H-P's Big Investors Finally Can’t Take It Anymore

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Investors are fuming. But traders, the lucky ones who got the timing right, love it. And so do the big Wall Street firms that shuffle companies around. For decades, Hewlett-Packard did what they wanted it to do: swallow other companies, whole or in pieces, spit out some limbs, mangled or undigested, and dump tens of thousands of employees.

Since 1990, H-P has gobbled up well over 100 companies, and not necessarily Silicon Valley startups, but major corporations, including such American stalwarts as Palm in 2010, or in 2002 hot-shot Compaq that once upon a time just about invented the portable computer—a box with a handle, light enough for an adult to lug around. Each acquisition was accompanied by mass layoffs, chaos, morale problems, defections, entanglements, and integration fiascos.

The process was interrupted only by spin-offs to undo the unmanageable clutter amassing around whoever was CEO at the time, part of the eternal Wall-Street flip-flop of acquisitions as a “growth strategy” and spin-offs as some sort of “focus strategy.” Wall Street firms made money coming and going, and each time executives of target companies moved on, they were handed rich reward packages, and CEOs got a boost to their bonuses and egos. Laid-off employees got a consolation price that, for the older folks, usually ran out before they found another job—if they ever did.

A corporate spy scandal in 2006 added some frisson, as did the delicious imbroglio that cost CEO Mark Hurd his job in 2010. And then there was the debacle of his successor, Leo Apotheker, the German guy who got H-P stuck with its latest nightmare, the nearly $11 billion acquisition of UK software maker Autonomy.

It was the result of a classic combination: a new CEO with a big ego who wanted to mark his territory, pressure by the board for a “growth strategy,” however inane, banks that were lusting for fees, and a target company that wasn’t all that forthcoming about inconvenient details in its financial information.

Reality was ugly. The day after the board approved the deal, H-P slashed its outlook, axed its smartphone and tablet, and announced it would try to spin off its PC division. Its growth strategy? Autonomy. The path to software nirvana.

The stock plunged 20%. A little over a month later, Apotheker, 11 months on the job, got fired. Autonomy’s performance disappointed form get-go. So H-P, alleging accounting improprieties, wrote off $8.8 billion of the acquisition—a sum that remains inexplicable. Rarely do corporations waste so much stockholder money in such a short time. The Justice Department, the SEC, the UK’s Serious Fraud Office, and UK’s Financial Reporting Council are investigating (Wall Street Journal).

And someone ended up holding the bag....

“H-P shareholders are once again suffering from disastrous deal making, lack of accountability and flawed oversight,” lamented William Patterson, executive director of CtW Investment Group, part of the union-sponsored pension system in Wisconsin. It holds about 7.8 million of these misbegotten shares that were trading above $66 in early 2000, then crashed, then recovered, crashed again during the financial crisis, recovered to $53 in early 2010, then swooned into the low teens in late 2012, only to rally about 50% to a whopping $19, a level they’d already visited in 1995—and there’s been a touch of inflation since then!

Patterson has had it. He’s helping to foment a shareholder revolt, according to the Wall Street Journal. He’s getting together about 20 large H-P shareholders to meet with members of the board on Monday. Others would join by phone, like Anne Sheehan, director of corporate governance for California State Teachers’ Retirement System—”It is our understanding that they are looking for new board members,” she said. Patterson figured that the group owned almost 7% of H-P’s outstanding shares.

On the other side of the table: H-P Chairman Ray Lane, board members John Hammergren (chairman the board’s finance committee), Kennedy Thompson (chairman of the board’s audit committee), and Rajiv Gupta (lead independent director). The first three are fighting for their jobs.

“We look forward to discussing any concerns this particular group of investors may have,” H-P spokesman Howard Clabo told the Journal. CEO Meg Whitman was sanguine. “We have a very good collection of individuals,” she said about the board.

That “very good collection” is responsible for adding complexity and bulk to a corporate hulk whose business model has been to acquire other companies, lay off people, and practice acquisition accounting to hide operational realities. If H-P could just swallow another huge player to distract everyone and throw a welcome veil over the current mess!

But thanks to the giant credit bubble the Fed has created, large corporations can borrow themselves out of trouble for nearly free. These Fed policies are also growing deposits far faster than banks can deploy them, or than the economy can use them. And so, there are “hundreds of billions of dollars of potential fuel unused.” Therein lies the potential for big problems. Read.... The Fed Is Blowing A Dangerous Bank Deposit Bubble.

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Long-John-Silver's picture

HP has seen the future and Microsoft is not a part of it. HP switching to Android (Linux) is simply divesting itself from an obsolete software company (Microsoft).

thismarketisrigged's picture

its amazing how this stock was at 11 in november and now its nearing 20 3 months later.


thats what happens when the fed inflates asset prices. fuck the fed, pieces of shits what they r.

