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HP Split Confirmed, Plans to Cut 5,000 More Jobs

Deal to be completed by end of next year.


Computing giant Hewlett-Packard has confirmed its plan to split into two companies, and will cut another 5,000 jobs in the process of carrying out the breakup.

As originally reported, the plan calls for the creation of two new companies. HP Inc. is to be focused on the personal computing and printing business, and to include its 3D printing business as well as what it described as “new computing experiences.” Hewlett-Packard Enterprise will focus on corporate computing, software, infrastructure and services as well as its finance division.

HP shares are rising by more than eight percent in pre-market trading on the news.

The announcement of new job cuts brings the total eliminated under Whitman’s tenure as CEO to 55,000. The new cuts are being spun as separate from the prior program of job cuts, which earlier this year topped out at 50,000. The new cuts amount to about 1.5 percent of its total workforce. HP’s last disclosed headcount was 317,500 as of last October, but it has announced cuts of between 11,000 and 16,000 since then.

CEO Meg Whitman will run the enterprise company and will be chairman of the PC and printing company. CFO Cathie Lesjak will remain with the enterprise company. Dion Weisler, the current head of the printing and personal systems group, will head up HP Inc. Pat Russo will be chairman of HP Enterprise.

Here’s a statement from Whitman in the press release:

“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… 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.”

The transaction will be completed by the end of next year.

HP also reiterated its guidance for 2014, saying it expects to post a profit of between $3.70 and $3.74 per share and to make between $3.83 and $4.03 per share in 2015. The 2014 guidance is in line with what analysts already expect. The guidance for 2015 is somewhat better than the $3.95 per share consensus view.

The statement contains a few other details. Goldman Sachs is serving as HP’s financial advisor while the law firm of Wachtell, Lipton, Rosen and Katz is on board as a legal advisor.

The company also said it will postpone its analysts meeting, which had been scheduled for Wednesday in San Jose, Calif.

Also, there’s this: Former HP Chairman Ralph Whitworth, the head of the activist investor firm Relational Investors who left HP’s board in July following a recurrence of throat cancer, just issued a statement giving his stamp of approval to the breakup. He called it a “… Brilliant value-enhancing move at the perfect time in the turnaround.”

The statement goes on:

“Today’s announcement sets out bold, logical and highly compelling steps that will align the company’s assets within more strategically and operationally focused corporate structures. Shareholders will now be able to invest in the respective asset groups without the fear of cross-subsidies and inefficiencies that invariably plague large business conglomerates….At the same time, management can better design strategic plans, incentives and market initiatives to suit the varying growth rates, capital intensity, and market objectives of these more focused and nimble companies. The new companies will be better positioned to address today’s light-speed market dynamics and customer needs, and with distinct and compelling financial profiles and strong leadership teams, accelerate growth and shareholder value creation.”

Relational had at one time owned about two percent of HP’s shares during a period when they were losing value. Relational has since sold some of its position, but still owns about 1.5 percent of HP’s outstanding shares, according to SEC filings dated March 31. It is now winding down its operations.

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