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Commentary: HP's bid for a PwC division is wise despite downsides

Hewlett-Packard's acquisition of the consulting-services division of PricewaterhouseCoopers is a logical move for both companies.

By Lisa Stone, Gartner Analyst

Hewlett-Packard's acquisition of the consulting-services operations of PricewaterhouseCoopers would be a logical move for the computer-products manufacturer as well as for the consulting, tax and audit services giant.

See news story:
HP mulls $18 billion bid for PricewaterhouseCoopers arm
PwC's sale of its consulting unit has long been expected. Like rivals KPMG International and Ernst & Young--both of which are in the process of separating their consulting arms from their tax and audit businesses--the company has been under ongoing Securities and Exchange Commission pressure. The SEC wants assurance that the independence of PwC's tax and audit services is not compromised by consulting work done for the same clients. The newfound freedom from SEC scrutiny--along with an infusion of HP cash--should be good for PwC's bottom line.

On the downside, the reported sale would probably cause some disruption in PwC's governing structure and could make internal operations more cumbersome.

What's in it for HP? The company gets to buy its way into the services market, which presents significant profit potential. The reported cost of the deal--$18 billion--seems to be justified by the market opportunity.

However, HP will have to address some serious concerns. One of the most important is whether the market will continue to view the new entity's consulting services as independent. The new entity's clients are likely to wonder whether their consultants' recommendations are truly objective. Like IBM Global Services before it, HP's new consulting services unit would need to work hard to counter the perception that its recommendations may be slanted toward the company's own products.

Another problem for the new corporate entity is likely to be branding. If the company has to change its name, it will have to work hard to regain the market recognition that PwC currently enjoys.

Despite these concerns, a purchase of PwC's consulting services division would be a good move for HP. It would give HP the opportunity to move into consulting services--and instantly make the company a key player in an important and highly profitable market.

(For related commentary on finding a service provider to support an e-business strategy, see TechRepublic.com--free registration required.)

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.

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