(Oct 7): Hewlett-Packard Co. and EBay Inc. announced plans to split up their companies within a week of each other. The similarities don’t end there.
Hewlett-Packard said yesterday it would break up the business into one company that sells personal computers and printers, with a separate entity providing software, servers, storage and services. The move followed EBay’s Sept. 30 disclosure that it would spin off the PayPal payments unit into a stand-alone company, splitting off from its marketplace business by the end of 2015.
While the two Silicon Valley companies work in different areas of technology, both are dealing with the same kinds of pressures that showcase how large-capitalization companies are having to adjust to a transformed landscape. Both are facing a rush of investment in Silicon Valley that has spawned startups pushing cloud computing and mobile, causing trouble for incumbents that had built their business on PCs and licensed software. As their sales growth has tapered off, the companies have also seen activists demand better shareholder returns, pushing executives to choose focus over sprawl.
“Very often, when you get too big, divisions hold your peers back,” Glenn O’Donnell, an analyst at Forrester Research Inc., said in an interview. “Each of the companies now has more freedom to go off and succeed in its own right. This is a mechanism for each company to focus more attention on the core business.”
The connections between Hewlett-Packard and EBay extend into the executive suite and boardroom. Venture capitalist Marc Andreessen is a director at both companies. EBay Chief Executive Officer John Donahoe and Hewlett-Packard CEO Meg Whitman are longtime friends, with the two having worked at consulting firm Bain & Co. earlier in their careers. Whitman, who was EBay’s CEO from 1998 to 2008, recruited Donahoe to the San Jose, California-based company in 2005.
In an interview yesterday, Whitman said she and Donahoe hadn’t consulted each other over plans to break up their respective companies.
“Both of these were non-public information so the answer is we haven’t” talked, Whitman said. Now that the deals are public, she added, “We might have a drink or a coffee in the next few days.”
Alan Marks, a spokesman for EBay, declined to comment.
Andreessen wasn’t available for comment. The venture capitalist tweeted congratulations to Whitman yesterday, saying “I can’t wait to see both new companies unleashed.”
Whitman and Donahoe got to know each other as consultants at Bain, which Whitman joined in 1981 and which Donahoe joined a year or so later. Whitman also worked at Walt Disney Co. and other companies before leading EBay in 1998, just as the auction site caught the first wave of Internet mania.
In 2005, Whitman brought Donahoe -- who had remained at Bain -- to EBay as president of the company’s auction business. Three years later, she stepped down as EBay CEO, saying a decade was a long-enough time for a chief. She said Donahoe, who was named as her replacement, was a “fantastic leader” and brought “fresh perspective.”
By the end of last decade, Hewlett-Packard and EBay were beginning to show similar trajectories. Hewlett-Packard, which by 2007 was producing more than $100 billion in annual revenue, had seen its sales growth slow to the low double-digit or high single-digit range. Its sales have declined the past two fiscal years.
EBay’s revenue growth rate was also falling, dropping to 11 percent in 2008 from 29 percent in 2007, according to data compiled by Bloomberg. Last year, EBay’s revenue growth was 14 percent.
In 2011, Whitman, who was a Hewlett-Packard board member, was appointed CEO of the Palo Alto, California-based company. At the time, she shelved plans by her predecessor, Leo Apotheker, to spin off Hewlett-Packard’s PC business.
Activist investors soon began sniffing around the businesses. Ralph Whitworth of Relational Investors LLC built up a stake in Hewlett-Packard in 2011 and joined the board that same year. While Whitworth didn’t threaten a proxy contest aimed at gaining a board seat, he told the company he’d bring credibility and focus Hewlett-Packard on using its cash to buy back shares, increase its dividend or put more money into research and development. Whitworth stepped down from the board in July for health reasons.
EBay has also had to deal with activists. The company fended off investor Carl Icahn earlier this year over his calls to spin off PayPal. The exchanges between Icahn and the company at times turned contentious, with attacks on corporate governance and personal diatribes.
In April, EBay announced an agreement with Icahn that avoided a proxy contest. Donahoe said at the time that EBay would be better off with PayPal as part of the business.
Now both Donahoe and Whitman have changed their tunes. Last week, when EBay disclosed it would break itself up, Donahoe said he had decided that a split made the most sense because “my ultimate objective is to keep us growing the business. I think we’ve moved at the right pace.”
In the interview yesterday, Whitman also said the goal of a breakup of Hewlett-Packard was to keep the business healthy.
“This was obviously the right thing to do for the company in its next stage of the turnaround,” she said.