Cisco Systems Inc. has cut its investment in KPMG Consulting LLC in half, from $1 billion to $500 million, in accordance with guidelines established by the Securities and Exchange Commission.
Cisco will reduce its ownership of KPMG Consulting from 19.9% to 9.9% in order to retain its "desired accounting treatment" with the SEC, says a Cisco spokeswoman. If Cisco had kept its investment in KPMG Consulting at 19.9%, the SEC would have viewed KPMG Consulting as a subsidiary of Cisco, according to a spokeswoman for KPMG Consulting. Cisco will reduce its investment by selling half of the KPMG Consulting shares it had purchased from KPMG LLP back to the Big Five accounting firm.
Cisco's reduced investment will not affect KPMG Consulting's plans to launch an IPO, nor does it affect its relationship with Cisco, according to the KPMG Consulting spokeswoman. "Ultimately, this will float more shares [of KPMG Consulting] out to the market," she says. Under the SEC's guidelines, KPMG LLP must reduce its own ownership of KPMG Consulting to 19.9% at the time of the company's IPO. KPMG LLP must relinquish all ownership of the consulting firm within five years.
In light of the hard times E-services companies are seeing lately and the SEC's intense scrutiny of Big Five accounting firms, Cisco is "justifiably nervous", according to one analyst. "Cisco may see KPMG Consulting as less of a solid investment now than it did a year ago," says Tom Rodenhauser, lead analyst for Consulting Information Services.
According to both companies, plans are still in place for KPMG Consulting over the next year to hire 4,000 Internet consulting professionals who will be dedicated to the implementation of Cisco networking and telecommunications equipment.