sun. In an era where solution selling has supplanted box shifting, this is seen as a critical move by analysts.

"Gaining PwC would help [Hewlett-Packard] understand what the client wants," said Hugo Mills, an analyst at Donaldson, Lufkin & Jenrette in London. "It would also give them an army of people to help them integrate their product."

"HP's services and consulting revenue basis still has been relatively small" compared with International Business Machines Corp.'s and Compaq Computer Corp.'s, said Richard Chu, an analyst at SG Cowen Securities Corp.

In its fiscal year ended October 1999, Hewlett-Packard got $5.9 billion, or 14 percent, of its revenue from information- technology services, which include consulting and customer support. By comparison, IBM's Global Services division, which manages computer systems for large corporations and provides consulting services, generated $32 billion in revenue last year, or more than a third of the company's total sales.

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