Integration, integration, integration

HP is an example of a firm which is struggling to integrate acquisitions, and the perils of diversification.

With respect to BUSS4, HP’s $11bn takeover of the Cambridge based software firm Autonomy could be seen as an attempt by a CEO, Leo Apotheker, to change HP’s strategic direction.

Autonomy was a pioneer in creating search software that can make sense of complex, unstructured information.Yet only a year earlier, HP had acquired Palm Inc for $1.2bn, in part to gain access to its Palm OS tablet technology and patents, yet Apotheker appeared to want to drop the tablet products given Apple’s continued successes with the ipad.

UK commentators highlighted political concerns about the loss of profit flows and know how from Autonomy’s patents, the Labour Politician John Denham wondered about the lack of ambition of the board, which appeared to take the money and run. The chairman of Autonomy Mike Lynch held 8% of the shares and had recommended that the sale went through.

Yet at the time the HP share price dived sharply, raising questions about the timing and the direction of HP’s strategy.  The FT commented “ HP investors alarmed at the 79 per cent premium for Autonomy and a much-reduced financial outlook from the Silicon Valley company sent HP shares down 15 per cent in regular and after-hours trading to their lowest point in years.” This suggested that HP had overpaid Autonomy Shareholders. Conversely, the FT noted that analysts considered the deal as one which offered excellent value for Autonomy shareholders but were more sceptical about the benefits for HP. It would be harder to find a starker comparison.

What become clearer was the lack of support for Leo Apotheker’s acquisition from his own board, managers, stockholders and staff. The CEO tended his resignation, but by the time he left, HP was committed to buying up all of Autonomy’s shares.  This represented a poisoned chalice for his successor; HP has to show investors that the purchase can work.

Meg Whitman has had to cope with investor pressure to clarify HP’s new strategy. She was quoted in a recent interview that “We (HP) need a good decision, not a quick one.” The firm could sell Palm at a loss, or integrate it into its operations.

Reuters reported that Whitman must rebuild HP’s balance sheet, improve margins in its services unit and make good on the controversial acquisition of software maker Autonomy, as well as offering clear strategic direction for all its divisions. This task is difficult enough in benign macroeconomic conditions, but given that European economies are stagnant, this will be even harder. Europe provided 36% of HP sales in the last quarter of 2011.

The news agency’s headline writer implied that “Whitman’s top job: restore HP credibility, jumpstart growth, ”hinted at shareholder pressure to avoid additional software mergers, and that HP was expected to set more realistic financial targets, ones which it could meet without disappointing investors.

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Who owns who? [18 May 2012]
Vodafone and Cable and Wireless Worldwide [25 Apr 2012]
An embarrassment of riches: what does Apple plan to do with its cash mountain? [22 Mar 2012]
Mergers - problems first, synergies later [2 Mar 2012]
BUSS4 Bellwork - The School Merger [1 Mar 2012]
Takeover insights: Kraft & Cadbury - Justifying the Deal [22 Feb 2012]
M&A: 8 ways to make a success of a takeover [12 Feb 2012]
Insights on takeovers and mergers from KPMG’s 2011 global survey [12 Feb 2012]
Takeovers - the search for cost synergies [7 Feb 2012]
The story of a failed takeover - Fred Goodwin, RBS & ABN-Amro [6 Feb 2012]
Takeovers in the UK - the long-term trend [5 Feb 2012]
Glenstrata - Glencore proposes merger with Xstrata [3 Feb 2012]
BUSS4 research - some initial ideas [31 Jan 2012]
BUSS4 2012 - Mergers and Takeovers on the Business Studies Blog [31 Jan 2012]
CSR becomes the Strategy for Co-operative [5 Mar 2011]
Strategy in Action: “Buying Growth is Not a Strategy” [20 Sep 2010]
External growth strategy - takeovers back in fashion for large UK firms post recession [29 Aug 2010]
Growth strategy - takeovers return to building supplies [3 Jun 2010]
Teaching strategy - Cadbury and why takeovers rarely work [24 Jan 2010]
What’s behind the BA and Iberia Merger? [19 Nov 2009]
Could mergers come back into fashion? [25 Sep 2009]

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