A Test Case For Corporate Activism Is Going to Fail: Hewlett Packard
According to news reports, Hewlett Packard is one of the companies taking a look at Dell Computer as the independent committee at Dell entertains counterproposals to the Michael Dell’s buy-out offer. How can HP even be entertaining this idea? By my count, the company has made six major acquisitions valued at over $33 billion since 2008 (see, Table 1) without anything to show for them. The most recent, Autonomy, led to an $8 billion write-down on an $11 billion investment. In 2008, when HP made the first of these “transformative” acquisitions, the company was worth $92 billion. Today, it is valued at $41 billion.
The two leading proxy advisors (firms that analyze proxy statements for large institutional investors) have recommended that investors vote against several of HP’s directors. ISS and Glass Lewis both cite the botched Autonomy acquisition as the principal reason for voting out board members. Insiders own a mere .07% of the stock, so you’d think that institutional investors would have no problem in shaking up the board. However, it is unlikely that these individuals will be defeated, as most of the investors aren’t the sort activists that take on boards of directors or managements (see Table 2).
ISS is targeting Board Chairman Raymond Lane, who presided over the Autonomy acquisition. Mr. Lane also brought in Leo Apotheker to be CEO in 2010. Mr. Apotheker lasted for 11 months, received $25 million in severance, and was replaced by Meg Whitman, former EBay CEO. While Mr. Apotheker initiated the Autonomy acquisition and is now blamed for its failure, he wasn’t fired for that offense. HP claimed that he lacked the requisite vision. I’m not sure what that means. Ms. Whitman completed the Autonomy deal.
Both proxy services oppose the reelection of G. Kennedy Thompson, a director since 2006 and chairman of the audit committee. Mr. Thompson was the CEO of Wachovia from 2003-2008, making the Golden West acquisition among others, and leading the bank into a forced merger with Wells Fargo. Another director on both firms’ list is John Hammergren, who has been on the board since 2005 and chairs the investment and acquisition committee.
Glass Lewis is also recommending that investors vote against Marc Andreessen and Rajiv Gupta. They’ve been on the board since 2009 and therefore presided over much of this ugliness. Mr. Gupta is the lead independent director and ex-chairman of Rohm and Haas, a specialty chemical company. Mr. Andreessen is the founder of Netscape and runs a venture capital firm.
The proxy services aren’t targeting the five directors, including Ms. Whitman, appointed as part of a shake up in 2011. The other four directors are an interesting assortment of people. Patricia Russo is the ex-CEO of Alcatel Lucent and forged the merger between Lucent and the French telecommunications company. That strategic merger didn’t do too well. Ann Livermore was EVP for the Enterprise business and according to the proxy is “in a transitional role.” Gary Reiner is partner at a private equity firm called General Atlantic.
Finally, there’s Ralph Whitworth of Relational Investors. He’s the only director with a lot of skin in the game. His firm, an activist money manager, owns about $500 million in HP stock, making his firm the 11th largest shareholder as of December. At the moment, it appears that Mr. Whitworth’s investment is a bit underwater. You have to wonder if he isn’t regretting getting involved in HP.
The problems at HP aren’t new. Aside from the acquisition binge, the company has chewed through four CEOs in the last 8 years and spent about $88 million getting rid of them. You’d think that investors have had enough of the drama, failed acquisitions, and a big reliance on folks sporting private equity on their curricula vitae. Hewlett Packard should be the instance when investors use corporate governance to take control of their company. I’m not betting on it.