HP bins plans to buy PricewaterhouseCoopers

Hewlett-Packard's negotiations to purchase the management consulting division of PricewaterhouseCoopers have fallen through due to poor market conditions.

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By  Rob Corder Published  November 14, 2000

Hewlett-Packard's negotiations to purchase the management consulting division of PricewaterhouseCoopers have fallen through. Unfavorable market conditions were cited as both companies today disclosed the termination of the proposed acquisition.

For HP, the decision comes after the company today posted net income of $922 million, or 45 cents a diluted share for the fourth quarter of 2000, ended Oct. 31. This was up 21% from $760 million, or 36 cents a share, a year earlier. Net revenue was $13.3 billion, compared with $11.4 billion in last year's fourth quarter. Earnings per share were 41 cents for the latest quarter, compared with 36 cents in the same period last year.

“Given the current market environment, we are no longer confident that we can satisfy our value-creation and employee-retention objectives--and I am unwilling to subject the HP organization to the continuing distraction of pursuing this acquisition any further,” Carly Fiorina, HP's president, CEO, and chairman, said in a prepared statement. HP Services revenue, including hardware and software services, along with outsourcing, consulting, and customer financing, rose 15% to $1.9 billion from $1.6 billion last year. Consulting business revenue increased 46%, the company said.

The announcement was not a great surprise given Fiorina's comments earlier this month at a Prudential Securities investment conference that HP was “re-examining” its September proposal to acquire PricewaterhouseCoopers' consulting arm. Although the original bid was valued at about $18 billion, the figure was rumored to have slipped to about $15 billion around the time of Fiorina's comments.

The prospect of a falling valuation, combined with the specter of a mass exodus of talent unwilling to consult for a product vendor, outweighed PricewaterhouseCoopers' desire to be free of its management consulting practice. PricewaterhouseCoopers CEO James Schiro said in a prepared statement that “we remain committed to developing a structure that will allow our businesses to flourish while maintaining the professional independence and objectivity necessary to ensure healthy capital markets.”

Breaking off negotiations with PricewaterhouseCoopers doesn't mean HP has given up on augmenting its IT services business, says Stephen Lane, Aberdeen Group research director for professional services. Given the shaky state of the E-services market, there are a lot of mid-sized firms potentially on the trading block. The challenge for HP will be courting the right one. “Whereas PricewaterhouseCoopers has an army of experts in nearly every industry, smaller services firms tend to target specific verticals,” Lane says.

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