On Monday, Palo Alto, Calif.-based Hewlett-Packard confirmed swarming rumors that it is in discussions with PwC and may purchase PwC's consulting arm. While the terms of the deal have not been agreed upon, the parties are considering a cash-and-stock acquisition at a price in the $17 billion to $18 billion range.

The news of the possible acquisition comes at a crucial time considering Big Five firms have been under pressure by the Securities and Exchange Commission to separate their consulting practices from their accounting businesses in light of auditor independence. Today in New York, the SEC is holding a second public hearing on its proposal to modernize the auditor independence rules. Another hearing is scheduled for Sept. 20 in Washington D.C.

Because PwC serves as Hewlett-Packard's independent accountants, it is expected that the audit engagement will be terminated in light of auditor indepence requirements, according to Hewlett-Packard.

Feeling the heat, several major accounting firms have or are likely to cut ties with their consulting units.

The divorce of Arthur Andersen and Andersen Consulting made headlines in August when Colombian arbitrator Guillermo Gamba issued a 129-page decision, splitting up the two entities.

Under the ruling, Andersen Consulting must give up the Andersen name and pay about $1 billion to the partners at Arthur Andersen. That money, which consists of regularly scheduled payments between the firms, has been held in escrow since the arbitration began in December 1997.

Ernst & Young already sold its consulting practice to professional services firm Cap Gemini. Meanwhile, KPMG has filed to take its consulting division public. According to the firm's filing with SEC, KPMG will sell some 324 million shares of common stock with a project price range of $6.75 to $8.75 per share.

While word of the possible acquisition of PwC's consulting business by Hewlett-Packard sweeps the accounting community, some, such as Pat Sigmon of LPS Consulting, consider the news a distant rumble.

"As a consultant, obviously much smaller than the Big Five, I am not particularly scared or threatened by the 'importance' and the 'prominence' of these big consulting firms," said Sigmon, founder and president of the Fanwood, N.J.-based firm. "They are in a high end, possibly big loss market."

Issuing a word of caution to Hewlett-Packard, Sigmon added, "HP and any other owner of big consulting businesses may not realize how the service business differs from other types of business. Even large CPA firms and law firms are very result oriented; whereas, with computer systems, it is very easy to spend large amounts of money developing something that a new director decides to throw away."

-- By Antoinette Alexander

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