California: HP on October 6, 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.
Further, according to their presentation HP plans to restructure the company by a headcount reduction of 55,000 employees by FY’15. As of Q3’14, approximately 36,000 employees had left the company as part of the restructuring program.
The announcement came as HP approached the fourth year of its five-year turnaround plan.
“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 capitalized and expect to have investment grade credit ratings and capital structures. 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.
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.
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.
