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KPMG sets IPO price
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August 7, 2000: 6:58 p.m. ET
First time unit of a big five accounting firm to go public; Cisco to hold stake
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NEW YORK (CNNfn) - KPMG Consulting Inc., the former consulting unit of global accounting firm KPMG LLP, set the terms Monday of its initial public offering that could raise as much as $2.84 billion.
KPMG Consulting plans to offer 324 million shares at $6.75 to $8.75 each via underwriters Morgan Stanley Dean Witter, the company said in a filing with the Securities and Exchange Commission. Of the total shares, KPMG Consulting is offering 89.3 million while former parent company KPMG LLP, one of big five accounting firms, will offer 235 million. The IPO is expected to trade under the stock symbol KCIN.
In January, KPMG Consulting split from parent KPMG LLP. In May, KPMG filed for an IPO valued at $1 billion, marking the first time a unit of a big five accounting firm filed to go public.
The IPO also comes as Andersen Consulting received clearance to split from parent firm Arthur Andersen which -- along with PriceWaterhouseCoopers, Deloitte & Touche and Ernst & Young -- is included among the so-called big five accounting firms.
After the IPO, KPMG LLP -- along with non-U.S. KPMG International member firms and member partners -- will hold no more than 19.9 percent of the common stock, but in five years these holders will fully divest themselves of the shares, KPMG Consulting said.
No date has been set for the IPO, a spokeswoman said, and the deal must still receive approval from the SEC. The deal is receiving additional scrutiny because of possible auditor independence problems, KPMG Consulting said. In the past year, the SEC has questioned the Big 5 firms for providing consulting services to firms they also audit, which raise possible conflicts of interest.
The SEC recently moved to boost auditor independence by seeking to prevent the Big 5 from auditing firms they also provide certain services, including consulting and internal audits. Independence problems are also compounded in the KPMG Consulting IPO because parent KPMG LLP will also retain a stake in the consulting unit once the company does go public.
KPMG Consulting plans to use $399.6 million to repurchase shares from Cisco Systems Inc. In December 1999, Cisco Systems made a $1.05 billion investment in the consulting unit in exchange for five million shares. After the IPO, Cisco will hold a 19.9 percent stake.
McLean, Va.-based KPMG Consulting, which employs about 8,700 professionals, provides Internet consulting services to Fortune 1000 companies, such as J.P. Morgan & Co., (JPM: Research, Estimates) Campbell Soup Co. (CPB: Research, Estimates), Cisco Systems Inc. (CSCO: Research, Estimates), JDS Uniphase Corp. (JDSU: Research, Estimates), and Yale University.
Second-biggest Nasdaq IPO
If the IPO prices at the high end, the $2.84 billion deal will be one of the biggest IPOs to open on the Nasdaq, according to CommScan, a New York-based investment banking research firm. The deal will rank second to the St. Louis-based Chartered Communications (CHTR: Research, Estimates), which raised $3.23 billion in November.
However, some analysts question KPMG's low price range of $6.75-to-$8.75 a share. Most companies usually set the range of deals in the teens, which give them room to raise or lower the price as demand requires.
"It's very, very unusual," said Corey Ostman, co-chief technology officer of Alert-IPO.com. "Companies will trim the price range to attract institutions. That usually means you have a hard time attracting anyone. Whereas KPMG is starting really low."
Francis Gaskin, editor of Gaskins IPO Desktop (GaskinsCo.com) in Los Angeles, said a low price will allow the deal to rise. "They have to price low because it's such a big offering," he said.
However, strategy consulting is not a hot sector, analysts said, who do not expect to see the KPMG IPO produce a huge premium.
"KPMG is the crème of the crop," Ostman said. "But it's not going to be a fiber optic play."
The deal is comparable to Mainspring Communications Inc. that went public on July 27 offering 4 million shares at $12 each via Morgan Stanley. Cambridge, Mass.-based Mainspring Communications (MSPR: Research, Estimates) develops Internet strategies for Fortune 1000 companies. On Monday, Mainspring rose 1/4 to close at 16-1/8.
"Strategy consultants do OK but it's not a scaleable business and (KPMG) has no technology advantage," Gaskins said. "They have a brand name but their big competitors have it also."
KPMG Consulting generated nearly $2 billion in revenue in 1999. 
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KPMG Consulting
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