Sunday, October 5, 2014

This is BIG news

Hewlett-Packard Plans 

to Break in Two

Split Would Separate PC, Printer 

Operation From 

Corporate Hardware, Other Units

Hewlett-Packard Co. plans to break in two, separating 
its personal-computer and printer businesses from its 
corporate hardware and services operations, accord-
ing to people familiar with the matter.
The company plans to announce the move as early as 
Monday, the people said. It is expected to be effected 
as a tax-free distribution of shares to the company’s 
stockholders next year, one of the people said.

HP plans to separate its personal-computer and printer 
businesses from its corporate hardware and services 
operations, the latest attempt by the technology company 
to improve its fortunes by breaking itself in two.

The company intends to announce the move on Monday, 
people familiar with the plan said. It is expected to make 
the split through a tax-free distribution of shares to stock-
holders next year, said one of the people.

If the division goes off as planned, it would give rise to two 
publicly traded companies, each with more than $50 billion 
in annual revenue.

A number of big companies, including eBay Inc. in tech, 
have chosen to break up lately, in part because of a belief 
that operations with different growth profiles are best 
managed as separate entities. H-P, which has suffered 
sharp sales declines, sees better long-term potential for 
its corporate hardware and services business than for its 
printer and PC unit, said one person familiar with the plan.

Ralph Whitworth, an H-P investor who until recently was its 
chairman, said about the news in a text message Sunday: 
“This would be a brilliant move at just the right moment in the 
turnaround. It would liberate significant trapped value.” As of 
June, the firm Mr. Whitworth co-founded, Relational Investors 
LLC, owned a roughly 1.5% stake in the company.

The impending move, first reported Sunday by The Wall 
Street Journal, set off a round of speculation in the industry 
about whether the separation 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. 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.

The planned breakup is one that Palo Alto, Calif.-based H-P 
and its investors have long contemplated. H-P came close to 
hiving off its PC operation in 2011, when it announced the
ill-fated acquisition of U.K. software company Autonomy Corp. 
H-P said then it was exploring a separation of its PC business, 
only to decide two months later to hold on to it amid pressure 
from shareholders, which led to the departure of then-Chief 
Executive Leo Apotheker.

H-P in 1999 spun off Agilent Technologies, a maker of 
electronic-testing gear and other hardware. Agilent 
subsequently announced plans to break itself up.
In 2012, under current H-P Chief Executive Meg Whitman
the company reorganized itself to combine the PC business 
with its more profitable printer operation, helping pave the 
way for the current plan.
Ms. Whitman is slated to be chairman of the PC and printer 
business, to be known as HP Inc., and CEO of the other 
company, to be called Hewlett-Packard Enterprise, said 
one of the people familiar with the plan. Current lead 
independent director Patricia Russo will be chairman of 
the enterprise company, while Dion Weisler, an executive 
in the PC and printer operation, is to be CEO of that business, 
this person said.
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. (odd they don't break 
out PCs and printers, and talk profits)
Last year, H-P lost its place as the largest PC maker by ship-
ments, slipping to No. 2 behind China’s Lenovo Group Ltd, 
according to industry research firm IDC.
H-P, founded in a garage in Palo Alto 75 years ago, has 
been undergoing a multiyear restructuring under Ms. 
Whitman in an effort to stem sales declines. Aside from 
the PC and printer business, H-P’s revenue comes from 
selling services and hardware such as servers and data-
storage systems to corporations, along with software and 
financial services.
H-P’s shares have risen sharply since the beginning of 
last year, but they remain well below their highs in recent 
years—and the even loftier levels they reached during the 
1990s tech boom (in common with virtually every other 
high-tech firm still surviving, such as Intel, Cisco, 
Microsoft, Oracle). H-P shares increased 2% on Friday to 
$35.20, giving it a market capitalization of nearly $66 billion.

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.
—Shira Ovide contributed to this article.


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