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PwC back to square one
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November 13, 2000: 5:56 p.m. ET
PwC back to drawing board after deal talks for its consulting arm cancelled
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NEW YORK (CNNfn) - PricewaterhouseCoopers said Monday it will go back to its original restructuring plan, involving the separation of its accounting and consulting businesses, after a deal to sell the consulting arm to Hewlett-Packard Co. fell through.
New York-based PwC had been negotiating a deal worth up to $18 billion with H-P, in an effort to appease federal regulators with concerns about the potential for conflict when accounting and consulting businesses fall under the same roof.
On Monday, PwC and HP announced an end to talks, citing market conditions.
"Our management consulting practice is a world-class operation," said PwC CEO James J. Schiro in a statement. "It is unfortunate that market conditions caused our discussions to terminate."
"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," Hewlett-Packard CEO Carly Fiorina said in a statement Monday.
The deal was reported to be in trouble at the beginning of the month, with Hewlett-Packard (HWP: Research, Estimates) re-examining all aspects after its stock fell 23 percent from the time of the announcement. Although no specifics of the negotiations were released, such a drop would significantly lower any stock portion of the acquisition price.
HP was reportedly considering raising the cash percentage of the price, but lowering the overall price to about $15 billion.
Shares of HP plunged nearly 13 percent Monday after reporting earnings that came in well below analysts' forecasts compiled by First Call Corp.
Officials said in a written statement Monday that PwC will continue with the separation of its consulting arm from its accounting unit under its original restructuring plan. It is taking the action in part to appease the Securities and Exchange Commission, which is concerned about the potential for conflict of interest in companies with both accounting and consulting segments.
Last February, Ernst & Young sold its consultancy business to French computer services and advisory firm Cap Gemini for $11.3 billion.
KPMG Consulting Inc. is planning an initial public offering, which will most likely happen next year, and Andersen Consulting recently won its freedom from Arthur Andersen despite that company's resistance to the split.
There is still a possibility that another large technology company will step in for PwC's 30,000 consultants. According to analysts, consultants can boost the overall package offered by tech company and increase sales of products by bundling them with services.
Cisco Systems (CSCO: Research, Estimates), IBM (IBM: Research, Estimates) and Nokia (NOK: Research, Estimates) have been rumored to be interested, but no definite signals have come from any company.
Peter Andrew, analyst with A.G. Edwards, speculated Cisco would not be interested because of its relationship with KPMG. Cisco will own 9.9 percent of the company when it goes public.
But for now PwC's Schiro said the company will be "developing a structure that will allow all our business to flourish while maintaining the professional independence and objectivity necessary to ensure healthy capital markets."
Shares of Hewlett-Packard closed Monday at $34.13, a drop of $5. 
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