Hewlett-Packard Co. took a big step toward its Nov. 1 breakup
Wednesday by filing paperwork with the Securities Exchange
Commission outlining the finances of the two businesses it plans to
create.
The filings detail two very different companies: a
printer-and-PC vendor called HP Inc., and a supplier of corporate
technology called Hewlett Packard Enterprise.
H-P has struggled through much of the past decade with declining
revenue, corporate scandals and management changes. And the company
has stood on the sidelines as companies such as Amazon.com Inc. and
Apple Inc. have created compelling cloud computing, smartphone and
tablet businesses.
In the end, H-P's size worked against it, CEO Meg Whitman said
in an interview last week describing how she came to the conclusion
that the breakup had to happen.
"We needed to be smaller, more nimble, we needed to be more
focused," she said. "And we needed to have a capital structure for
each company that would allow them to pursue their objectives."
It is a complex job, dividing a 300,000 person company that
spans 170 countries and 600 locations. The work began last fall,
shepherded by a 500-person Separation Management Office, which is
creating the new corporate entities, bank accounts and computer
systems that will make up the new companies. The executive leading
this $1.8 billion effort, Bill Veghte, announced his departure from
H-P on Tuesday, an unexpected hiccup in what, so far, had been an
otherwise smooth process.
HP Inc. will focus on returning cash to shareholders, while
expanding into new markets such as 3-D printing, Ms. Whitman said.
Hewlett Packard Enterprise, by contrast, will look for growth as it
tries to stay relevant in a corporate computing market that is
being transformed by the cloud. That means buying new companies,
Ms. Whitman said.
"Acquisitions have got to be a part of the future of Hewlett
Packard Enterprise," she said. "This market's moving too fast."
H-P's server, storage and networking gear has better long-term
prospects than its PC and printer groups, said Jim Osman, the CEO
of Edge Consulting Group, an equity research firm that specializes
in spinoffs. Another prospect: The split also could revive talks
between Ms. Whitman and executives at EMC Corp, he said. EMC and
H-P both held off-and-on merger talks last year, but they broke
down just weeks before H-P announced its spinoff plan, The Wall
Street Journal has reported.
H-P already was in the midst of exploring a breakup when Ms.
Whitman took charge of the company in late 2011. At the time, she
said H-P made more sense as a single entity than apart.
But the 2011 split was different from the one described in
Wednesday's SEC documents. Back in 2011, H-P was toying with the
idea of spinning off its unprofitable PC business, much as IBM
Corp. had already done in 2004.
But rolling the highly profitable printing business into the new
HP Inc. creates a spinoff company that is more likely to return
cash to shareholders. H-P believes that the current breakup will
cost as much as $450 million in "dis-synergies"—extra costs
incurred by having to duplicate internal functions such as legal
and human resources departments and creating new product brands.
The PC-only carve-out proposal would have cost even more, Ms.
Whitman said. "There was a big dis-synergy of about $1 billion
around building an entirely new brand for the PC business," she
said.
H-P and its board began investigating the possibility of a split
early last year, but it took Ms. Whitman several months to become
convinced it was the correct course.
"I was quite convinced that we should keep this company
together, really up until this past summer," she said. "What I
realized was, this market is changing at lightning speed. I've been
in the technology business a long time. I've never seen markets
move as fast as this."
Write to Robert McMillan at Robert.Mcmillan@wsj.com
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