ANALYSIS: Media Watch - Optimistic media covers both sides ofIBM-PwC union equally

Late last month, IBM announced its first big move under new CEO Samuel Palmisano - its $3.5 billion purchase of PricewaterhouseCoopers' consulting unit. It was said that IBM, not known for growing through acquisitions, finalized the purchase in just 10 days.

Late last month, IBM announced its first big move under new CEO Samuel Palmisano - its $3.5 billion purchase of PricewaterhouseCoopers' consulting unit. It was said that IBM, not known for growing through acquisitions, finalized the purchase in just 10 days.

There were two primary topics addressed in the coverage - why the deal made sense for each partner. The amount of attention devoted to the benefits to each company was fairly evenly divided.

Reports noted that PwC had been under pressure to end concerns about a potential conflict of interest that it faced by providing both consulting and accounting services to the same companies, especially in light of all of the scandals of the past months. Analyst Peter Misek at Scotia Capital noted that PwC "wanted to mitigate both actual and perceived conflicts of interest (New York Daily News, July 31).

PwC was also praised for not just resolving the conflict-of-interest problem, but doing so in a way that made Big Blue pay a sizable premium over what many thought the unit could have earned in an IPO that was imminent, despite the unfriendly nature of current IPO markets.

For IBM, the price was said to be just too good to pass up on a number of levels. Merrill Lynch analyst Steven Milunovich told The Wall Street Journal (July 31), "This is opportunistic and strategic. It reinforces IBM's strategy to back out of hardware, and move more into services and software. Many industry analysts described the deal as a steal for IBM, pointing out that $3.5 billion is much less than the $18 billion Hewlett-Packard considered paying for PwC Consulting in 2000.

Other media reports also concurred with Milunovich on IBM's strategic reasons for the deal. The Los Angeles Times (July 31) described the deal as IBM's "bid to dominate the lucrative technology service market," which is worth $350 billion and growing. A number of reports went on to mention that IBM's Global Services unit now generates more revenue than the hardware it has traditionally been known for.

BusinessWeek (August 12) summarized many of the points seen throughout the coverage: IBM's purchase was seen as "a bold move - one that has prompted largely favorable reaction among industry watchers. It's easy to see why. The acquisition meshes nicely with Big Blue's decade-long transition from hardware maker to services giant."

Media reports described the union of the two businesses as a good strategic fit, and that the two would likely complement each other nicely. IBM was described as the world's biggest outsourcing provider of technical services, while PwC Consulting's strength in more strategic management consulting would help fortify what is currently perceived as one of IBM's weaknesses.

Even more positively for the newlyweds, business reporters at many outlets seemed to skate over their usual checklists of potential merger pitfalls.

Most multibillion-dollar mergers or acquisitions generate acres of coverage on how much the two companies overlap in certain areas, how many layoffs might be expected, how the two corporate cultures might clash, and/or how difficult it might be to integrate the two companies' operations.

However, in the case of this deal, there was minimal coverage in each of these areas, which is an encouraging sign for the prospects of the union.

Evaluation and analysis by CARMA International. Media Watch can be found at www.carma.com.

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