Hewlett-Packard (HPQ) confirmed Monday its intention to split into two companies, separating its printing and personal computer business from corporate hardware and services operations, the companies will now be known as HP Inc. and Hewlett-Packard Enterprises, respectively. Shareholders will be given a stake in both.
HP CEO Meg Whitman will run Hewlett Packard Enterprises. Dion Weisler, who currently heads printing and personal systems group will take the lead role at HP Inc.
The split is part of a 5-year turnaround plan that Whitman implemented when she signed on to head the company. The plan intends to bring the 75-year old firm into the mobile and online world and has resulted in tens of thousands of jobs cuts so far.
In a statement Whitman wrote, “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.”
Whitman, however, hasn’t always been keen to split the company into two. In an investor conference call in 2013 Whitman shot down any rumors of a company breakup by saying that, “I have said many times I feel quite strongly that we are better and stronger together… customers want this company to be together and we heard that loud and clear on August 18 of 2011.”
In August of 2011 then HP-CEO Léo Apotheker said in a conference call that he was considering a split -- shareholders were upset and the stock dipped. He was replaced by Whitman the next month.
“She’s either changed her mind or has been thinking about this all along and just didn’t want to let us know,” says Yahoo Finance editor-in-chief Aaron Task.
The split will be complete by the end of 2015. Each company is expected to create more than $50 billion in annual revenue.
HPs announcement follows eBay’s split from PayPal last week prompting some to believe that larger tech firms are under pressure to breakup their holdings.
Shares of Hewlett-Packard were up nearly 5% on the news. HPQ is up around three times from where it was when Meg Whitman first took the role of CEO indicating that shareholders so far agree with her turnaround plan.
“The street sees the possibility of the spinoff,” says Task. “Wall Street loves mergers and spinoffs.”
The Bloomberg Spinoff Index (BNSPIN: IND) grew 40.4% in 2013, that’s compared to 29.6% for the S&P 500 (^GSPC). This year, however, it’s up only is up 6.69% with reinvested dividends.
Michael Santoli, Yahoo Finance senior columnist writes that spinoffs tend to dip at first and then outperform. “The mechanics often mean the spun-off company is orphaned at first, its shares lacking analyst coverage, handed to investors who never chose to buy them and often to index funds which must sell them,” he says. “In the first month or two, therefore, the stocks tend to be pressured by forced selling and investor neglect, before being "discovered," at which point their typical outperformance begins.”