Administration March 5, 2002

PwC IPO Proceeds Could Plug Pension Gap

May 3, 2002 (PLANSPONSOR.com) - America's largest accounting firm is going ahead with plans to spin off its consulting practice - but the proceeds could be directed toward shoring up billions in unfounded pension liabilities, according to reports.

Reported by

Nevin E. Adams

The consulting arm of PricewaterhouseCoopers (PwC) has filed papers for a stock offering that would separate the consulting business from its parent company. The offering, first announced in January, is aimed at easing concerns about potential conflicts of interest between auditing and consulting businesses in the wake of the Enron debacle.

Funding Gap

However, according to the Financial Times, the 7,500 audit partners in PwC will receive no windfall from the expected $3 billion to $4.5 billion sale of the firm’s global consultancy practice, while their consultant colleagues stand to gain up to $1 million each. Instead, the firm will use the proceeds from the consultancy spin off to help meet billions of dollars of unfunded pension liabilities that have built up over years, according to the report. PwC’s practices have “huge pension fund deficits”, principally in the US, UK and Australia – a gap that the IPO proceeds will “only start to dent”.

PwC has been trying to separate its audit and consultancy arms for some time, including a failed attempt to sell its consulting practice to Hewlett-Packard in 2000. The move could come as early as this summer, according to a filing with the Securities and Exchange Commission (SEC).

The consultancy partners, who will be the senior staff in the new company, will own about 25%, and will distribute the proceeds between them. With 1,500 consultancy partners, the windfall is expected to be up to $1 million in shares each, according to the Financial Times.

Name Change?

The papers were filed under the name PwCC Ltd., but the firm said it would change the name before the share offering. The firm has not yet decided on a new name, but it said in the filing that it planned to spend about $110 million over the next to years to build up the new brand.

They would be the fourth of the big five accounting firms to take the step – leaving only Deloitte Consulting with its accounting and consultant businesses joined.

In related news, Allied Irish Banks PLC fired PricewaterhouseCoopers as its external auditor Tuesday, ending a 35-year relationship between the two firms. The decision came following the discovery of some $700 million in currency-trading losses at the bank’s US-based Allfirst Financial Inc. unit earlier this year.