Tags: Hewlett | Packard | PC | Spinoff | autonomy

HP Pays $10B for U.K.'s Autonomy, May Divest PCs

Thursday, 18 August 2011 01:22 PM

Hewlett-Packard Co., the world’s largest computer maker, agreed to buy Autonomy Corp. for $10.3 billion in cash to increase sales of cloud services for businesses while lessening its reliance on personal computers.

Autonomy is the second-largest U.K. software maker.  Its shareholders will receive $42.11 a share, Palo Alto, California-based Hewlett-Packard said in a statement. That represents a 64 percent premium over Autonomy’s closing share price Wednesday. Hewlett-Packard also said it’s considering spinning off its PC division and that it will discontinue products that run WebOS software. Hewlett-Packard shares dropped after the company issued forecasts that missed estimates.

Chief Executive Officer Leo Apotheker, who took the helm at Hewlett-Packard in November, is unraveling the expansion into PCs that accelerated with the 2002 Compaq Computer Corp. deal. He’s also broadening in so-called cloud services, which help business customers handle computing tasks over the Internet.

“Their focus is on being more of a software and services company and not dependent on the hardware businesses,” said Michael Gartenberg, an analyst at Stamford, Connecticut-based Gartner Inc. “The hardware business has become a difficult business. In many ways it’s a commodity-driven business. This is a major strategic shift for HP.”

By discontinuing WebOS products, Apotheker is backtracking on a strategy, announced just five months ago, to put WebOS software on every Hewlett-Packard computer. Former CEO Carly Fiorina acquired Compaq for $17.6 billion.

‘Anchor’ On Earnings

“This is clearly a financial decision on their part to abandon a business that wasn’t generating nearly enough margins,” said Mark Margevicius, a Gartner Inc. analyst based in Cleveland, Ohio. “It’s the boat anchor that’s keeping things at bay.”

Hewlett-Packard’s results have suffered amid diminishing consumer demand for PCs. Sales in the current period will be $32.1 billion to $32.5 billion, Hewlett-Packard said in a statement Thursday. That missed the average $34 billion estimate of analysts surveyed by Bloomberg. The company also forecast earnings that fell short of estimates.

Hewlett-Packard shares fell $1.88, or 6 percent, to $29.51 at 4 p.m. on the New York Stock Exchange. The shares have declined 30 percent this year.

Autonomy gives Hewlett-Packard software that searches a broad range of data, including e-mails, music, video and posts on social networks such as Facebook Inc.

Autonomy’s U.S.-traded shares rallied as much as 57 percent to $40, their biggest intraday gain in six years. The shares had declined 8.3 percent to 1,429 pence in London, where markets closed before news of the takeover talks.

“For HP it’s an intriguing volte face,” said Tim Daniels, a strategist at Olivetree Securities Ltd. in London. “Autonomy is a leader in unstructured data -- so that’s data that isn’t in the form of spreadsheets or word documents.”

Hewlett-Packard executives and directors discussed spinning off the company’s PC business as long as seven years ago, according to a person familiar with the situation. That discussion abated for several years after former CEO Mark Hurd brought in Todd Bradley to run the business, and especially after the company’s earnings improved, the person said.

Shortly before Hurd was ousted as CEO in 2010, he told some board members and executives that he wanted to discuss with them potentially spinning off some of Hewlett-Packard’s hardware businesses including the PC unit, according to the person.

Software Roots

The shift underscores Apotheker’s background in software. Before coming to Hewlett-Packard, he worked for more than two decades at German software maker SAP AG, including a stint as sole CEO in 2009 and 2010.

Autonomy offers programs used in database search. The company’s customers include Coca-Cola Co., Nestle SA and the U.S. Securities and Exchange Commission.

Autonomy CEO Mike Lynch, who founded the Cambridge, England-based company in 1996, owns 8 percent of the company’s stock, according to Bloomberg data. At 25.50 pounds a share, lynch’s 19.8 million shares of autonomy are worth 504.9 million pounds or $834 million. Lynch, speaking in a June 21 interview, said U.K. software companies are cheaper than their U.S. counterparts.

“If you look at the numbers, then the U.K. software sector looks undervalued relative to the U.S.,” Lynch said in June. “Whether that leads to any activity or not, who knows?”

In the past five years, there have been more than 970 takeovers of European software companies, amounting to over $31 billion in deals, according to data compiled by Bloomberg. The largest was SAP AG’s 2008 takeover of Business Objects SA. Buyers have paid a median multiple of 10.8 times the targets’ earnings before interest, taxes, depreciation and amortization, based on 70 deals.

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Hewlett-Packard Co., the world s largest computer maker, agreed to buy Autonomy Corp. for $10.3 billion in cash to increase sales of cloud services for businesses while lessening its reliance on personal computers. Autonomy is the second-largest U.K. software maker. Its...
Thursday, 18 August 2011 01:22 PM
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