Why is Hewlett-Packard chief breaking firm in two?
07 October 2014 -
Computer hardware company opts to spin off the organisation’s high- and low-performing divisions to help them adapt to market challenges
Hewlett-Packard (HP) chief executive Meg Whitman is to lead a split of the company between its well-performing computers and printers business and its corporate hardware and services operation, with the aim of reclaiming market share in the technology industry. The plans are part of a radical, five-year restructuring programme, which bosses hope will push the brand to recover its former position as the world’s largest PC maker from Chinese firm Lenovo.
Whitman will oversee the spinoff of HP’s corporate hardware and services concern as Hewlett Packard Enterprise, while shareholders will be given stakes in each business. The decision by the tech firm, which currently has more than 300,000 employees, has sparked investors’ enthusiasm, driving HP’s share price up by almost 5%.
While the split is likely to result in increased marketing, finance and purchasing costs, the move will allow each company to focus solely on its own products and target markets, while easing the way for management to sell on either of the firms in the event of attractive offers.
HP is set to generate $112.6 billion in revenue this fiscal year, and Whitman expects the separate companies will provide “flexibility they need to adapt quickly to market and customer dynamics”. She added: “We can [now] more aggressively go after the opportunities created by a rapidly changing market.”
Although it is clear that both businesses will be fully identifiable with the HP brand founded 75 years ago, history informs us that previous divestment experiences have led the separated parties into competition with each other.
In 1935, the Glass-Steagall Act caused the split of Morgan Stanley from JP Morgan & Co by making it illegal for investment banking and commercial banking to be conducted by the same firm. Now, the companies are competitors, battling in the same markets.
Within the technology industry, though, the HP move can be seen as part of a recent trend for large firms opting to break up. Last week, online auction site eBay launched payments platform PayPal as a separate company, after running it as a wholly owned subsidiary since 2002. Activist investor Carl Icahn, who owns 2.5% of eBay, campaigned for the move to happen, arguing that PayPal’s business is a “jewel” – the value of which is being “covered up” by its parent company. At present, PayPal is showing nearly twice as much growth as eBay, with annual increases of 19% compared to the online marketplace’s 10%.
Another recent example of tech-sector divestment is underway at Energizer Holdings. The company is halving itself, with one division focusing on the household products segment while the other looks after personal-care products. Energizer has said its personal care unit brought in $2.6bn in the 12 months up to 31 March 2014, compared to the much-lower $1.6bn brought in by its household products side.
For more thoughts on these issues, pick up CMI’s Change Management Toolkit.
Image of Meg Whitman courtesy of drserg / Shutterstock.
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