Aug 30, 2011 12:02 PM

HP Execs Say Spinoff Is Coming. But When, and How Much?

Hewlett-Packard’s separation of its consumer computing business is quickly turning into a kind of layer tennis between CEO Léo Apotheker’s representatives and Personal Services Group VP (and ex-Palm CEO) Todd Bradley, who currently runs that business. The competing statements aren’t confrontational or contradictory, but they are counterpoints. “We prefer a spin-off as a separate company […]

Hewlett-Packard's separation of its consumer computing business is quickly turning into a kind of layer tennis between CEO Léo Apotheker's representatives and Personal Services Group VP (and ex-Palm CEO) Todd Bradley, who currently runs that business. The competing statements aren't confrontational or contradictory, but they are counterpoints.

"We prefer a spin-off as a separate company and the working hypotheses is that a spin-off will be in the best interests of HP's shareholders, customers and employees," a HP spokeswoman said, according to Reuters.

"However," she added, "we have to complete the diligence process and validate this assumption, including fully understanding the dis-synergies in separating the PSG business from HP." This is what's projected to take 12-18 months.

[Aside: in the comments, let's try to come up with an alternative to "dis-synergies" that's a little less gruesome.]

Bradley's subsequent statement is completely consistent with this: "A standalone company could and will do what's most required to drive value for shareholders and partners."

HP is the biggest desktop and laptop PC company in the world by volume, and the entire Personal Services Group is even bigger. An outright sale of the division to a competitor doesn't make sense on the numbers, Bradley says. This also jibes with what Bradley and potential buyers, including Samsung, have said before.

Bradley's even suggesting that the TouchPad (or a variation on it) could be resurrected post-spinoff: "Tablet computing is a segment of the market that's relevant, absolutely."

The main difference between the anonymous HP official's statement and Bradley's is all in the trajectory. HP's CEO, its board and their representatives have to balance justifying their decision to kill off the TouchPad and separate out the rest of the PSG in order to focus on enterprise and the cloud with maintaining the value still held in its PCs and PC-driven businesses.

That includes things like publicly and privately trashing its own mobile hardware division. It doesn't include walking away from everything currently under the aegis of Bradley's group.

Bradley's job, on the other hand, is simpler. He's an advocate for the PC division and the rest of the PSG. And when the "dis-synergies" (yuck!) are appropriately minimized and the spinoff is completed, he wants to run the new company.

"My intention would be to lead [the Personal Services Group] through this transaction," Bradley said, "and if it's a standalone public company, to lead that."

The HP board has said that they won't make a decision about the precise fate of the PSG until December. Even if we assume that a spinoff is the most likely outcome, as everyone is now projecting, this leaves at least three open questions:

Who will run the new company? (Bradley may be the most likely candidate, but it's hard to tell whether he's telegraphing what everyone in HP agrees on or publicly campaigning for the job)
When and how will the new spinoff be completed? (This is largely a technical question, but it matters for things like the company's stock price)
Exactly how much of the PSG will go with the new company?

This last question is the toughest to resolve, precisely because HP's PC business is so entangled with all of the other divisions it would like to keep.

Take webOS. Since it acquired Palm, HP's said it would incorporate its mobile operating system into printers and PCs, not just smartphones and tablets. Since discontinuing the TouchPad, Bradley's said that the company's been contacted by major partners looking to license webOS for use in various industries.

Does webOS stay with the new software/enterprise-focused HP (which still includes printers) post-spinoff or go with the new personal computing company? Or could HP get more value if they sold the software and its development team outright?

That's just one example. It's in Bradley's interest, though, to position himself as the future leader of as much of HP's high-value projects and products touching personal computing as possible. It's in Apotheker's to try to retain the same for those touching enterprise and software solutions.

Unwinding all of these complicated entanglements is a little like resolving a custody dispute. It's also a bit like the end of Shakespeare's The Merchant of Venice:

Shed thou no blood, nor cut thou less nor more
But just a pound of flesh: if thou cut'st more
Or less than a just pound, be it but so much
As makes it light or heavy in the substance,
Or the division of the twentieth part
Of one poor scruple, nay, if the scale do turn
But in the estimation of a hair,
Thou diest and all thy goods are confiscate.

As much as Bradley and the markets might be assured by an immediate, definite separation plan — and we can debate the merits of announcing a separation before they had one — the precise scale of the spinoff and both companies' subsequent fates may wind up turning but in the estimation of a hair.