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Ahead of HP's Coming Split, CEO Meg Whitman Goes on Deal-Making Hunt

In an interview, she insists HP's forthcoming split will allow both new companies to do the one thing they've failed to do together: Grow.

HP

Hewlett-Packard is back on the prowl.

The 76-year-old computing and IT giant will be in deal mode as part of its long turnaround effort led by CEO Meg Whitman.

“We will be on the hunt, absolutely,” she said in a wide-ranging interview with Re/code at HP’s Palo Alto, Calif., campus. “We have terrific organic innovation. But it’s not enough. We’re going to have to make some acquisitions.”

She cited the company’s recent purchase of startup Voltage Security last month.

And the company is in talks to buy wireless networking company Aruba Networks, according to sources, first reported by Bloomberg News. Sources said the deal is not complete, but HP will pay between $2.5 billion and $3 billion for Aruba.

But “bigger ones” are likely on the horizon, according to Whitman, the 58-year-old executive who’s still in the midst of a six-year turnaround effort at the ailing company, which now includes splitting it in two.

“I think we’ve done a very good job on this turnaround in many respects against all the odds,” she said. “There were a lot of people saying we wouldn’t be able to turn this company around.”

It’s no stretch to say that Whitman’s ultimate solution is to destroy HP in order to save it. Breaking it into two companies, with about $57 billion in annual revenue each, will create two more nimble outfits better able to respond to the constantly shifting technology marketplace.

What will remain after the breakup will be two independent and publicly traded companies. HP Inc. will take the personal computing and printing operations as well as the stock ticker symbol of the original company with it: HPQ. Dion Weisler, an Australia native who first attracted Whitman’s attention while running HP’s PC operations in Asia, will be its CEO, and Whitman its chairman.

That will leave Whitman in charge of Hewlett-Packard Enterprise, which will include the $27 billion division that sells industrial-grade computing and networking gear and the $23 billion Enterprise Services business, which runs the tech and IT operations for other companies under contract. It will get a new ticker symbol: HPE.

More tantalizingly, Whitman’s slimmed-down company will walk away from the separation with the majority of the parent’s cash — about $13.3 billion — which will allow it to quickly pivot into deal-making mode. It’ll also allow both new companies to re-engage with Silicon Valley and the wider tech industry, according to Whitman.

“We’ve had our heads down fighting the daily fires for three years. During that time we might as well have been in Cleveland,” she said. “Now we have to pop our heads up and re-connect with the Valley.”

In some cases that may mean buying some promising young companies, but in others making them partners. Despite all its troubles, HP still has a truly massive global reach for selling its products, and a long history of reselling products and services packaged with its own.

A hint of things to come happened last week on the networking front, when HP said it would resell networking gear based on open source technology from Accton and with software from Cumulus.

“You will see more of us around the Valley trying to figure out which companies we can pull into HP either by buying them or making them partners,” she said. “During the last three years there have been some dark moments. But now we feel like we can look around and become part of the Valley again.”

But that’s not to say her new efforts will come easily: On Whitman’s watch the two biggest pieces of the future HPE have seen more than their share of troubles. Since 2012, their combined revenue has declined by about $5.5 billion. Whitman’s primary task will be to get those numbers growing again, and she insists it can be done.

“If we were going to remain together as one company in 2016, I’d be pretty optimistic that we could grow the company,” she said. “I think as two independent companies, the chance that they will grow is even better. … We need to grow this company, there is just no question about it.”

Meanwhile, persistent bad-news business units are turning in less-bad results. Example: Sales of Business Critical servers, a division selling specialized computing hardware which includes highly profitable service and support contracts, has been declining by about 25 percent since 2012, in no small part because of a complicated legal dispute with software-giant-turned-hardware-vendor Oracle. In its most recent quarter, the company reported the year-on-year decline was only 9 percent.

Then there’s the long-troubled Enterprise Services business, which been Whitman’s biggest challenge since she took over as CEO. The major accounts expected to leave HP have largely done so, and new ones are steadily coming in the door, including a key win announced Tuesday with Deutsche Bank, while another significant deal is expected to be announced soon. And though it has been shrinking, the services unit is growing in profitability: Earnings before taxes in the services business was at $148 million in Q1, more than twice the level of profits a year ago.

Whitman likens it to a trying to fill a very leaky bathtub. There’s a steady supply of water to pour in, she says, while the leaks are slowly but surely getting plugged. “We’re feeling better about that business, but it’s been a long cycle. We think it will be better in the second half of the year. … The bathtub will start filling up.”

This article originally appeared on Recode.net.