MCN Direct Newswire

Vol. 3 No. 23, 14 June 2004

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This issue news

1. SAIC seeks to buy PA Consulting
2. Accenture faces conflict over $10bn deal
3. Deloitte names UK consulting leader
4. CSC gains one, loses one
5. Diagonal snubs Microgen proposal
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. SAIC SEEKS TO BUY PA CONSULTING

US-based science and technology group Science Applications International (SAIC) is in acquisition talks with PA Consulting. SAIC described the talks as "preliminary" after reportedly approaching PA in April.

No value has been put on the deal, which would merge two employee-owned companies on either side of the Atlantic. The buyout would extend PA's geographic reach - particularly in the US - and enable it to bid for larger contracts. SAIC, which bid for a number of contracts under the National Health Service's £6 billion IT overhaul, is believed to want a stronger foothold in the UK and continental Europe.

If the acquisition goes ahead, SAIC is expected to merge its small management consulting business with that of PA, retaining the PA Consulting brand.

SAIC has a turnover of $6.7 billion (£3.7 billion) and 43,000 employees worldwide. PA Consulting has a turnover of £309 million and 3,000 staff in 35 countries.

Neither company would comment on the discussions, but it has been suggested a deal could be struck this week, giving PA employees a windfall as they swap shares for cash.

* SAIC - together with IBM and LogicaCMG - has been cut from the Ministry of Defence's shortlist of bidders seeking to lead a two-year assessment for a £6 billion programme to build next-generation armoured fighting vehicles (MCN Direct 3-18). PA Consulting is still in the running for the assessment contract, which is due to be signed late this year, along with EDS, Qinetiq and WS Atkins.

2. ACCENTURE FACES CONFLICT OVER $10bn DEAL

Accenture's $10 billion contract with the US Department of Homeland Security - reported in MCN Direct last week - is in jeopardy after a key House of Representatives committee agreed a proposal that would ban the deal because the consultancy is incorporated in Bermuda.

The House Appropriations Committee voted by 35 to 16 to amend the $32 billion budget bill for the Department of Homeland Security to stop companies based in tax havens winning homeland security contracts.

Rosa DeLauro, a Connecticut democrat and sponsor of the amendment - which still has a long way to go before being signed by President Bush - said: "It is outrageous and wrong to reward these companies for abandoning our country. The US Government should not be doing business with those who want all the benefits of citizenship without any of the responsibilities that come along with it."

Accenture responded by pointing out that it has never been a US-based or US-operated organisation and that it pays taxes in each of the countries in which it works, including the US. It said that the department chose the Accenture-led Smart Border alliance for the US-Visit contract based on cost, capability and management criteria, and noted that it would pay tax in the US on income generated from the contract.

On the wider issue of exclusion of non-US companies from homeland security work, Accenture stated: "Preventing the most qualified company, whether it is a global company or its US-based subsidiary, from bidding on government contracts rejects the free market principles of the federal procurement system."

3. DELOITTE NAMES UK CONSULTING LEADER

Deloitte has chosen David Owen as managing partner of its UK consulting business and promoted six consultants to partner status.

Owen is also joining Deloitte's executive group in the UK. He is currently chief operating officer at Deloitte Consulting and had a previous stint as managing director of Deloitte Consulting between May 2000 and August 2003.

He takes over as managing partner from Nick Griffin, who has seen the firm through the integration of Andersen's former consultancy business, the aborted attempt to separate Deloitte Consulting under the Braxton brand and its subsequent reintegration into Deloitte & Touche. Griffin now returns to client work as a senior partner.

Deloitte Consulting's six new partners bring its UK total to 103, with an overall team of over 1,600. Owen commented: "This reflects the strong performance of the business and Deloitte's commitment to retaining a consultancy as part of an integrated, multi-disciplinary firm."

Commenting on Owen's appointment, Deloitte chief executive John Connolly said: "Positioning David Owen on our executive reflects our broad business base and our focus on audit, tax, consulting and corporate finance."

4. CSC GAINS ONE, LOSES ONE

CSC is on course to add another major outsourcing deal to its European roster, but has withdrawn from bidding for a £2 billion BBC contract in the UK.

CSC has been selected by Zurich Financial Services to enter due diligence and contractual negotiations for a multi-year global applications outsourcing deal covering Zurich's operations in the UK, Germany, Switzerland and North America.

CSC chairman and CEO Van Honeycutt said: "We look forward to applying our wealth of experience in the financial services industry to Zurich."

The UK prognosis is not so good, with CSC agreeing to withdraw from the procurement process for a £2 billion, 10-year outsourcing deal with the BBC and the purchase of the BBC Technology subsidiary (MCN Direct 3-18). CSC said the decision was judged to be in the best interests of both parties.

The BBC stated: "In-depth negotiations over recent weeks, and a deeper understanding of both the BBC's and CSC's objectives and expectations, have led both parties to conclude that it would not be appropriate for CSC to continue negotiations."

Still in the running for the deal are Accenture and a team led by Siemens Business Services. The BBC said the contract is on track to be finalised this autumn.

5. DIAGONAL SNUBS MICROGEN PROPOSAL

SAP consultancy Diagonal has rejected an unsolicited proposal from IT services firm Microgen to combine the two companies through a share exchange.

Microgen's approach comes at a difficult time for Diagonal, which recently lost CEO Colin Burnside for health reasons and warned that it would not meet market expectations this year (MCN Direct 3-21).

Despite this, Diagonal has spurned Microgen's approach saying the board considered the proposal and found it to be "without significant merit". The company also said it was taking steps to appoint a new CEO to deliver value for shareholders as an independent public company.

This is not Microgen's first attempt to merge with Diagonal. It has tried to enter into dialogue with the Diagonal board on several occasions over the past two years, believing that "a combination with Diagonal could be attractive to shareholders of both companies".

Microgen has recently built a 7.5% shareholding in Diagonal and wants to pay 50-55 pence each for the remaining shares, valuing Diagonal at between £45.7 million and £50.2 million.

In fiscal 2003, Diagonal generated revenue of £56.3 million, against Microgen's £26.4 million, although the latter is expected to rise significantly this year following its 2003 acquisitions of MMT Computing and Imago QA.

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