When is bigger not necessarily better?
It’s a question pondered by such tech giants as Hewlett-Packard, which elected to split different operations under their corporate umbrellas in order to grow independently. For the 75-year old H-P, the move comes after nearly a year spent discussing a potential merger with data-storage equipment maker EMC Corp.
The break up will create two independent publicly traded companies: H-P Enterprise led by CEO Meg Whitman and H-P Inc. with Dion Weisler as CEO of the personal computing and printing company. Both companies hover around the $60 billion annual revenue mark and have similar operating profits, according to H-P.
The breakup was good news for shareholders. The single-focus strategy boosted stock prices following the announcement by 4.74% to $36.87. H-P CEO Whitman was optimistic that the efforts of her last three years to turn H-P around have succeeded. She told CNBC: “A rebuilt balance sheet, an innovation pipeline that is significantly improved over three years ago. … An inspired workforce, a new leadership team, renewed confidence of our partners, our customers, frankly, our shareholders as well.”
Whitman continues to streamline as the split is finalized. Before the announcement, the company said it was eliminating 5,000 more jobs, bringing the total number of layoffs this year to 34,000.
Analysts gave the move favorable reviews, and are hopeful that narrowing the focus could even help H-P’s flagging software business. “When you’re the size of H-P with all these completely different businesses, it’s really hard to be nimble and focused and this is the most logical way to do it,” said Jayson Noland, an analyst at Robert W. Baird & Co.
Amit Daryanani, an analyst at Royal Bank of Canada in San Francisco told Bloomberg News, “[Two entities] will be more nimble, they’ll be more shareholder friendly in their own right, so you have a better probability of success with these smaller entities versus the big conglomerate.”
It will take some time to see if H-P’s structural gambit pays off, its break into two companies won’t be completed until the end of fiscal 2015.