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The Scary Story For Hewlett Packard Shareholders In One Chart

Tyler Durden's picture


Earlier today Hewlett Packard stunned investors by announcing that its had effectively bungled a massive acquisition, that of Autonomy plc, despite extensive prior warnings about the accounting practices of the UK firm (for which it appears Deloitte will now have to take the blame), by paying over $10 billion for a transaction that is now clear will provide zero income statement benefit. The one problem, however, is that HP incurred a massive debt load to fund EBITDA and Cash Flow which will never materialize. The result: a capital structure that is now appropriate of a B1/B+ rated company, i.e., one whose debt needs would be serviced by a firm like Jefcadia, and therefore whose time to default in years can be counted on the fingers of one hand. The chart below explains it all: why shareholders should just get out while they can, and also explains why despite, or rather due to, endless central bank mingling, cash flows still, oddly enough, matter. Oh, and those hoping the HPQ dividend continues uninterrupted in perpetuity, hope again.

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Tue, 11/20/2012 - 11:34 | 2998761 buzzsaw99
buzzsaw99's picture

Get Moody's on the horn. They can fix this in like fifteen minutes.

Tue, 11/20/2012 - 11:52 | 2998812 yogibear
yogibear's picture

Moodys can take a C rating and turn it to a Aaa with the right subscription pledge.

Fitch also puts on blinders too when they inspect a high paying customer.

A monkey throwing darts at a bond rating board might be better at rating. 

Tue, 11/20/2012 - 12:25 | 2998949 JPM Hater001
JPM Hater001's picture

Have them bring the lipstick.

Tue, 11/20/2012 - 13:23 | 2999167 The Wizard of Oz
The Wizard of Oz's picture

Who makes a CDS ETF that I can buy for this. GONNA BE RICH BITCHEZ@!

Tue, 11/20/2012 - 11:34 | 2998762 SoundMoney45
SoundMoney45's picture

This is a board level problem at HP, NOT a management problem.  Ray Lane should resign.

Here is a link to the current board members:


Tue, 11/20/2012 - 11:40 | 2998776 insanelysane
insanelysane's picture

Are there any honest business practices in the UK?  Apparently they couldn't send all of the citizens to Australia.

Tue, 11/20/2012 - 12:01 | 2998834 NoDebt
NoDebt's picture

That's what I was thinking.  The Brits kick our ass in fraud-per-capita, apparently.  Though we still hold the lead in total fraud, obviously.

Tue, 11/20/2012 - 18:37 | 3000176 Carl Spackler
Carl Spackler's picture

Per capita is relevant. 

Compare an apple to an apple, not an apple tree to an apple.

Tue, 11/20/2012 - 12:23 | 2998930 Zaydac
Zaydac's picture

At my level (SME) here in the UK most people are still honest, or at least the ones I deal with are. Big companies? Not so sure. City of London? No chance. It's probably no different here than in USA. BTW you lot brought down Ferranti, one of our biggest and best defence companies, with a similar transaction. So really it's pots and kettles, isn't it?

Tue, 11/20/2012 - 13:27 | 2999185 Midas
Midas's picture

I don't think any american on this board is going to claim we don't have big-ass-communist-18-wheeler sized fraud in this country.  Except MillionDollarBonus, but he is doing a comedy bit.

Tue, 11/20/2012 - 12:11 | 2998876 Galactic Superwave
Galactic Superwave's picture

If you happen to notice how many people on the board worked previously for private equity or venture capital companies (answer=5), then it isn't surprising that HP has spent the last 10-15 years focusing on growing through acquisition instead of through fundamental organic innovation.

The old adage applies here: if you are a carpenter with only a hammer, then everything looks like a nail.

It's amazing how otherwise supposedly smart people can delude themselves by surrounding theirselves with too many like minded people. This same principle works in politics also.

Tue, 11/20/2012 - 12:26 | 2998956 blunderdog
blunderdog's picture

A VC's goal is to shift risk onto the shareholders.  It's really hard to imagine how they can BECOME shareholders and still do decent work.

Tue, 11/20/2012 - 16:48 | 2999860 bondman1
bondman1's picture

What a high powered group that board is! Pat Russo took Lucent from 17 to less than one in ten years and Ken Thomson was the mastermind behind Wachovia's pruchase of Golden West Financial. That drove Wachovia stock from 60 to zero in fifteen months before Wells Fargo "white knighted" the deal from Citi @ $2. Very impreesive indeed!

Tue, 11/20/2012 - 11:44 | 2998763 slaughterer
slaughterer's picture

HPQ: surprised the CTRL+P joint venture with the FED is not paying off. 

Tue, 11/20/2012 - 14:11 | 2999315 nantucket
nantucket's picture

now that's funny, i don't care who you are.

