Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Meg Whitman set to take over as Hewlett-Packard chief executive

• Former eBay boss tipped to replace Léo Apotheker at HP
• Lawyers will be studying small print in Autonomy offer

Léo Apotheker seems to be on borrowed time as chief executive of Hewlett-Packard as reports that he is about to be fired gather strength.

Following a board meeting in California on Wednesday, it appeared that Meg Whitman, the successful former chief executive of eBay, was about to be brought in to replace the German, who has been at the helm of the US technology company for only 12 months.

Reports suggested the announcement would be made after the US markets closed on Thursday but that the board would not change its strategy to focus more on services than making computers — a change of direction designed by Apotheker.

When the idea of Whitman taking over began making the round, Wall Street applauded, pushing HP’s shares up by 7% on Wednesday, though they fell back after it emerged that Apotheker’s ejection was not a done deal.

But, given the shares are down by 45% in the year to date – compared to 7% for the Nasdaq and Dow Jones indices – Wall Street clearly likes the idea of a new leader, even if it would be HP’s third in six years, after Carly Fiorina (fired February 2005) and Mark Hurd (fired August 2010).

Apotheker, who joined from the customer management software company SAP in early November, cannot even turn to his employees for support: his approval rating among them is just 25%, according to the recruitment site Glassdoor.

That figure is down from 58% a month ago; but a month ago Apotheker had not decided to shut down HP’s TouchPad tablet business at a cost of hundreds of millions, spin off its revenue-generating PC business into a separate company, and turn HP – revered in Silicon Valley for decades as a company that invented hardware such as the inkjet printer – into a services-based business to compete with IBM. The purchase of the UK search technology company Autonomy would be part of that transformation.

Apotheker’s plan makes financial sense. HP is a huge company, with more than 320,000 staff, annual revenues of 0bn (£78bn) – mainly from large “enterprise” customers – and profits of about .5bn. It has four main divisions: Services; Storage & Networking; Personal Systems Group; and Imaging & Printing. Of those, PSG, which is the world’s largest supplier of PCs, is the biggest by revenue – but its 6% profit margin is the lowest within the company by some way.

The Guardian’s own analysis shows that if the PSG division could be spun off without harming other divisions, HP’s overall profitability would rise from 7.7% to 12%. That should delight investors. Yet it hasn’t.

Partly it is the abrupt chopping and changing: the TouchPad was killed after just 48 days on sale, intended to ride the Apple iPad wave of interest,, to widespread amazement, as the software had seemed promising. The 500-strong team behind the WebOS software are reportedly being laid off. And partly it’s that HP has messed things up, twice being forced to announce its quarterly results early after the data leaked out – an error that might be forgiven once but not twice by Wall Street traders.

The changes have also left staff furious. One existing employee, a marketing director based in Boston, recently commented on Glassdoor: “Fire Leo. The man is flat-out incompetent. We’ve gone from [one] fiasco to the next under his reign.” Another was less blunt, but still excoriating: “The organisational structure is cobbled together, full of redundancies – everyone’s empowered to say no, no one is empowered to say yes. If Leo wanted to run SAP, he should have stayed at SAP.”

Staff generally give the company only an “OK” rating – 2.5 out of 5. And there are murmurs too that the PSG spinoff is being reconsidered. But the PC business will not be more profitable in the future than it is now. IBM exited it smartly in 2004, selling it to Lenovo, and has become a services powerhouse since. HP owns EDS, the services company; its future would clearly lie in services.

To analysts, the damage to HP and Apotheker has already been done. “This rumour and any actual action that the board might make only reinforces that HP is a company that is in severe disarray,” says Carter Lusher, chief analyst at Ovum. “That the board would be considering a change in CEO less that 10 months after Apotheker took over is a damning indictment of not just the new CEO but the board itself. Having approved the recent strategy changes, it seems spineless just a month later to be potentially jettisoning that plan and its architect.”

Yet even Whitman, 55, is tarnished: while she did grow eBay over a decade, from a 30-strong company with m revenues to one with 15,000 people and almost bn revenues, she also oversaw the ineffective .8bn purchase of Skype, and left in 2008. Her strengths are consumer-facing, not in the enterprise.

Lusher says: “Whitman would do little for the confidence of HP’s enterprise customers. Whitman’s expertise lies primarily in the consumer market, and an interim leader will just prolong the sense of uncertainty.”

Yet Brian White of Ticonderoga Securities said in a research note: “Leo was placed in the role on a short-term basis to take the fall for the company’s under-investment under the previous CEO … At the same time, we believe a new CEO could begin to build credibility for HP and join the company after quite a bit of damage has already been done.”

Wriggle room

Hewlett-Packard’s lawyers might be combing through the fine print of the Autonomy offer document, looking for a loophole to wriggle out of outgoing boss Léo Apotheker’s £7bn bid for the UK business – but their chances of finding one are slim.

The City’s Takeover Panel, final arbiter of such matters, is famously immovable when it comes to letting bidders wriggle out of an agreed offer. Neither tsunamis nor terrorists have shaken its resolve in previous cases. “The panel look pretty dimly on people trying to walk away from bids,” says Richard Barham, partner at law firm SNR Denton. “I’ve been working in the City for 20 years and I can’t remember it being allowed to happen.”

The offer document does contain a “material adverse conditions” clause, which outlines a set of deal-breaking circumstances such as losing senior staff, selling assets, losing rights to intellectual property or entering into any onerous contracts.

Most importantly for Autonomy, the next set of results, due on 27 October, must be free of nasty surprises. David Toms, an analyst at broker Numis Securities, says: “This is the quarter where [Autonomy founder and boss] Mike Lynch stands to make hundreds of millions of pounds. There is not going to be a materially adverse event.”

Juliette Garside © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds