HP board shakeup means study of a breakup could gain traction

April 4, 2013
April 4, 2013

Hewlett-Packard’s longtime chairman Ray Lane has attracted blame for many of the company’s recent woes. Critics said he was a rubber stamp for HP’s disastrous acquisition of Autonomy in 2011, leading some shareholders to call for his ouster. His reelection to the HP board in March came down to a close shareholder vote. HP announced today that Lane is stepping down as chairman and will be temporarily replaced by activist investor Ralph Whitworth.

Lane will stay on the board, but two other longtime directors who also got reelected in close votes in March are now leaving. With the departures of John Hammergren and G. Kennedy Thompson, the tech company now needs at least two new directors, in addition to a permanent chairman.

These changes on the board could pave the way for it to consider more seriously some dramatic options for HP’s future, sources said. One scenario is a possible breakup of HP, which has already been informally studied by the board, sources said. Whitworth, who came on to the HP board after the Autonomy buy, is known for pushing for breakups at other companies. But another source said HP is focused on remaining one company and noted Whitworth’s public note saying he believes in the turnaround. HP CEO Meg Whitman has said a breakup isn’t in the cards, but has privately acknowledged that all options need to be on the table given HP’s woes, sources said. An HP spokesman said “there are no plans to break up the company, and as we’ve said, we are better and stronger together.”

The board will have to weigh breaking up the company against the prospects for HP’s turnaround, and could decide to maintain the status quo, sources said. Whitman has been credited with helping to stabilize HP’s stock freefall. The company also recently reported better-than-expected earnings. But it still faces declining sales in its core PC and printer businesses. That led Goldman Sachs to downgrade HP earlier this week.

HP has been a revolving door for executives over the past few years. The Autonomy deal also led to the ouster of former CEO Leo Apotheker, whom Whitman replaced. The transaction is under investigation by regulators in both the US and UK. HP already has had to write down almost $9 billion for the deal.

The board changes could help soothe disgruntled shareholders. In Whitworth, they have an advocate. And given the last close votes, HP will likely seek new directors who won’t have trouble winning over investors.

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