Will HP's Split Really Be Beneficial For The Shareholders?

Ever since Hewlett-Packard Company HPQ announced in early October its decision to split its two businesses – printing and PCs, into two separate entities, the Street has been divided upon whether this is the right thing to do.

J.P. Eggers, NYU Stern School Associate Professor of Management, was recently seen discussing on Bloomberg whether the split off will be beneficial for the shareholders of the company and the profitability of both of its units.

“Traditionally we have seen value coming from spin-offs and usually we don’t see two big split-ups like this, more spinning-off of individual divisions and things like that,” Eggers said. “It tends to create value both in the short-term in the stock market and long-term in performance, partly because managers can focus more on needs and wants of individual businesses and they are heterogeneous businesses from that perspective. Also, incentives work better in a kind of more focussed companies as well.”

“I think there is a clear sense that HP has been floundering for a long time, there is no question and a significant effort like this to allow for restructuring, for focussing on the business will help. My guess is that there will be a significant bump in profitability for the firm […]”

When asked about whether he thinks that profitability will take a hit because the outlook for both of HP’s businesses is dismal, Eggers said, “It really is, on the consumer side, the personal computer business is definitely, there is a lot of volume in there, but there are not a lot of margins to be made. The printing business it’s there, was HP’s stalwart for a long time, but is not really been a strong performer for them [...]”

Shares of HP were recently trading at $37.78, up 0.75%.