TruthInSunshine's picture

Fret not, reversion to the mean is an unstoppable force equivalent to a law of physics.

rtalcott's picture

What is left of the REAL HP is called Agilent.

MisterMousePotato's picture

They also bought/own the optical mouse thingie, iirc. That was a good move.

steve from virginia's picture




Ummm ... the Fed creates excess reserves not deposits.


Private sector finance creates deposits. The only way for excess reserves to 'emerge' that is, see the light of day, is if the bank is failing and depositor redemption demands exceed Fed-mandated cash reserves. The back end of the bank balance sheet collapses faster than the reserves can be deployed..


Because there are more deposits on the bank ledger than reserves -- all else being equal -- the bank cannot satisfy all depositor demands for funds and depositors are ruined ... as happened hundreds of times during the Great Depression.


And can happen now, FDIC and Treasury guarantees + Fed discount window notwithstanding.



nonplused's picture

Their printers auto-destruct every 4 years.  I wonder if Ben puts that in the CPI calculations.  Oh and their latest and greatest?  Expiring ink cartridges!  Not only do they charge $50 for something that should cost $10, they give you a limited amount of time to use it up!  That has to affect the chain weighting somehow.

rtalcott's picture

My vintage 1997-1998 HLP LJ6P still runs well...had to do an overhaul but the kit was cheap...I would not buy a new one though...really happy with my $69 Samsung 1200x1200 Network printer...

Non Passaran's picture

Their printers auto-destruct every 4 years.

Their LaserJets can last way more than 4 years.

Long-John-Silver's picture

They don't auto-destruct. The software checks it's expiration date every time you let HP check for updates. When that date is exceeded your printer stops working. I have an HP printer that continues to operates fine well past it's shutdown date. I don't use Winblows or Appel, I use Linux so the printer never get's issued it's shutdown order.

NoDebt's picture

Their last great indestructible printer was the LaserJet IIIsi.  Everything after that is plastic junk, just like everyone else's.  Because they're built in the same place as everyone else's.


MisterMousePotato's picture

LaserJet IIP.

A bit pokey by today's standards, to be sure, but man ... it was built like a piece of heavy construction equipment. I used one for maybe 15 years, and I'm talking about heavy, heavy use. The 5p was okay. But even the newer disposables (1018, etc.) really do an adequate job.

Their software sucks, though, but probably not any worse than anyone else's. And, to give them credit, eventually they fix it, although it can sometimes take years.

tony bonn's picture

hp is the perfect example of greed killing the goose that laid the golden egg....i have never seen such a train of incompetent ceos, board members, and subservient shareholders as i have of hp - certainly a future hbr study in gross incompetence....and we are supposed to worship these cunts...

good luck to the shareholders....they would need to wipe out the entire board and senior executive management to have a prayer of recovering any equity....as it stands - hp's culture is a gagge of frat boys spending daddy's money on fast cars, cheap booze, and cheaper women....

ebworthen's picture

So in the big picture what I hear (and know) is that American Corporations and Markets are completely broken.

Having been relentlessly abused by both I can say I am not committing a minute of myself or a penny to either.

M&A means layoffs and money for the deal makers not the shareholders.  If it weren't for all the 401K, IRA, and Pension money trapped in the casino markets this Corporate Greed and Parasitism would be much less prevalent.

NoDebt's picture

There's no shortage of imcopetence to go around.  However, where HP fails, somebody else has a chance of winning.  Big as they are, they are not TBTF like big banks are.

There's plenty of people who would like to see HPQ read zero on a ticker someday.  Fair disclosure: I may be one of them.

This is called 'getting what you deserve' in big-boy business.  Not always pretty, but fair in a brutal free market sort of way.  What isn't fair is when the government comes in and picks whether you will be a winner or loser and you have no choice in the matter nor any recourse (not to mention I guaratee you will be placed in the 'loser' column like the rest of us).

Chance at life or certain death.  Your choice.  I choose 'chance at life', personally.  For some reason I can't quite put my finger on, I always do.

CheapBastard's picture

This might be why University of Texas Retirement Fund bought $4 Billion in gold, instead of one of these mismanaged companies.

SamAdams's picture

another soul lost to the machine of greed...

No Euros please we're British's picture

Maybe Buffett will buy them, I always liked their tomato sauce better than Heinz.

zaphod's picture

It all started when the Hewlett & Packard families lost control and HP bought Compaq. 

This is a great recap of the fight 10+ years ago. Contrast the comments then with the reality today.


Also to be noted, the families lost the shareholder vote 52% to 48%, shareholders got what they voted for. (Cue parallels to the latest election and where the US will be in 10 years)