Breakingviews-HP breakup requires new blood on the board
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Robert Cyran
NEW YORK, March 12 (Reuters Breakingviews) - A breakup of Hewlett-Packard (HPQ.N) is both desirable and inevitable. But it requires new blood on the board. Investors now have an opportunity to hold the $41 billion tech conglomerate's directors more accountable. The company lost nearly half its value in 2012 as dysfunction and misguided M&A caught up to HP. Moving chairman Ray Lane and others out at the upcoming annual meeting makes a breakup easier to push forward.
HP's stock today trades at a discount to the potential sum of its many component parts. Breakingviews estimated the company's PC business, IT services and other divisions were worth more than $50 billion in late December based on rival firm valuations. Indeed, breakup rumors – and HP's disclosure that it was examining disposals – has led to the stock's value nearly doubling off its November low.
Yet the board has been reluctant to dismember the storied Silicon Valley giant. That would be a mistake – turning around big tech firms is extremely difficult. With multiple businesses in decline, HP doesn't have the luxury of time. Dallying could send the stock down once again.
Replacing several directors responsible for its past missteps would bring some accountability to the board and ensure an uncomfortable breakup isn't pushed aside.
Shareholders should start at the top, with Ray Lane. As acting chairman during the $12 billion Autonomy acquisition in 2011, he should have, and didn't, act as a cautionary force. New Chief Executive Leo Apotheker hastily agreed to buy the UK software firm at a hefty 64 percent premium. HP wrote down a majority of the purchase price in 2012. For this, Lane deserves to go.
Likewise, directors John Hammergren and Kennedy Thompson don't deserve re-election. Both served on the committee in charge of vetting acquisitions, including Autonomy. Moreover, they are the longest-serving directors, and bear some responsibility for HP's deep-seated ills.
Lastly, there is Marc Andreessen. The well-known, busy venture capitalist was among the leading proponents for the Autonomy deal among directors, according to people familiar with the deliberations. He also played a key part in the disastrous hiring of Apotheker. He deserves the boot.
Voting out these four directors won't erase HP's mistakes. It could, however, raise the odds of the company doing the right thing in 2013 – breaking into pieces.
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- Hewlett-Packard holds its annual meeting on March 20. All 11 of the company's directors are up for re-election.
- Proxy advisory service ISS has recommended that investors vote against chairman Ray Lane and directors John Hammergren and Kennedy Thompson. Rival proxy advisory service Glass Lewis has recommended that shareholders vote against Hammergren, Thompson, Marc Andreessen and Rajiv Gupta.
- Gupta, the lead independent director, responded to the ISS and Glass Lewis recommendations with a letter to shareholders defending the company's choice of candidates for director. He stated the company was making progress and that changing the composition of the board could be destabilizing.
- Letter from Gupta to investors: link.reuters.com/ryf66t
- Reuters: HP defends chairman Lane, says UK probing Autonomy [ID:nL1N0C400W]
H and P [ID:nL1E8N62ZG]
Make your own luck [ID:nL1E8MK4GA]
- For previous columns by the author, Reuters customers can click on [CYRAN/]
(Editing by Rob Cox and Martin Langfield)
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