IBM Pays Millions More For PWC Buy; Lays Off Thousands

The total amount IBM paid for PricewaterhouseCoopers' consulting business stands at just under $4 billion.
IBM shelled out millions of dollars in the second quarter to fulfill financial terms of its buyout of PricewaterhouseCoopers' consulting business and axed more than 15,000 employees because of weakness in its microelectronics and technology-services businesses, according to documents filed Thursday with the Securities and Exchange Commission. And in a memo released Monday morning, a company executive disclosed plans to terminate an additional 600 workers in an IBM division responsible for microprocessor design and manufacturing.

Last month, IBM paid an additional $397 million to PricewaterhouseCoopers following discussions between the two companies that resulted in the revaluation of some of the assets transferred from PricewaterhouseCoopers to IBM under the sale. IBM initially paid $3.5 billion in cash and stock for the business unit, acquired in October.

According to IBM's form 10-Q for the second quarter of 2003, ended June 30, the additional payment was made to PricewaterhouseCoopers "as a result of the review process and other adjustments." An analyst who discussed the matter with the company says he was told the payment was made after IBM and PricewaterhouseCoopers officials reviewed the value of certain physical assets acquired by IBM. The additional payment brings the total amount that IBM paid for PricewaterhouseCoopers' consulting business to just under $4 billion. In its most recent annual report, IBM indicated that talks aimed at finalizing financial terms of the acquisition were ongoing.

IBM also disclosed in the 10-Q filing that, as of June 30, it had terminated 1,400 employees from its microelectronics group and 14,213 Global Services personnel "in response to the recent decline in corporate spending on technology-related services." The company is apparently set to make additional staff cuts. In a memo to his staff, John Kelly, technology group senior VP, said he has decided to cut 600 positions within the group because of "a tough industry environment."

"I know that these decisions will cause difficulties for many of our employees. I want you to know that these were not easy decisions for me to make, but I believe they are necessary for the short-term health and long-term growth of our business," Kelly says in the memo, a copy of which was obtained by InformationWeek. Sources say most of the cuts will come within the engineering ranks at IBM's microprocessor plant in Essex Junction, Vt.

Kelly also said that employees and management within the group will be forced to take a week of unpaid vacation this year. In the memo, Kelly also asks employees not ordered to take the furloughs to do so voluntarily. IBM officials were not immediately available for comment.

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