The transaction is subject to regulatory approvals, but both companies' boards have approved the measure. The deal is expected to close in the third quarter.
The acquisition by IBM, which already has huge presence in the consulting market, will likely affect other companies such as Sun Microsystems, Dell Computer, Hewlett-Packard and EDS that have sought to beef up their own services, said Illuminata analyst Jonathan Eunice.
"It takes a very available bachelor out of the mating game," Eunice said. "PwC Consulting was clearly on the block and being shopped around."
Indeed, HP in 2000 tried to buy PwC Consulting for about US$18 billion, but later dropped the bid, saying the price was too high.
"Everyone is less valued right now. Everybody was buying with highly inflated "Monopoly" money two years ago," Eunice said.
As a result of the deal, PwC Consulting no longer will pursue an earlier planned initial public offering, the companies said. PwC Consulting has 30,000 employees and expected revenue of US$4.9 billion for its fiscal 2002.
Under the acquisition terms, PwC Consulting will become a part of IBM Global Service's Business Innovation Services unit. Ginni Rometty, currently general manager of IBM Global Services in the Americas, will lead the new unit.
IBM has been hurt by the recession and reduced spending on information technology, but its Global Services unit has helped reduce the pain by providing somewhat stable revenue. Customers often sign long-term contracts under which IBM supports or even runs clients' computing operations for recurring fees.
"IBM is strong in a down economy. It can weather the storm so much better than anyone else, so it is obviously shopping for value," Eunice said.
IBM Global Services has about 150,000 employees and operations in 160 countries. The unit claimed US$35 billion in revenue for 2001.
Consulting companies help companies install complex high-end servers and software and integrate new systems with existing systems. Often a company will cultivate a certain area of expertise, such as installing SAP's accounting and business software, for example.
Financial auditing companies such as PwC often have had separate consulting divisions, but there is growing concern that auditors would overlook clients' problems to avoid jeopardising lucrative consulting contracts.
IBM's purchase of PwC Consulting "will unleash the consulting unit from the regulatory restraints of our industry, and will allow the business to reach its full potential," PwC CEO Samuel DiPiazza said in a statement.
IBM rivals such as Sun and HP have increasingly focused on partnerships with consulting companies.
As part of its separation from the accounting firm, PwC Consulting had planned to rename itself "Monday" when it finished its split from PwC. The name drew criticism from analysts, who noted the unfavourable connection the day has with many in the working world.
