Hewlett-Packard drops plan to buy PWC consultancy

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Hewlett-Packard Co.'s planned $18 billion acquisition of PricewaterhouseCoopers L.L.P.'s consulting arm, which faced hurdles and skeptics from the beginning, has been called off.

Executives from the hardware giant and the New York-based consultancy said independently that the deal would not happen. Their announcements came last week after HP announced lower-than-expected fourth quarter earnings of 41 cents a share. The planned acquisition was announced in September.

Few industry watchers were surprised that the deal fell through. Many Wall Street analysts had fretted over its viability; specifically, they questioned whether HP would be able to digest PricewaterhouseCoopers' consulting practice, which consists of some 31,000 advisers. HP executives, who mounted an intensive roadshow to pitch the Street and consulting insiders on the deal, did little to dissuade them.

The quashed deal is a marked setback for HP. Like other technology companies, HP is trying to branch out beyond hardware and software into more lucrative consulting services. This is something that IBM Corp. has done with great success.

It is unclear whether HP will seek to buy another consultancy. Executives at the Palo Alto, Calif.-based company did not return calls seeking comment.

HP would do well to concentrate on advising one or two industries and buy smaller specialty consultancies to help it do so, said Dean McMann, managing partner at The Ransford Group. "They need to take a bite-sized portion," he said.

PricewaterhouseCoopers, meanwhile, is said to be again shopping around its consulting practice. It, like other Big 5 firms, is under pressure from the federal government to separate consulting from auditing practices. PWC executives declined to comment.

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