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Last updated: September 24, 2011 12:11 am
Hewlett-Packard investors confronting the prospect of more uncertainty at a company under its fourth top executive in less than two years sent the stock price down to its lowest level in six years.
HP shares were off more than 2 per cent to $22.27 after touching the lowest point in six years, more than erasing the benefit from a burst of enthusiasm when word leaked this week that the company was poised to oust Léo Apotheker, its chief executive.
Directors of the world’s largest computer maker by revenue said late on Thursday that they had picked Meg Whitman, a current board member and former head of Ebay, as the new chief executive. Ray Lane, board chairman, becomes executive chairman, taking a more hands-on role.
Mr Lane defended the board’s hasty decision to appoint Ms Whitman, saying she was the “best choice” for the job. “Meg is a proven leader of people,” he said in an interview on Friday with CNBC. Mr Apotheker “has great qualities, but not the qualities that are needed here and now”.
But shareholders complained about Ms Whitman’s inexperience with business computing and the board’s lack of a full-scale search. “There are still many more questions than answers,” Jason Maynard, analyst at Wells Fargo, warned.
Investors in Autonomy have taken succour from comments made by Meg Whitman, the newly-installed chief executive of Hewlett-Packard, who on Friday affirmed the group’s commitment to its $10.3bn takeover of the UK software developer, write Sam Jones and Anousha Sakoui in London.
The surprise ousting of Léo Apotheker on Thursday caused concern among some Autonomy investors – a significant proportion of whom are hedge funds keen to see the deal complete.
Hedge funds including Tyrus Capital, Perry Capital, Arrowgrass, Magnetar and Elliott Partners have loaded up on Autonomy’s shares in recent weeks in a wager that the deal will go through. The 79 per cent premium HP has offered for the software manufacturer has made for a particularly high-stakes bet. Hedge funds have bought into Autonomy’s shares at above £25 each, well above the £14 per share the company was trading at before the offer was first tabled.
“Had the deal collapsed, it would have been a bloodbath,” noted one London-based arbitrageur.
Many are now adding to their positions again. “If you have a competent knowledge of UK takeover rules there is nothing to talk about,” said one broker.
Mr Lane and Ms Whitman have known each other for years. The 13-strong board now has a majority of members who have joined since Mark Hurd was dismissed as chief executive last summer, and many have overlapping relations.
Picking two of their number to run HP day-to-day “is too close [for] comfort”, said Charles Elson, governance expert at the University of Delaware.
Both Ms Whitman and Mr Lane said Mr Apotheker, who became chief in November 2010, was replaced for what they saw as failings of leadership, communication and operation, rather than problems with his strategic decisions. But Ms Whitman will be revisiting some of those decisions by necessity.
The biggest question is looming over the personal computer business, which is HP’s largest division by revenue and has remained profitable. The PC unit faces competitive threats from low-cost manufacturers in Asia and from Apple, which is gaining share with higher-priced Macs and tablets.
As well as revealing a $10.3bn deal to buy Autonomy, the UK software group, Mr Apotheker declared on August 18 that HP would explore options including a spin-off of the PC division to HP shareholders in the next 12 to 18 months. Some investors questioned the wisdom of such a move, which would reduce both the range of offerings to the largest HP customers as well as HP’s leverage with suppliers of components for PCs, servers and other equipment.
Greeted more harshly than the presumed spin-off, though, were the long lead time and possibilities that HP might keep, sell or even shutter the PC arm.
“Business people – purchasers – they can deal with a lot of things. Uncertainty isn’t at the top of the list,” Ms Whitman told CNBC.
Yet she told the Financial Times that she would keep an open mind about whether to keep the business, and she added on CNBC that “we are first and foremost a hardware company”.
Investors believe the odds are tilting further away from a spin-off – which means still more uncertainty in the months ahead.
Additional reporting by Shannon Bond in New York
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