KPMG Consulting goes after Andersen's IT units

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By Juan Carlos Perez

(IDG) -- IT services provider KPMG Consulting Inc. has signed a letter of intent to acquire most of Andersen Worldwide SC's IT services operations.

The deal would significantly expand KPMG Consulting's offering portfolio, staff, market share and list of clients, putting it in a better position to compete against other IT services providers, such as IBM Corp., Electronic Data Systems Corp. (EDS), Computer Sciences Corp., Deloitte Touche Tohmatsu's Deloitte Consulting unit and PricewaterhouseCoopers' PwC Consulting unit.

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"We clearly saw the complementariness and the added strength of our two businesses," KPMG Consulting Chairman and Chief Executive Officer Rand Blazer said during a conference call Wednesday morning to discuss the proposed deal.

KPMG Consulting is offering US$284 million to buy up to 23 of Andersen Worldwide's business consulting units, which provide IT and business management services. Up to 6.5 million of KPMG Consulting shares would also be issued over a three-year period to Andersen consulting partners who join as part of the transaction. KPMG Consulting's shares were at $17.46, up 16 percent, in early afternoon trading Wednesday.

The deal would be complementary both in terms of industries and geographies, Blazer said.

In terms of industries, KPMG Consulting is strongest in the public services, communications and content, and financial services industries, while the Andersen Worldwide units would provide a boost in industries such as pharmaceutical, utilities, biotechnology and consumer and industrial markets, Blazer said.

"The combined company would have great balance in the targeted industries we serve," he said. "It's a very good fit between us, very complementary."

In terms of geographies, "there's also a tremendous fit," he said.

The letter of intent includes the business consulting unit from Arthur Andersen LLP, which is Andersen Worldwide's U.S. firm. The other units on the table are in Asia-Pacific, Europe and Latin America and include units in countries such as France, Germany, Spain, Japan, Brazil and Mexico.

KPMG Consulting, based in McLean, Virginia, already has completed the acquisition of two of the 23 units on the table: the China and Hong Kong IT consulting practices.

The 23 units generated $1.4 billion in revenue in Andersen Worldwide's 2001 fiscal year, ended Aug. 31, 2001. That is about half of KPMG Consulting's total revenue of $2.9 billion in its 2001 fiscal year, ended June 30, 2001. KPMG Consulting's staff would grow from about 9,000 to more than 16,000 employees if it manages to acquire the 23 units it intends to buy. KPMG Consulting's list of clients that are among the largest 2000 companies in the world would grow to more than 700 clients, up from 531 at the end of its 2001 fiscal year, Blazer said.

Andersen Worldwide, based in Switzerland, and its U.S. firm Arthur Andersen LLP, based in Chicago, are struggling to survive their involvement with bankrupt energy trader Enron Corp. Arthur Andersen LLP was Enron's auditor, and Enron's accounting practices are at the center of the scandal that brought down the company.

As a result of the Enron debacle, Arthur Andersen LLP faces numerous lawsuits, a criminal trial on an obstruction of justice charge and a client exodus. It pledged earlier this year that it would transform itself into a company that provides only auditing services and that it would get rid of its other consulting units.

KPMG Consulting's acquisition of Arthur Andersen LLP's business consulting unit depends on Arthur Andersen LLP resolving "in the most prudent and most effective way" the liability issues it faces, Blazer said.

"A prerequisite for us ... is that major liability issues be resolved to our satisfaction prior to close," he said. "We understand very clearly the potential liabilities ... (and) we're not interested in putting our shareholders or our population at risk."

KPMG Consulting has set a timetable of 30 to 45 days for reaching definitive agreements with the Andersen Worldwide units that still haven't signed one, and to close the deals by this year's third quarter, Blazer said.

KPMG Consulting, is a publicly traded company no longer associated with its former parent company KPMG International.