Tue, 11/20/2012 - 11:35 | 2998764 xXJammingXx
xXJammingXx's picture

Was Goldman advising them by any chance?

Tue, 11/20/2012 - 11:42 | 2998769 Mercury
Mercury's picture

Clearly one should have paid attention to ZH's heads up last week but HPQ may still be worth a look here. ~4% div, ~7$bil free cash flow...there are worse valuations out there.

Tue, 11/20/2012 - 11:43 | 2998788 arkel
arkel's picture

It is interesting. Total Equity is also about equal to the market cap right now (this includes the write down of Autonomy),  so people are factoring in no future profits. However, the debt load is a concern, so I'm passng.

Tue, 11/20/2012 - 12:12 | 2998877 lunaticfringe
lunaticfringe's picture

Taking on tremendous debt loads is really small potatoes. It has little or no effect. You either grow your way out on hopium or lie about failing to do so. It works. Look at the U.S. goverment.

Tue, 11/20/2012 - 11:38 | 2998771 Dr. Engali
Dr. Engali's picture

I thought that corporations were just loaded with cash eager to put it to work investing in this roaring economy. Do you mean to tell me  that debt might be an issue with some of them?

Tue, 11/20/2012 - 11:38 | 2998772 FLUSA.com
FLUSA.com's picture

HP Stock has as much chance of taking off as this guy does...




Tue, 11/20/2012 - 11:41 | 2998779 LetThemEatRand
LetThemEatRand's picture

I guess CEO Whitman really earned that $16M she made last year.  She was so productive and classy.

Tue, 11/20/2012 - 11:45 | 2998792 Bay of Pigs
Bay of Pigs's picture

And she is articulate and has command presence in any room.


Tue, 11/20/2012 - 11:54 | 2998819 Buckaroo Banzai
Buckaroo Banzai's picture

The funny thing is, anybody who used eBay back when Whitman was running it knows she's a shitty executive. If Craigslist ever got its act together, it would stomp eBay into the ground.

Tue, 11/20/2012 - 14:54 | 2999463 Midas
Midas's picture


Tue, 11/20/2012 - 12:25 | 2998955 JPM Hater001
JPM Hater001's picture

I bought a Brother Laserjet.

Tue, 11/20/2012 - 11:42 | 2998781 insanelysane
insanelysane's picture

HP Board announces plans to corner the consumer market in Greece and Spain.

Tue, 11/20/2012 - 11:42 | 2998783 Downtoolong
Downtoolong's picture

I would have loved to be a fly on the wall the first time Med Whitman said, Why the F%^#!k did I ever leave eBay?

After the 100th time, it just gets old.


Tue, 11/20/2012 - 11:42 | 2998784 j0nx
j0nx's picture

Oh I'm sure the execs in this deal on all sides got PAID handsomely. Just like with Hostess. The entire executive branch at the corporate and political levels consists of nothing but gypsy style hucksters whose only goal is to loot the host at the expense of the rest of us. Keep blaming your boogiemen of unions and whatever else though.

Tue, 11/20/2012 - 11:52 | 2998814 ITrustMyGut
ITrustMyGut's picture

well said man! exactly.. beck-ster boy, limpdick, etc.. its all labor's fault.. carefully ignoring pure and absolute GRAFT by management for DECADES!

Tue, 11/20/2012 - 12:07 | 2998860 Buckaroo Banzai
Buckaroo Banzai's picture

Bullshit. 99% of companies are well-run by competent management teams, otherwise they wouldn't be in business. It's the giant multinational corporations where the management teams are overrun by self-serving sociopaths. Incompetent sociopaths can only survive inside a bureaucracy large enough to blur accountability and foster enough politics to allow these types to do what they do best.

In fact, the big multinational corps twist the laws in their favor and make it even MORE difficult for small companies to survive, much less thrive-- raising the bar even higher. The margin for error that management has at small- and medium-size companies is tiny thanks to the uneven playing field that the big politically-connected corps create.

The flip side of this is that 100% of labor unions destroy economic value-- BY DEFINITION. You can make a moral and ethical case pro or con for unions, but it is absolutely an iron law of free market economics that they destroy economic value.

Tue, 11/20/2012 - 12:22 | 2998931 lunaticfringe
lunaticfringe's picture

Bullshit. Socio pathic oligarchies and crony capitalists have done far more to strip economic value by socializing losses and privatizing profits. Buying politicians and sympathetic judges. Surely you don't need examples.

Blaming easily disposable workers is ridiculously simplistic and inaccurate. It is a target rich environment.

Tue, 11/20/2012 - 13:01 | 2999110 Buckaroo Banzai
Buckaroo Banzai's picture

Read for comprehension. Where did I blame workers? Labor adds value and gets compensated. Labor UNIONS, on the other hand, destroy economic value.

