Last August, the New York Post floated the idea that financial troubles at Hewlett-Packard might spur Oracle CEO Larry Ellison to make a career-capping acquisition bid to buy HP. So far no deal has materialized.
Since that time a lot of things have happened at the House That Bill And Dave Built. HP's board booted out Leo Apotheker as chief executive officer and replaced him with former eBay chief Meg Whitman. HP dumped its effort to turn Palm into a key part of the business. It floated, then killed, a proposal to spin off the PC business. A little reluctantly, it closed the $10 billion deal to buy Autonomy that Apotheker had engineered.
Whitman recently hinted strongly that layoffs are coming; she has said point-blank that the company's cost structure is simply too high. And today, sources confirm, HP will announce a reorganization that will combine the company's PC and printer businesses under Todd Bradley, with long-time printer exec Vymoesh Joshi headed out the door.
One thing that hasn't changed: HP's stock price, which is within a single penny of its price back when the Post story came out last summer. Maybe what HP really needs here is a big dose of Larry.
There are all sort of delicious elements to the idea of Oracle buying HP. (And to be crystal clear here: I'm speculating, I have no idea if the company has thought about this.) Larry's right-hand man and presumed heir-apparent Mark Hurd - the former HP CEO - would no doubt be gleeful to have another whack at fixing what ails HP. I'm not sure HP Chairman Ray Lane, a former Ellison lieutenant, would be that keen on selling the company to Larry, but in the end he may not have a choice.
Would the math work? Oracle's market cap at $149 billion is about triple that of HP at $47 billion; one way to help finance the deal would be to spin out HPs now combined and streamlined PC and printer business. Oracle has about $30 billion in cash, and presumable could borrow more to complete the deal; or a transaction could take the form of a combination of cash and stock. As I noted last summer, a deal to buy HP would hurt Oracle’s profit margins, which are far higher than HP’s at both the gross margin and operating margin level. There would be antitrust questions, particularly given the two companies strong positions in servers. (Remember that Oracle jumped into the server market when it bought Sun.) The fact remains that these are two companies that simply don't like each other; whether you could combine Oracle's sales-driven culture with HP's engineering-driven roots would remain to be seen.
For at least a decade, Ellison has been making the case that the world of enterprise computing is consolidating. He has been dead right on that score - due in part to his own shopping sprees for companies like Peoplesoft, Siebel Sytems, Sun and BEA - but there's no reason to think the process is done. The rise of cloud computing, big data and ubiquitous mobile connectivity are fundamentally shaking up the IT world. HP is shrinking at the top line and losing share in almost every business, and Oracle's growth rate has slipped into the low single digits. The two powerful IT giants need to do something bold to maintain their dominant roles in enterprise computing. And one way to do it would be for Oracle to team up with HP, and stake a claim to being the primary challenger to Microsoft, Cisco and IBM in enterprise computing.
