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HP board is studying whether to break up the company

February 5, 2013
February 5, 2013

The Hewlett-Packard board is studying a break-up of the US tech company among several options the directors are considering to obtain maximum value for shareholders, people familiar with the matter said.

The HP directors have discussed the details of a possible breakup scenario, but also the merits of the company staying whole, since a recovery seems to be slowly taking hold and its share price has gained steam since it fell below $12 last November, the people added. In January, the stock went above $17 and has been trading around $16.50 in recent days.

There is no overt pressure to break up HP—whose divisions include units selling computers, corporate servers and services—and no final decision has been made, the people said. If it seems that HP will be able to recover from its recent troubles, then a separation of its units may not be in the cards, they said. But the discussions among board members come amid some discontent from HP shareholders who feel the company is worth much more than its recent share price.

In a Dec. 27 SEC filing, HP said it was evaluating “the potential disposition of assets and businesses that may no longer help us meet our objectives.” But the board has not formed a special committee to assess a breakup option and does not currently have plans to do so, the people familiar with the matter said.

A person familiar with the company said HP’s intention is to keep the company together.

The idea of parting with at least one of HP’s units is not new. Former chief executive Leo Apotheker decided in 2011 to spin off HP’s PC division. But Apotheker was pushed out of the company that year after investors rejected his business decisions. He was replaced by former eBay head Meg Whitman, who reversed the spinoff decision.

The company said at that time that the PC unit was important to HP to boost purchasing power, among other reasons. But because HP’s value had fallen substantially in the last several months, a breakup plan is now being studied, the people familiar with the matter said.

The rationale behind a breakup is that HP’s divisions could be worth more as separate units than they are bundled together as a whole. The thinking also reflects a trend in recent years. Kraft, McGraw-Hill, Tyco and other companies have broken up and shed a division that was dragging the rest of the company down or better focused a particular business among a firm’s multiple products or services.

Some analysts and others in the tech industry have called for a breakup of HP in light of its recent troubles. Analysts have estimated that if HP’s units were separated, the total value of the divisions could be worth more than $20 a share, and as much as $29 a share, as against the current $16.50 share price range.

HP and other PC makers have struggled to keep up with changing trends as consumers turn more toward mobile devices and tablets. But HP has been reeling from its own problems, including a revolving door of chief executives and costly acquisitions.

Most recently, HP’s share price fell dramatically in the wake of an alleged accounting scandal at British software company Autonomy, a firm HP bought in 2011 for about $12 billion. Regulators in the US and the UK have been investigating Autonomy since HP said it had found accounting and disclosure problems at the company. HP said in November it would write down nearly $9 billion because of the Autonomy acquisition.

The decision to buy Autonomy was made under Apotheker, who left the company after shareholders sharply criticized the Autonomy purchase as too expensive.

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