Stick with me here. A union represents a local monopoly of a resource. What do monopolies do? DESTROY VALUE.

Not really complicated. You might want to flush out your headgear.

Tue, 11/20/2012 - 13:19 | 2999147 Zaydac
Zaydac's picture

He wasn't blaming the workers. he was blaming the Unions. Different concept entirely.

Edit: original poster got ahead of me!

Totally agree with the follow-up post.

Tue, 11/20/2012 - 12:30 | 2998975 blunderdog
blunderdog's picture

    The flip side of this is that 100% of labor unions destroy economic value-- BY DEFINITION.

Aha!  A real insight into your madness.

Here we see that "economic value" in your mind really is defined by how effectively private ownership can exploit resources, rather than any kind of mutually-beneficial arrangement between parties.

Tue, 11/20/2012 - 13:04 | 2999117 Buckaroo Banzai
Buckaroo Banzai's picture

Not hard to understand. Put down the bong, and try to follow along.

Labor adds value, and gets compensated. Unions create a local monopoly of a labor resource, and destroy value.

Get it?

I am also available to help you add 1 and 1 and get 2, if you need me.

Tue, 11/20/2012 - 16:41 | 2999837 blunderdog
blunderdog's picture

     Unions create a local monopoly of a labor resource, and destroy value.

That's false--unions can't "monopolize" labor.  They're just the businesses on the other side of the labor MARKET.

It's a *market* see--just like with capital, there have to be at least two sides.

The role of the union is to provide coherent representation of the interests of the workers, just as the role of the corporation is to provide management of the use of capital by the shareholders.

Tue, 11/20/2012 - 17:56 | 3000060 Bazza McKenzie
Bazza McKenzie's picture

The very essence of unions is extortion, the use of force to extract more from an employer than otherwise they would pay.  This is not a side effect or an occasional aberration.  It is the sole reason unions exist.

Like all gangs of extortionists, most benefits go to the bosses and there is zero morality in their behavior.

Tue, 11/20/2012 - 18:45 | 3000207 blunderdog
blunderdog's picture

It's not extortion--it's called PRICE DISCOVERY.

Just as the seller can't unilaterally set the price of his commodity in a free market, the business can't unilaterally set the price of labor.

You guys don't really understand that whole "market" concept, do ya?

Tue, 11/20/2012 - 14:15 | 2999326 nantucket
nantucket's picture

exactly, they are probably paid on volume,...deals,...transactions baby! 

how about a 5-10 year clawback period where bonuses are escrowed and paid out after that time, or the bonuses can legally be clawed back if is turns out there was blatant fraud.  who am I kidding, it'll never happen.

Tue, 11/20/2012 - 11:43 | 2998787 slaughterer
slaughterer's picture

CEO Whitman: taking lessons from the Ken Lewis school of management.  

Tue, 11/20/2012 - 12:11 | 2998869 CVfriendship
CVfriendship's picture


Tue, 11/20/2012 - 11:45 | 2998791 catacl1sm
catacl1sm's picture

Gov't is corrupt. Corporations are corrupt. Burn them both down.

Tue, 11/20/2012 - 11:53 | 2998818 Nothing To See Here
Nothing To See Here's picture

The government corrupts corporations. Burn the government, cure the corporations.

Tue, 11/20/2012 - 12:10 | 2998865 j0nx
j0nx's picture

More like the revolving door for people from corporations/banks to government is the problem. But then you can blame the people for continually voting for these sociopaths. You get what you vote for in the end(literally in the end). This is all assuming that you believe that those voting machines aren't hacked 6 ways to Sunday (I don't).

Tue, 11/20/2012 - 12:13 | 2998878 Buckaroo Banzai
Buckaroo Banzai's picture

Any large bureaucracies-- whether it is government or corporate-- become corrupt, because they become havens for sociopaths. Saying that fixing government will fix corporations demonstrates a fundamental misunderstanding of both human nature, and organizational dynamics.

Human organizations have to be kept small. There really isn't any way around that.

Tue, 11/20/2012 - 11:46 | 2998796 ariele25
ariele25's picture

does anybody knows who was financing the autonomy deal?

Tue, 11/20/2012 - 11:49 | 2998805 SmoothCoolSmoke
SmoothCoolSmoke's picture

Half the Dow red and HP down 12%....but the Dow is only down 12?  WTF?

Tue, 11/20/2012 - 11:50 | 2998806 ebworthen
ebworthen's picture

And they are wasting a whole lot of money running that damn obnoxious commercial/jingle on CNBC non-stop.

Tue, 11/20/2012 - 11:51 | 2998807 Dan Conway
Dan Conway's picture

And all of those political hacks think private equity deals are highly leveraged!  HP is just another silicon valley pig with lipstick loaded up with debt. 

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