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AnonymousInactiveAnalysts 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
business.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
driver.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
“Underperform.”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
Exchange.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. -
AuthorFebruary 14, 2005 at 9:30 AM
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