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7/31/2002
04:20 PM
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Rivals Pessimistic About IBM-PwC Deal

Hewlett-Packard, once a PwC suitor, says it has been approached by the consulting firm several times throughout the past year, even as recently as two weeks ago.

Competitors reacted swiftly and negatively to the news that IBM plans to buy PwC Consulting in a deal worth $3.5 billion.

Hewlett-Packard, once a PwC suitor, says it has been approached by the consulting firm several times throughout the past year, even as recently as two weeks ago. (In November 2000, HP backed out of a deal to buy PwC for $18 billion.) But now Juergen Rottler, a VP at HP, says that even at a more attractive price, it no longer fits with HP's strategy as it once would have.

"At the end of the day, most customers have relationships with the partner more than the company," Rottler says. "IBM will be very busy convincing the partners that it's a good deal for them, and the partners will be busy convincing the customers."

And from the "glass houses" corner, Mitch Hill, CEO of Avanade Inc., the joint venture between Microsoft and Accenture, says CIOs should be cautious about vendor bias in dealing with the new consulting business. "We can safely say that any independence PwC would have had is compromised," he says, adding that his firm isn't affected in the same way because it doesn't sell products. Most of Avanade's customers "usually engage us because they want to do something" with Microsoft, he says.

The $3.5 billion deal is IBM's largest acquisition, but it's a bargain-basement price considering that PwC's projected revenue for 2002 is an estimated $4.9 billion. As for the criticism by the competition, John Connolly, general manager of the strategy and change practice at IBM Global Services, seems unfazed: "We were delighted to be able to do this deal, and HP can respond to it" as it will.

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