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HP: A Small Victory for Shareholders

By Alex Dumortier, CFA - Apr 4, 2013 at 7:12PM

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Board changes were necessary, but they're not sufficient

Stocks clawed back some of yesterday's losses today, with the S&P 500 (^GSPC 0.01%), and the narrower, price-weighted Dow Jones Industrial Average (^DJI 0.03%) gaining 0.4%.

Reflecting these gains, the VIX Index (^VIX 0.00%), Wall Street's fear gauge, fell 2%, to close below 14. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming thirty days.)

HP: Finally, something to cheer about
Last December, I asked, Is Yahoo! a Model for H-P?, arguing that:

There's no question that HP could use a board shakeup and possibly a new CEO. Much of the change at Yahoo! came at the impetus of activist investor Dan Loeb. HP already has an activist investor in place: Ralph Whitworth of Relational Investors joined the board in 2011. What is he waiting for?

It appears that the board of Dow component Hewlett-Packard (HPQ -3.02%) is finally taking some responsibility for the disastrous lapses in governance that have inflicted enormous harm on the company and its shareholders over the past several years.

According to a press release published today, Ray Lane will step down as chairman of the board (though he will remain a board member), to be replaced on a temporary basis by Ralph Whitworth. Two other members, John Hammergren and G. Kennedy Thompson, are also resigning their seats. Whitworth will also replace Hammergren at the head of the Finance and Investment Committee.

Mr. Lane took the measure of shareholder sentiment last month, when he was re-elected to the board in a proxy vote with a noticeably lukewarm 59% of the votes -- the third lowest percentage among all eleven directors. Only Messrs. Hammergren and Thompson scored lower, with 54% and 55%, respectively.

The choice of the permanent chairman and new board members will be a crucial test of the company's resolve to turn itself around. Over the past few years, HP has been a heavyweight champion when it comes to destroying goodwill, both the accounting variety, through disastrous acquisitions, and that of its shareholders. Today's announcement is a step in the right direction, but the journey to restoring the company's good name on Wall Street will be a long one.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,261.90 (0.03%) $8.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,901.36 (0.01%) $0.57
CBOE S&P 500 Volatility Index Stock Quote
CBOE S&P 500 Volatility Index
^VIX
$29.35 (0.00%) $0.00
HP Inc. Stock Quote
HP Inc.
HPQ
$34.65 (-3.02%) $-1.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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