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HP To Separate Into Two New Industry-Leading Public Companies

Monday, October 06, 2014

Press release from the issuing company

Hewlett-Packard Enterprise will define the next generation of technology infrastructure, software and services for the New Style of IT 

HP Inc. will be the leading personal systems and printing company delivering innovations that will empower people to create, interact and inspire like never before 

Strategic step provides each new company with the focus, financial resources and flexibility to adapt quickly to market and customer dynamics while generating long-term value for shareholders


  • Hewlett-Packard Enterprise will build upon HP’s leading position in servers, storage, networking, converged systems, services and software as well as its OpenStack Helion cloud platform 
  • Meg Whitman to be President and Chief Executive Officer of Hewlett-Packard Enterprise; Pat Russo to be Chairman of Hewlett-Packard Enterprise Board 
  • HP Inc. will be the leading personal systems and printing company with a strong roadmap into the most exciting new technologies like 3D printing and new computing experiences 
  • Dion Weisler to be President and Chief Executive Officer of HP Inc.; Meg Whitman to be Chairman of the HP Inc. Board 
  • Company reiterates fiscal 2014 non-GAAP diluted net earnings per share (EPS) outlook of $3.70 to $3.74 and updates GAAP diluted net EPS outlook to $2.60 to $2.64 
  • Company issues fiscal 2015 non-GAAP diluted net EPS outlook of $3.83 to $4.03 and GAAP diluted net EPS outlook of $3.23 to $3.43 

Palo Alto, Calif. – HP (NYSE: HPQ) today announced plans to separate into two new publicly traded Fortune 50 companies: one comprising HP’s market-leading enterprise technology infrastructure, software and services businesses, which will do business as Hewlett-Packard Enterprise, and one that will comprise HP’s market-leading personal systems and printing businesses, which will do business as HP Inc. and retain the current logo. Immediately following the transaction, which is expected to be completed by the end of fiscal 2015, 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. 

Today’s announcement comes as HP approaches the fourth year of its five-year turnaround plan. Over this time, the company has executed successfully against its turnaround objectives, keeping customers and partners at the forefront. HP has reignited its innovation pipeline, strengthened its go-to-market capabilities, rebuilt its balance sheet, and inspired its workforce and management teams. The company is now positioned to accelerate performance, drive sustained growth and demonstrate clear industry leadership in key areas. 

“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,” said Meg Whitman, Chairman, President and Chief Executive Officer of HP. “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders. In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.” 

Both companies will be well capitalized and expect to have investment grade credit ratings and capital structures optimized to reflect their distinct growth opportunities and cash flow profiles. The separation into independent publicly traded companies will provide each company with its own, more focused equity currency, and investors with the opportunity to invest in two companies with compelling and unique financial profiles well suited to their respective businesses. 

Management Structure 

Meg Whitman, President and Chief Executive Officer of HP, and Cathie Lesjak, Chief Financial Officer of HP, will hold these positions with Hewlett-Packard Enterprise. When the separation is complete, Whitman will also serve on the Board of Directors of Hewlett-Packard Enterprise, and Pat Russo will move from Lead Independent Director of HP to Chairman of Hewlett-Packard Enterprise. 

Dion Weisler, Executive Vice President of HP’s Printing and Personal Systems business, will lead HP Inc. as President and Chief Executive Officer. Whitman will serve as non-executive Chairman of HP Inc.’s Board of Directors. 

Hewlett-Packard Enterprise 

Hewlett-Packard Enterprise will have a unique portfolio and strong multi-year innovation roadmap across technology infrastructure, software and services to allow customers to take full advantage of the opportunities presented by cloud, big data, security and mobility in the New Style of IT. By leveraging its HP Financial Services capability, the company will be well positioned to create unique technology deployment models for customers and partners based on their specific business needs. Additionally, the company intends for HP Financial Services to continue to provide financing and business model innovation for customers and partners of HP Inc. 

