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U.S. Securities and Exchange Commission

Office of the Chief Accountant:
Letter to PricewaterhouseCoopers LLP and International Business Machines Corporation on planned sale by PricewaterhouseCoopers LLP of its global management consulting and technology services business to International Business Machines Corporation

July 30, 2002

Lawrence W. Keeshan, Esq.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

David S. Hershberg, Esq.
International Business Machines Corporation
One Old Orchard Road
Armonk, New York 10504


The staff has reviewed your joint letter dated July 30, 2002 concerning the planned sale by PricewaterhouseCoopers LLP of its global management consulting and technology services business (Consulting Practice) to International Business Machines Corporation. Hereafter, references to IBM include International Business Machines Corporation as well as the Consulting Practice. In your letter, you describe the significant terms of the transaction and the conditions that IBM and PricewaterhouseCoopers LLP, including entities that would be considered part of PwC under Rule 2-01(f)(2) of Regulation S-X (collectively "PwC"), must comply with prior to, during and following completion of the transaction in order to obtain the relief sought in your letter. Your letter concludes that, regardless of whether the transaction occurs, under the conditions specified, PwC would not have a "mutual or conflicting interest" or a "direct or material indirect business relationship" with, or a "direct financial interest or material indirect financial interest" in any audit client as a result of IBM providing services to, entering into business relationships with, or investing in or accepting investments from, PwC audit clients. Your letter further concludes that, regardless of whether the transaction is completed, the activities undertaken or expected to be undertaken during the Investigatory Period, Quiet Period, Pre-Closing Period and Post-Closing Period, will not prevent or, except as specified in your letter, limit the ability of IBM to continue to use the audit and review services of PwC.

Assuming that the representations set forth in your letter are and continue to be accurate, and further assuming that PwC and IBM continue to comply with each of the terms and conditions set forth in your letter, the Office of the Chief Accountant ("OCA" or "Staff") will not assert that PwC's independence from IBM has been impaired solely as a result of the transaction-related activities described in your letter or that PwC's independence from another audit client has been impaired solely because that audit client also is a client of, enters into a business relationship with, or invests in, IBM or is invested in by IBM or by any IBM division or employee. Of course, PwC otherwise remains fully subject to the Commission's independence requirements. OCA has taken this no-action position based on its evaluation of the relevant legal and policy considerations and does not thereby adopt or endorse the analysis or conclusions set forth in your letter.

The conditions described in your letter include, among other things, that: 1) PwC will not receive or retain any equity interest in IBM; 2) IBM will not use the PwC name or logo; 3) PwC and IBM will maintain separate corporate governance, management and financial structures and interests; 4) there will be no revenue or profit sharing between PwC and IBM; 5) there will be no co- or joint marketing, advertising or similar arrangements between PwC and IBM; 6) shared services between PwC and IBM will be limited and transitional in nature; 7) participating PwC firms will enter into five year non-compete agreements; 8) all PwC partners vote on the transaction within 45 days of the execution of the definitive agreement and closing will occur within 90 days of execution of the definitive agreement; 9) indemnification claims for certain losses must be made by IBM within two years of the closing and the aggregate amount of such claims may not exceed 12.5% of the purchase price; 10) IBM will obtain an independent opinion as to the fairness of the transaction; and 11) IBM will engage an independent auditor other than PwC to audit the initial transaction accounting and subsequent accounting including all of the reporting units containing the Consulting Practice transferred to IBM, for the three fiscal years commencing with the fiscal year in which this transaction closes. PwC will be required to place reliance on the work of such independent auditor and will be required to reference in its corresponding audit report the portions of the audit conducted by that independent auditor. OCA emphasizes that failure to comply with any of the terms, representations or conditions enumerated in your letter will vitiate this no-action position. This response expresses OCA's position only on these particular facts and circumstances and does not purport to express any legal conclusions on this or any other matter.


Robert K. Herdman
Chief Accountant

cc: James C. Woolery, Esquire/Cravath, Swaine & Moore
Peter Allan Atkins, Esquire/Skadden, Arps, Slate, Meagher & Flom LLP

Original Inquiry

Letter from Lawrence W. Keeshon and David S. Hershberg to Robert K. Herdman, Chief Accountant regarding PricewaterhouseCoopers/IBM Transaction, dated July 30, 2002

Annex A: Possible Payments Under the Definitive Agreement

Annex B: Transaction Activities and Relationships



Modified: 08/02/2002