By Brenon Daly
Since when does an army without its top general go on the attack? That strategy would seem to go against convention, yet Hewlett-Packard (NYSE:HPQ) has done just that since dumping Mark Hurd for his foibles. The tech giant has chased a pair of deals to valuations that are basically 2-3 times the prevailing market multiple. HP’s recent bidding war over 3PAR (NYSE:PAR) and the purchase of ArcSight (ARST) shows a level of aggressiveness that indicates to us that the drivers for the acquisitions may have been emotional as well as financial, at least to a small degree.
If we step back and look at the setting for both deals, we can’t help but conclude that HP announced the transactions at a time when it looked vulnerable. Its star CEO had dramatically crashed back to earth, while its board (yet again) appeared to have bungled what looked like a fairly routine internal investigation. Statements by the company that it was ‘business as usual’ didn’t get much of a hearing on Wall Street. Shares that changed hands in the low $50s in April have been worth less than $40 for much of the past month. HP’s market cap lingers below $100bn, despite the company ringing up sales of about $120bn.
At the risk of drifting too far into psychology, we wonder if the deals weren’t a bit of overcompensation. (Certainly, paying 11x trailing sales for 3PAR might be considered overcompensation, or at the least, ‘heavy compensation,’ if you’ll forgive the pun.) If investors and others were going to view HP as weak or directionless while its corner office was empty, well, HP could use its vast resources to counter with a signal to remind everyone that it was formidable, with or without a fulltime CEO. Of course, we’re just playing armchair psychologist here. But something beyond just straight numbers seemed to be at work in HP’s recent moves.