Hewlett Packard disses Dell deal

But the two companies face many of the same challenges, and HP's missteps have left it with some all of its own.

By Benzinga Feb 6, 2013 1:40PM
Computer error copyright Digital Vision, Digital Vision Ltd.By Scott Rubin

Hewlett-Packard (HPQ) is attempting to poach Dell's (DELL) business at a weak moment for the Texas-based PC-maker, which announced a massive LBO on Tuesday that will take it off the public markets.

While the strategy is understandable, the statement released by Hewlett-Packard in the wake of the Michael Dell-led buyout is a case of the kettle calling the pot black.

Hewlett-Packard's official statement read: "Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell's ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell's customers will now be eager to explore alternatives, and Hewlett-Packard plans to take full advantage of that opportunity."

Even if we did take Hewlett-Packard's pessimism at face value, the reality is that there are a laundry list of reasons that companies would not want to work with Hewlett-Packard itself. 

Many of the issues that face Dell are also the problems that plague Hewlett-Packard.

Certainly, HP also faces a continued period of uncertainty and transition on top of the years of uncertainty that investors have already had to endure.

Also, Hewlett-Packard has not exactly been at the forefront of the innovation curb, or it wouldn't find itself in its current predicament. The stock is down more than 42% over the last year and shares have plunged nearly 63% in the last 5 years.

Since former CEO Mark Hurd was forced out of the company in August 2010, Hewlett-Packard has been in virtual free-fall.

In the wake of Hurd's dismissal, the company has been plagued by operating problems and plenty of boardroom drama. Hurd's replacement Leo Apotheker lasted roughly 10 months in the hot-seat at Hewlett-Packard, with the stock plunging 40% under his watch.

In a disastrous move, HP acquired British software company Autonomy for more than $11 billion in cash under Apotheker.

Subsequently, in November 2012, the company released a bombshell, announcing it was forced to write down Autonomy's value by $8.8 billion, and that it had been duped in the deal. The company said that Autonomy had engaged in accounting fraud and had misrepresented its history and its future prospects.

Poor due diligence under Apotheker was partially to blame for the costly mistake, but a Deloitte audit did not turn up any problems at the time of the deal. Apotheker was subsequently dismissed in September 2011 but picked up $13 million for his time. The current CEO is former eBay (EBAY) head Meg Whitman.

In 2012, Hewlett-Packard saw its business continue to deteriorate, with falling revenue and margins, resulting in a loss for the fiscal year.

The technology trends that are eroding Hewlett-Packard's business are the same trends that are behind the Dell LBO. Michael Dell clearly felt that going private, where his company could turnaround its business, away from the glare of the public markets, was the best thing for Dell.

Both Hewlett-Packard and Dell have been squeezed by a declining PC business in recent years and are attempting to turn themselves into full-service technology and enterprise service providers more in the mold of IBM (IBM). Over the last year DELL is down around 24% and the stock has shed almost 34% in the last five years.

On Tuesday, the company struck a deal with its founder and other parties to go private in a complex and massive leveraged buyout at $13.65 per share. The transaction, valued at $24.4 billion, did not come as a surprise. There had been numerous reports of a forthcoming deal and negotiations had been taking place for weeks.

Under the terms of the deal, Michael Dell in partnership with private equity firm Silver Lake will take the company private. Financing for the buyout, which is the biggest since the financial crisis, will come from a consortium, including Microsoft (MSFT). (Microsoft owns and publishes Top Stocks, an MSN Money site.)

The tech giant kicked in a $2 billion loan and additional debt financing was provided by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

Michael Dell said in a statement, "We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise. Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision."

Although Hewlett-Packard basically took the buyout news as a reason to gloat, it really shouldn't have. Dell certainly would not be going private if everything was rosy in its business and the problems facing Dell are the same ones facing Hewlett Packard.

The news also makes it clear that Michael Dell is not going to approach the ongoing deterioration at his company with the old "head in the sand" routine. In recent years, the same cannot be said for Hewlett-Packard.

More from Benzinga 
Feb 6, 2013 2:07PM

Then you better start swimmin'

Or you'll sink like a stone

For the times they are a-changin'

Feb 10, 2013 12:19AM

HP has GOT to be kidding!!  The company that in the last few years bet the farm on an OS no one else used (WebOS); announced not only would it power handhelds/phones (the market they SHOULD have invented, not Apple, given their history of creating the calculator) but also power ALL printers AND PCs too!




"Hey, we're getting totally OUT of that market that we created, after releasing only _1_ product, and going back to what we DID do before that!"


... then ...


"Hey, you know, what we did before?  making PCs?  We're gonna get out of THAT too!  Heck, its only 1/2-1/3 of our sales!  Hardly worth bothering with, since our PCs SUCK anyways, I mean our customers suck." (even though their sales were the same as Dell, I fix 4-6 times as many HPs as Dells, in my PC repair business - STAY AWAY FROM HP PCs!  Class action lawsuit pending on the laptops I hear)


... then ...


"Hey, we didn't mean it customers.  We really do value you.  We didn't actually MEAN what we said, about getting out of the PC biz, since we looked at the numbers and realized we would go under if we did that.  (too bad we announced it BEFORE figuring that out)  So we're back! I mean we never left."


... then ...  they have the NERVE to preen at Dell???? {ppphhhheeehhh!}

Feb 6, 2013 6:36PM

HP is not a very reliable company! Their PRINTERS are some of the most UNRELIABLE on the marketplace!!!

DO NOT buy from HP !!!     ABSOLUTELY >>>>> ZERO SUPPORT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! JUST lies and passssss the ole bukkk TRIKKKKZ!!!!!!!!!!!!!!!

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