French computer and management services company Cap
Gemini SA said Tuesday that it is buying the consulting branch of
the Ernst & Young, a Big Five U.S. accounting firm, for about $11
billion in stock and cash.
The deal gives Cap Gemini a major foothold in North America and
vaults it into the ranks of the world's leading consulting firms.
For Ernst & Young, which becomes the first major U.S. accounting
firm to sell its consulting business, the sale provides an infusion
of capital and could remove a potential regulatory problem.
The Big Five accounting firms have been under pressure from the
U.S. Securities and Exchange Commission to eliminate conflicts of
interest between operations that audit companies' books and
consulting businesses that sell services to those same clients.
There are worries that accountants feel pressure to let abuses
slide to keep the consulting business for their firms.
In the deal, Cap Gemini will issue 43.5 million new shares of
stock to Ernst & Young and pay an additional 375 million euros, or
$365 million at current exchange rates, in cash.
"We have an absolute shared vision of where we have to go. We
did have other opportunities, we were approached by an array of
other organizations, but we only wanted to talk to Cap Gemini,"
Phil Laskawy, the chairman and chief executive of Ernst & Young's
consulting business, told reporters at a news conference.
Ernst & Young, based in New York, has more than 15,500
Cap Gemini has 40,000 employees in 20 countries and is based in
The deal marked another step in Cap Gemini's drive to develop a
global e-commerce ambitions and it said it expects the acquisition
to add to its earnings starting this year.
It said it hopes the purchase not only will make it a major
player in the United States but improve its position in Germany,
particularly in the lucrative consulting business as well as in
technology and Internet- related services.
Earlier this month, Cap Gemini signed an agreement with
Microsoft Corp. to develop a range of business services and
products based on Microsoft software.
Completion of the transaction is subject to the approval of
Ernst & Young partners, including at least 75 percent support among
the consulting business partners. Results are expected in April.
If Ernst & Young's partners agree to the terms, Cap Gemini
shareholders would meet by the end of June to vote on the deal.