Hewlett-Packard Co. Chief Executive Carly Fiorina’s departure Wednesday may precipitate a breakup of the company, which analysts said could be worth 44 percent more in pieces than together.
The total value of HP’s businesses after a spinoff of its printer unit, its most-profitable division, would rise to as much as $29 a share from Wednesday’s closing price of $21.53, J.P. Morgan Securities Inc.’s Bill Shope said.
“The printer side is the gem,” said Patrick Becker Jr. in Portland, Ore., at Becker Capital Management, which owns 941,000 HP shares.
Fiorina resisted a spinoff for five years, and the board discussed and discarded the idea three times.
Former director Walter Hewlett, son of the co-founder, said Wednesday that board members should look again. The printer unit made up 68 percent of Palo Alto, Calif.-based HP’s profit in the most recent quarter.
Fiorina argued that buying Compaq Computer Corp. in 2002 would reduce the company’s reliance on printing. It hasn’t worked.
Printers account for almost all of HP stock’s value. Merrill Lynch & Co. analyst Steve Milunovich said the business is worth at least $19 or $20 a share on its own. Stockholder Kenneth Smith at Munder Capital Management put it at around $20, and David Katz at Matrix Asset Management put it as high as $22.
“There’s a conglomerate discount on the stock,” Milunovich said in an interview. Milunovich has been among the most vocal in calling for a spinoff. “Focus tends to result in better performance,” he said.
HP’s stock price gained $1.39, or 6.9 percent, in New York Stock Exchange trading Wednesday, as investors bet on a spinoff.
In June, Milunovich said Hewlett-Packard should break up the company to separate the printing division. Walter Hewlett, who started a proxy fight trying to block the $18.9 billion Compaq acquisition, suggested a spinoff during the battle.
“It needs to be looked at very carefully, and it would be a wise strategy to pursue as far as investors and the company is concerned,” Hewlett said Wednesday.
The board has no plans to break up the company, interim CEO Bob Wayman said on a conference call. Directors have “talked about the negative synergies that would be involved in splitting up the company.”
Wayman said they have created models that will be “updated periodically,” and a breakup is something “we and the board will continue to evaluate.”
In June, Fiorina called the notion of a breakup “absurd.” But Shope wrote Wednesday that directors’ resistance “could change quickly with a new CEO and the likelihood that shareholder activism on the issue will increase significantly in coming months.”
Milunovich said it may take 18 months for directors to act on a spinoff because they will be busy searching for a new CEO and getting the businesses in order.
Smith Barney’s Richard Gardner was one holdout. He called a spinoff “unlikely” and said separating the divisions doesn’t make sense.
Keeping all product lines in one company helps limit costs, and increased competition with Dell Inc. in printers means that Hewlett-Packard’s printer business may not get much benefit from a spinoff, he said.
Round Rock, Texas-based Dell overtook Hewlett-Packard in 2004 as the largest PC maker.
