Tuesday, August 10, 2010

After Loosing a Great Dealmaker CEO, Can HP Still Make Deals? Who Will They Target Next?

Hewlett-Packard’s (NYSE: HPQ) acquisition activity is expected to stall following the departure of its hands-on CEO Mark Hurd. Some think that his ouster might have been exaggerated and did not really protect from all the media exposure the firm has received in the last few days. Hurd was a great dealmaker having bought 3com, Palm and of course EDS. But the 53-year-old’s exit could later pave the way for his successor to bid for Teradata Corporation (NYSE:TDC), the data warehousing company Hurd previously headed.

Hurd’s resignation comes just as M&A activity in the technology sector appears to be gaining pace. Hurd stepped down on Friday after an internal investigation revealed he had manipulated expense accounts to hide a relationship with a company contractor. HP has appointed its CFO Cathie Lesjak interim CEO while it searches for a successor. HP's diversity, at the same time, has deepened its executive ranks, presenting it with a pool of potential CEOs, including: Todd Bradley, a former Palm CEO who runs HP's $28 billion computer division; Vyomesh Joshi, in charge of HP's $29 billion printer division; and Ann Livermore, who runs HP's $54 billion enterprise business. Chief Financial Officer Cathie Lesjak, now interim CEO, took herself out of the running for the permanent job. Outside contenders might include Pat Gelsinger, chief operating officer at EMC; Michael Capellas, a former Compaq CEO who was briefly president at HP; and Microsoft executive Stephen Elop, Kay and other analysts say.

Hurd has kept a tight rein on the company’s acquisition strategy, personally signing off on each of its 35 buys since joining in 2005. The company was less active by deal volume in the five years before Hurd joined, making about 20 buys, although this did include the USD 25 billion purchase of Compaq. Despite lingering uncertainty in the public markets, HP acquired two USD 1 billion-plus companies over the past nine months: Palm for USD 1.2 billion and 3Com for USD 2.7 billion.

Mark ran a tight ship over HP which is one of the few companies in the technology sector that is closely aligned to his CEO similar to perhaps Apple and HP. Hurd was in charge of every deal to be made from its conception all to the way to the board approvals. I am sure he had a large pipeline which now would be put on hold until there is a permenant replacement for him.

One pending acquisition rumored to be in the works was that of 3PAR (NYSE:PAR), a Fremont California-based storage company. 3PAR, which has a market capitalization of USD 637.7 million, has been cited as a target in recent analyst reports.

Hurd’s departure may pave the way for an acquisition of Teradata, which was spun out of NCR in 2007. Hurd ran Teradata for three years while it was a division of NCR and this connection created some resistance to bringing his old firm to HP. Teradata, a data warehousing company, would provide HP with a toehold in a market dominated by its main competitors, IBM, Microsoft and Oracle. These three companies control about 85% of the market. Sybase, which was acquired by SAP earlier this year, and Teradata are the next largest players, together owning about 6% of the data warehousing market. Teradata has a market capitalization of USD 5.3 billion, while the next largest pure play in data warehousing, Netezza (NYSE:NZ), is valued at USD 962.8 million according to industry sources.

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