In July 2015, the American Global Information Technology Company Hewlett-Packard, better known as HP, has released more details about its impending spinoff, announced on October 2014. The operation, that is expected to close by the end of the fiscal year 2015, will result in two publicly traded companies: Hewlett Packard Enterprise (HPE), for the fast growing software and corporate hardware business, and HP Inc. (HPQ), which will focus on the PC and printers business and retain the current logo.

In order to clarify what the transaction is made up by Hewlett-Packard, we can define a spinoff as a strategic finance transaction through which a new company is being created by selling or distributing new shares of an existing business or division of the parent company. So, basically, a spinoff is a type of divestiture which aims to separate a less productive or unrelated subsidiary businesses from the company’s core activity. Advantages from the transaction also occur to the spun-off company, which is expected to benefit from key factors such as independence, a new management team, more visibility and so on and so forth. All these value drivers are expected to translate into better operative and financial results.

But let’s take a step back and try to understand what brought HP to this breaking point; the company, established in 1939 and gone public in 1957, has been through the years the protagonist of many mergers and acquisitions, that had enabled it to become the world’s leading PC manufacturer, even if recently surpassed by Lenovo in 2013. Now, HP’s decision to spinoff can be framed into a much wider strategy of a five-year restructuring plan, aimed at strengthening the core business and helping the firm to better fit into the new technological context. Within this plan, a spinoff seemed like a good answer to the company’s needs for flexibility in order to adapt easily to the rapidly changing environment. As Meg Whitman, Chairman, President and CEO of HP, declared on the press release of October 06, 2014, “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.

After the transaction, which is intended to be tax-free to HP’s shareholders for federal income tax purposes, HP shareholders will own shares of both Hewlett Packard Enterprise and HP Inc; Whitman will become HPE’s President and CEO, while she is also expected to serve as chairman of HP Inc.

Getting down to numbers and financial informations, we can see that in the past year the enterprise business has generated around $ 55 billion of total revenues and $ 1.6 billion of earnings. Looking at HP entire business, that is exactly half of the total sales but only 32% of the company’s total profits. The same percentage reflects the cash flows’ dynamics as well. In fact, less than 40% of the total cash flows comes from enterprise business, while the major part is generated by HP’s printing and consumer systems.

In spite of any financial consequence, the strongest impact of the transaction would be probably the one on employees. In fact, through this spinoff, HP Enterprise expects 25k to 30k people to leave the company, which corresponds more or less to 10% of the whole workforce. Mostly of the vacancies will be covered reorganizing the business and the company’s structure, which translates into a more competitive and sustainable cost structure for the new company.

In our vision, the key point will be market reaction, as the main measure of success in this kind of transaction. In particular, it would be really interesting to see how market will react to the spinoff in term of stock price trend. Will investors look at the division as a positive signal, making the stock price rising, or will they see that as a wrong choice?

Edoardo Ferrari 

Federica Sestili 

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