A breakup of Hewlett-Packard is both desirable and inevitable. But it requires new blood on the board.
Investors now have an opportunity to hold the $41 billion technology conglomerate’s directors more accountable. The company lost nearly half its value in 2012 as dysfunction and misguided M.&A. caught up to H.P. Moving the chairman, Raymond J. Lane, and others out at the upcoming annual meeting makes a breakup easier to push forward.
H.P.’s stock today trades at a discount to the potential sum of its many component parts. Breakingviews estimated the company’s PC business, I.T. services and other divisions were worth more than $50 billion in late December, based on valuations of rival firms. Indeed, breakup speculation - and H.P.’s disclosure that it was examining disposals - has led to the stock’s value nearly doubling from is November low.
Yet the board has been reluctant to dismember the storied Silicon Valley giant. That would be a mistake - turning around big technology companies is extremely difficult. With multiple businesses in decline, H.P. does not 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 is not pushed aside.
Shareholders should start at the top, with Mr. Lane. As acting chairman during the $10 billion Autonomy acquisition in 2011, he should have, and did not, act as a cautionary force. The then chief executive, Léo Apotheker, hastily agreed to buy the British software company at a hefty 64 percent premium. H.P. wrote down a majority of the purchase price in 2012. For this, Mr. Lane deserves to go.
Likewise, directors John Hammergren and G. Kennedy Thompson do not deserve re-election. Both served on the committee in ! charge of vetting acquisitions, including the Autonomy deal. Moreover, they are the longest-serving directors, and bear some responsibility for H.P.’s deep-seated ills.
Last, there is Marc Andreessen, the well-known, busy venture capitalist. He was among the leading proponents for the Autonomy deal among directors, according to people familiar with the deliberations. He also played a crucial part in the disastrous hiring of Mr. Apotheker. He deserves the boot.
Voting out these four directors would not erase H.P.’s mistakes. It could, however, raise the odds of the company doing the right thing in 2013 - breaking into pieces.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
