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Hp Confirms Plans to Break Up Company, Plans to Cut 5,000 More Jobs
By By Shira Ovide, Joann S. Lublin and Dana Mattioli
More Breaking News Available at This Link Below.
http://recode.net/2014/10/06/its-official-hp-confirms-plans-to-split-in-two/Hewlett-Packard Co. confirmed Monday that it planned to split the company into two parts, a move executives said was driven by the need to stay nimble to keep up with rapidly changing technology.
H-P, which Bill Hewlett and Dave Packard famously started in their Palo Alto, Calif., garage in 1939, now will be carved up: One part, HP Inc., will consist of the company’s personal-computer and printer businesses. The other, Hewlett-Packard Enterprise, will sell computer servers, data-storage gear, software, consulting operations and other services for corporate-technology departments.
Each of the companies will be about the same size, with more than $50 billion in annual revenue.
H-P Chief Executive Meg Whitman said Monday that the two companies will be on very different courses. The new HP Inc. will be milked for cash, which will be earmarked for returns to stockholders. The enterprise company, which Ms. Whitman will run, will be operated for growth through a faster pace of investment in new products and through acquisitions, executives said on a conference call with analysts.
Investors seemed pleased with the move, as shares of Hewlett-Packard jumped as much as 5.4% in morning trading Monday. The stock has risen sharply since the beginning of last year, but shares remain well below their highs in recent years—and the even loftier levels they reached during the 1990s tech boom.
Separately, H-P also boosted Monday the number of expected layoffs it has planned by 5,000 to 55,000, after identifying “incremental opportunities for reductions.” H-P had previously projected its job cuts to be between 45,000 and 50,000, and it already has shed 36,000 employees under the restructuring program as of the end of the most recent quarter.
Ms. Whitman acknowledged the decision to split the company apart was a reversal for her. Three years ago, when she took over as CEO, Ms. Whitman nixed a potential spinoff of H-P’s PC business. “Together we are stronger,” she said in October 2011.
Monday, Ms. Whitman said it was the right move then for H-P to stay together, in part because the company was too financially weak to go through with a breakup. But she said the company became healthier under her watch, and technology has shifted to favor companies that can move fast.
“Being nimble is the only path to winning,” Ms. Whitman said on the call.
She also credited H-P for three years of hard work rebuilding its cash stockpile, paying back debt, improving its executive leadership lineup and introducing new product lines in fast-growing areas like “cloud” computing.
“Three years ago, you will recall this company was in a fairly difficult position,” Ms. Whitman said.
H-P isn’t alone in opting for focus over unity. Auction house eBay Inc. EBAY -0.35% also recently chose to break up for reasons similar to H-P: the belief that corporate operations with different growth outlooks are best managed as separate entities.
The company said it would make the split through a tax-free distribution of shares to stockholders by November 2015.
The impending breakup, first reported Sunday by The Wall Street Journal, set off a round of speculation in the industry about whether H-P’s split could lead to more deal making.
The Journal recently reported that for much of the past year, H-P held talks to merge with data-storage equipment maker EMC Corp. EMC -0.45% , a deal that would have created an industry giant with a market value of roughly $130 billion. Although the talks recently ended, the separation could pave the way for H-P’s corporate hardware and services business to ultimately be combined with EMC, industry observers said.
H-P executives were pressed Monday about the remaining possibility of a “transformative” deal. Ms. Whitman appeared not to rule it out, while stressing H-P would prioritize shareholder returns in any deal making.
In a statement that puzzled some analysts, H-P said it needed to hold off on stock repurchases because it was in possession of “material nonpublic information,” an indication the company was weighing acquisitions or sales.
In addition to Ms. Whitman leading Hewlett-Packard Enterprise, she also is slated to be chairman of HP Inc., the PC and printer business. That company’s CEO will be Dion Weisler, a current executive in the PC and printer operation. Current H-P lead independent director Pat Russo will be chairman of the enterprise company.
H-P, which affirmed its guidance for the year ending Oct. 31, also said it expects per-share earnings of $3.83 to $4.03 for fiscal 2015. The range doesn’t include one-time charges expected to be connected to the separation. Analysts polled by Thomson Reuters were projecting $3.95 a share.
In the 2013 fiscal year ended last October, the Printing and Personal Systems Group, as it is known, reported $55.9 billion in revenue, about half of H-P’s total. Sales for the operation dropped 7.1% amid fierce competition, compared with a 6.7% decline for company revenue as a whole.
Last year, H-P lost its place as the largest PC maker by shipments, slipping to No. 2 behind China’s Lenovo Group Ltd , according to industry research firm IDC.
In response to lower sales and to provide a lift to its shares, H-P has laid off tens of thousands of employees and cut other costs.
Ms. Whitman has sought to push H-P further into growth pockets such as “cloud” software, but the company has struggled to make headway in such areas.
The recent wave of breakups and spinoffs at technology companies and in the wider corporate world has been fueled by the idea that companies with a narrower focus perform better. The moves in many cases have been well-received by shareholders—and sometimes actively sought by them.
Last Tuesday, online-auction pioneer eBay, where Ms. Whitman was once CEO, announced a plan to spin off its PayPal payments-processing unit. Shareholders rewarded eBay’s decision, pushing the company’s shares up about 7.5% that day.
—Dana Cimilluca contributed to this article.
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