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Hewlett-Packard stock jumps after split into two companies announced

Hewlett Packard
Hewlett Packard Co., based in Palo Alto, is planning to divide into two separate companies. One will focus on its personal computers and printers, the other on business services.
(Franziska Kraufmann / EPA)

Hewlett-Packard Co. is planning to split into two companies, separating its personal computer and printer division from its business services unit.

The Palo Alto-based company, which markets personal and business technology products, announced the split on Monday. It is expected to be completed by the end of fiscal 2015.

“Our work during the past three years has significantly strengthened our core businesses to the point where we can more aggressively go after the opportunities created by a rapidly changing market,” Chief Executive Meg Whitman said in a statement. “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan.”

Post-split, HP’s PC and printing business will be known as HP Inc., while its technology infrastructure, software and services businesses will be called Hewlett-Packard Enterprise.

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Whitman noted that the split would provide each new company with “the independence, focus, financial resources and flexibility they need” as well as generate long-term value for shareholders.

Under the separation, Whitman will become chairman of HP Inc. and CEO of Hewlett-Packard Enterprise. HP Inc. will be led by Dion Weisler, currently executive vice president of the company’s printing and personal systems business.

Word of HP’s spinoff came just days after another huge Silicon Valley corporate breakup. Last week, Whitman’s former employer, EBay, announced that it was spinning its PayPal payment processing business into a separate company.

That news was cheered on Wall Street, where investors drove up EBay’s shares as much as 7%. 

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“Although we are less bullish on this split than on the EBay/PayPal split announced a week ago, we still think that this development is a small net positive for the stock,” FBN Securities analyst Shebly Seyrafi wrote in a research note. “On the positive side, the split creates more focused companies that can arguably become more nimble vs. the competition.”

Hewlett-Packard shares rose $1.63 in early morning trading Monday, up 4.63%, to $36.83.

Founded 75 years ago, Hewlett-Packard is one of the largest technology companies in the world. It reported $112 billion of revenue in the fiscal year ended Oct. 31, 2013, about half of that from the PC and printer division. The company has a market capitalization of nearly $66 billion.

The company was founded by Bill Hewlett and Dave Packard, who became friends at Stanford University and launched their business from a rented garage -- “the original Silicon Valley start-up,” the company says on its website. It now employs about 317,500 people worldwide.

HP, which was the world’s No. 1 PC company for years, has been undergoing a transformation under the leadership of Whitman, the former EBay Inc. executive who became its chief executive in September 2011 after a failed run to become California’s governor. 

The company has been struggling to adapt to a mobile and cloud-based tech world and suffered numerous leadership changes until Whitman’s appointment.

Three years ago, Whitman instituted a five-year plan to turn around its business, which included cutting thousands of jobs to save costs.

But analysts note she has been unable to reinvigorate the company and that its prospects still point to slower growth in the future because of a sluggish IT spending environment, changes in buying behaviors among customers and more competition, said analyst Daniel Ives of FBR Capital Markets.

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“HP’s decision this morning speaks to the growing pressures/growth challenges that mature technology stalwarts (e.g., IBM, Oracle, SAP, EMC) are facing in today’s evolving technology landscape,” Ives said.

Rod Hall, an analyst at J.P. Morgan, said he liked the split and speculated that the breakdown of merger talks between HP and EMC recently may have accelerated the decision to split HP into two.

HP shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc. The transaction is intended to be tax-free to HP’s shareholders for federal income tax purposes, the company said.

In a call with analysts Monday morning, Whitman said that although a combined company had worked for years, it was time for HP to make a big change.

“The marketplace never stands still and in our industry today, more than ever, you have to compete harder and faster every single day,” she said. “Being nimble is the only path to winning.”


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