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 user 2005-02-14 at 9:29:00 am Views: 43
  • #10234

    Analysts Expect HP Printer Spinoff

    NEW YORK- Hewlett-Packard Co.’s ouster of Carly
    Fiorina on Wednesday triggered widespread speculation on Wall Street that the
    technology giant might be weighing a bid to spin off its profitable printer

    The end of Fiorina’s nearly six-year reign as chairman and
    chief executive of Hewlett-Packard was a signal to some analysts the company’s
    board might be ready to shake up the business model and energize its sagging
    stock price. Rumors floating around since the summer that the Palo Alto,
    Calif.-based company is mulling a divestiture have now gained credence.

    During a conference call, HP’s new regime downplayed the
    idea of splitting off its money-making printer and imaging business from the
    personal computers, servers and storage systems operations. But analysts advised
    clients to ignore such statements, contending Fiorina’s departure makes such a
    move more likely.

    “Despite the board’s statement that they have no intention
    to break up the current portfolio of assets, we believe this strategic view
    could change quickly with a new CEO, and the likelihood that shareholder
    activism on the issue will increase significantly in coming months,” JPMorgan
    analyst Bill Shope told his clients. “This suggests the prospects for a spinoff
    of the printing division will increase.”

    Since Hewlett-Packard acquired Compaq, its computer and
    storage business – which makes up almost 40 percent of HP’s total business – has
    remained unprofitable. Meanwhile, its imaging, printing and services business –
    which make up about 47 percent of the business – has been the real earnings

    For months there has been talk among analysts that HP’s
    board should consider splitting the company up. And with Fiorina’s departure,
    many top Wall Street banks say the timing might be right. JPMorgan and Merrill
    Lynch upgraded the stock to a “Buy,” while Smith Barney and Banc of America
    Securities kept it at a “Hold” and Bear Stearns downgraded it to an

    No matter what the rating, analysts speculated how the
    printer business would be valued in the event of a spinoff. Most banks see it
    worth around $22 a share.

    “HP’s printing business has an implied value of $19 to $20
    per share,” Merrill Lynch analyst Steven Milunovich told clients. “HP has net
    cash of $2 (a share). The sum of these almost equals today’s $22 share price,
    leaving little to no value attributed to the enterprise and PC businesses.”

    Indeed, shares of Hewlett-Packard closed Tuesday at $20.14
    before Fiorina’s announcement. Shares of the Dow component surged $1.40, or 7
    percent, to $21.54 in recent afternoon trading on the New York Stock

    But the investor enthusiasm that triggered an uptick in
    shares was exactly the reason one investment bank lowered its rating.

    Bear Stearns analyst Andrew Neff explained to clients the
    firm cut its rating because “the stock appears to reflect the potential for a
    split, which would mean minimal upside if there is one and meaningful downside
    if there isn’t.”

    Another point of discussion among Wall Street’s analysts
    was who might replace Fiorina, considered to be one of corporate America’s most
    recognized CEOs after leading HP through its acquisition of Compaq Corp. Chief
    Financial Officer Robert Wayman has been named interim CEO and Patricia Dunn
    will serve as as non-executive chairman. Analysts say the best replacement would
    be MCI CEO Michael Capellas, previously president of Hewlett-Packard.