Hewlett Packard confirms split plans

Share distribution plan to create two listed companies with over $50 billion revenue each.

Hewlett-Packard Co on Monday said it 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 will make the split through a tax-free distribution of shares to stockholders by the end of fiscal 2015.

If the division goes off as planned, it would give rise to two publicly traded companies, each with more than $US50 billion in annual revenue.

H-P also boosted the number of its expected layoffs by 5,000 to 55,000, after identifying "incremental opportunities for reductions." H-P had previously projected its job cuts to be between 45,000 and 50,000, and it has already shed 36,000 employees under the restructuring program as of the end of the most recent quarter.

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 per cent 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 $US130 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 break-up is one that Palo Alto, California-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 UK 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. 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.

H-P, which affirmed its guidance for the year ending October 31, said it expects per-share earnings of $US3.83 to $US4.03 for fiscal 2015. The range doesn't include one-time charges expected to be connected to the separation. Analysts polled by Thomson Reuters were projecting $US3.95 a share.

In the 2013 fiscal year ended last October, the Printing and Personal Systems Group, as it is known, reported $US55.9 billion in revenue, about half of H-P's total. Sales for the operation dropped 7.1 per cent amid fierce competition, compared with a 6.7 per cent decline for company revenue as a whole.


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