(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
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.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- 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
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)
Keywords: BREAKINGVIEWS HP/
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