SYDNEY PwC Australia said on Sunday it will sell its government practice to private equity firm Allegro Funds and appoint a new CEO, as the professional services firm battles the fall out from a major scandal.

The scandal, which broke in January, revolves around a former PwC tax partner who had been advising the federal government on laws to prevent corporate tax avoidance and shared confidential information with colleagues who then used it to pitch to multinational companies for work.

PwC said it had entered an exclusivity agreement to divest its federal and state government business to Allegro Funds for A$1 ($0.67) after reports this week it had been looking to offload its government, education and healthcare practice.

"Both parties are targeting signing a binding agreement by the end of July," PwC said in a statement on its website.

Allegro Funds could not immediately be reached for comment on the statement outside business hours.

The divestment would create two independent firms, while ensuring no disruption in vital services to public sector clients, PwC said.

It said the divestment represented around 20% of revenue for fiscal 2023 and would impact "future size and operations", but would allow it "to move forward with predictability and focus, and ensure stability".

"This was an extremely difficult decision, but we are determined to take all necessary steps to protect the jobs of our people and re-earn the trust of our stakeholders," said PwC Australia Board Chair Justin Carroll.

Kevin Burrowes, currently Global Clients & Industries leader, will become CEO, with Kristin Stubbins remaining acting CEO until Mr Burrowe starts, the firm said.

($1 = 1.4977 Australian dollars)

(Reporting by Sam McKeith; Editing by Christopher Cushing)