Hewlett-Packard Plans Break-up from Strength

For the first two years after Meg Whitman became the crisis CEO at Hewlett-Packard (HP) in late 2011, she had tofight off investor pressure constantly to break-up the company by spinning off its consumer-driven personal computer and printer businesses to fund the growth of its cloud-based enterprise hardware and services firm.  

Yet with Whitman’s turnaround succeeding, as HP generated almost $12 billion in positive cash flow last year and the company’s stock up over 300%, Whitman pleasantly surprised investors by announcing the spin-off of consumer products next year from a position of strength.   

When Whitman announced a company-wide restructuring plan in May 2012 she said it would run through the end of 2014. But the analyst community had little faith that a Silicon Valley behemoth with $127 billion in revenue from wilting technology would make the breadth of gut-wrenching financial and human changes necessary to revive the company. 

Yet Hewlett Packard’s 10K financial statement filed with the Securities & Exchange Commission for 2013 mentioned the word “restructuring” 83 times as Whitman slashed 34,000 positions and dumped $10 billion of unprofitable revenue to increase annual cash flow by over $3 billion.    

Whitman signaled that she was moving out of the turnaround phase with the September announcement of the acquisition of open-source cloud computing software provider, Eucalyptus. The company’s Chief Executive Marten Mickos, who was once the CEO of open source database developer MySQL (which he sold to Sun Microsystems Inc. in 2008), will become the general manager of HP’s cloud business with the goal to deliver OpenStack cloud-servers with Amazon.com Web Services compatibility.

The HP announcement of the spin-off comes two weeks after eBay, Meg Whitman’s prior employer, finally capitulated to hedge fund billionaire Carl C. Icahn‘s demands that PayPal, the payment processor, which generated nearly half of the overall company’s revenue, be spun off to shareholders. 

Ralph Whitworth, an H-P investor who until recently was its Chairman, told the Wall Street Journal 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.”

The Associated Press reported that Whitman is slated to be Chairman of the PC and printer business, to be known as HP Inc., as well as CEO of the other company, to be called Hewlett-Packard Enterprise, according to 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.

Hewlett Packard’s stock price rose +2% on Friday to close $35.20 a share, prior to news of the break-up that was first reported by the Wall Street Journal on Sunday.  The HP transaction is expected to be a tax-free exchange that will close in early 2015.