Customers will have the same unmatched choice of how to deploy and consume technology, and with a simpler, more nimble partner. The separation will provide additional resources, and a reduction of debt at the operating company level, to support investments across key areas of the portfolio. The separation will also allow for greater flexibility in completing the turnaround of Enterprise Services and strengthening the company’s go-to-market capabilities. 

“Over the past three years, we have reignited our innovation engine with breakthrough offerings for the enterprise like Apollo, Gen 9 and Moonshot servers, our 3PAR storage platform, our HP OneView management platform, our HP Helion Cloud and a host of software and services offerings in security, analytics and application transformation,” continued Whitman. “Hewlett-Packard Enterprise will accelerate innovation across key next-generation areas of the portfolio.” 

HP Inc. 

HP Inc. will be a proven leader in the personal systems and printing markets with exciting new technologies on the horizon. The new company’s strong profitability and free cash flow will enable investments in growth markets such as 3-D printing and new computing experiences. At the same time, HP Inc. will continue to execute against a well-defined and established strategic plan, ensuring continuity for customers and consistent value to shareholders. 

“Since assuming responsibility for the Printing and Personal Systems Group, Dion and his leadership team have done an excellent job of building our relationships with customers and channel partners, segmenting the market and driving product innovation,” added Whitman. “The creation of HP Inc. will only accelerate the progress the team has made.” 

“This is a defining moment in our industry as customers are looking for innovation to enable workforces that are more mobile, connected and productive while at the same time allowing a seamless experience across work and play,” said Weisler. “As the market leader in printing and personal systems, an independent HP Inc. will be extremely well positioned to deliver that innovation across our traditional markets as well as extend our leadership into new markets like 3-D printing and new computing experiences – inventing technology that empowers people to create, interact and inspire like never before.” 

Transaction Details

The separation transaction is intended to be tax-free to HP shareholders for federal income tax purposes. The transaction is currently targeted to be completed by the end of fiscal 2015, subject to certain conditions, including, among others, obtaining final approval from the HP Board of Directors, receipt of a favorable opinion and/or rulings with respect to the tax-free nature of the transaction for federal income tax purposes and the effectiveness of a Form 10 filing with the Securities and Exchange Commission. 

Goldman Sachs & Co. is serving as financial advisor and Wachtell, Lipton, Rosen and Katz is serving as legal advisor to HP. 

For more information, please see here

Financial Outlook 

For fiscal 2014, HP reaffirms its non-GAAP diluted net EPS outlook range of $3.70 to $3.74, and updates its fiscal 2014 GAAP diluted net EPS outlook to be in the range of $2.60 to $2.64. 

For fiscal 2015, HP estimates non-GAAP diluted net EPS outlook to be in the range of $3.83 to $4.03 and GAAP diluted net EPS outlook to be in the range of $3.23 to $3.43. 

HP’s outlook does not include one-time GAAP charges the company is expected to incur in connection with the separation, including advisory and tax costs which will be quantified at a later date. 



By Cary Sherburne on Oct 06, 2014

This is not unexpected, given the public discussion and rumors about spinning off or selling the personal systems and printing business, including the recent failed merger with EMC. IBM undertook a similar activity, ending up with Ricoh and Lenovo acquiring those assets. It took a very long time for IBM to finally offload its Printing Systems business. I was hearing that the business was up for sale as far back as the late 1980s.

HP does not report its Graphic Arts Business revenues separately, but it has to be a relatively small part of the $57 billion in HP Inc. revenues. However, the company's 2013 annual report infers that at least the graphic services part of the business is profitable and growing, leaving the rest to our imagination: "The decline in commercial hardware net revenue was partially offset by net revenue growth in the
graphics services and managed print services businesses."

Once the new companies are formed, it will be interesting to see at what level of granularity results are reported and if there will be further movement to break HP Inc. into still smaller separate businesses. It seems to me that the graphic arts business is in a better position to stand successfully on its own that other parts of the new HP Inc. business, which might be a reason not to separate it out. However, it might be in the best interests of the Graphic Arts Business to do so. Time will tell.

We'll be digging to see what other information we can uncover ... although it is likely it will be difficult to get much more detail on the record than is provided in the HP release, FAQ and Fact Sheet.


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