It’s official. Hewlett-Packard’s board of directors has approved the separation of HP into two completely separate companies. Hewlett Packard Enterprise Co. and HP Inc. will begin operating on November 1, when the separation is expected to be fully completed.
The names are similar but the missions are different. As its name suggests, Hewlett Packard Enterprise will offer technology solutions aimed at helping enterprises optimize IT and build cloud and mobile solutions. This new brand will fold in HP’s enterprise group, enterprise services, software and financial services businesses.
The new HP will target the consumer end of the business, operating HP's printing and personal systems businesses. HP will focus on new innovations like multi-function printing, Ink in the Office, graphics, commercial mobility, and services.
"This separation will enable us to accelerate the turnaround we began four years ago," said Meg Whitman [pictured], chairman, president and CEO of HP. "As two independent, industry-leading companies, Hewlett Packard Enterprise and HP Inc. can drive more focused business strategies, innovation roadmaps, and go-to-market models. The separation will also present better choices for investors by creating two distinct and attractive investment profiles."
HP’s String of Bad Moves
We caught up with Rob Enderle, principal analyst at the Enderle Group, to get his thoughts on the split. He told us the industry is in a consolidation phase. That suggests HP should be acquiring companies not splitting, especially considering reports indicating that the PC market is strengthening, he said.
What’s more, the industry recently witnessed how IBM’s spin out of its PC unit caused the costs for the company's x86 servers to increase dramatically due to dramatically lower volume discounts for parts -- and IBM then had to sell those off as well, Enderle said. HP doesn’t really have a fall back if it loses x86 servers, he said.
“This split comes on top of an unprecedented and horridly executed combined layoff of one-third of HP’s workforce, which could leave one or both units as non-viable,” he said. “Finally, HP’s board has developed a reputation for really bad decisions and incompetence.”
Enderle pointed to a laundry list of issues, including: hiring and then lack of support for former CEO Leo Apotheker; the “hail Mary hiring of Meg Whitman,” who wasn’t qualified and then couldn’t perform; the catastrophic decisions surrounding Palm; the failed acquisition of Autonomy; the placement and then lack of support for executives like Bill Veghte -- he had a Microsoft background and HP installed him as head of hardware and then got rid of him; the inability to capitalize on 3D printers when HP led the printer market; and the near complete failure to turn HP around.
“All of this suggest HP’s board is unable to make a good decision,” Enderle said. “And splitting the company supports that premise."
Full Speed Ahead
Despite these and similar comments from other analysts, HP is going ahead with the split. So how will this deal go down?
HP has opted for a pro rata distribution to HP stockholders that amounts to 100 percent of the outstanding shares of Hewlett Packard Enterprise. Ultimately, that means HP stockholders will have ownership interests in both the new HP and Hewlett Packard Enterprise.
Each HP stockholder will receive one share of Hewlett Packard Enterprise common stock for every one share of HP common stock held as of October 21, 2015. No fractional shares of Hewlett Packard Enterprise will be issued. Stockholders will receive cash in lieu of fractional shares.
The separation and distribution remain subject to certain conditions, including a favorable IRS ruling and the opinions of HP's tax advisors regarding certain U.S. federal income tax matters.