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19 Aug 2011
Approximately $19 billion of debt securities affected
New York, August 19, 2011 -- Moody's Investors Service changed the ratings outlook of Hewlett Packard
(A2 long-term, P-1 short term) to negative from stable.
This action follows HP's announcement of: 1) an agreement
to acquire UK-based software firm, Autonomy Corporation plc
(not rated) for approximately $11.7 billion that is likely
to partially debt funded, 2) the potential spinoff of its personal
computer business, and 3) the shutdown of its tablet and smartphone
activities, and 4) a downward revision to company's financial
performance over at least the near term.
The negative outlook reflects a level of performance uncertainty stemming
from HP's significant strategic announcements regarding its portfolio
composition and an increase in financial leverage as a result of the proposed
acquisition of Autonomy. We believe the weakening macro environment
will add to the operational challenges HP will face as it explores opportunities
to spin off its PC operations over the next 12 to 18 months while also
shutting down its nascent effort to enter the smartphone and tablet markets.
Despite these challenges, HP retains a number of competitive and
financial strengths that are consistent with its current rating.
Nonetheless, Moody's expects to place the ratings under review
when sufficient information and clarity surrounding the company's
strategic actions is determinable or earlier if conditions warrant.
Moody's will "focus on the competitive position of HP and
the profit and cash flow potential of the unfolding corporate strategy
as well as the resulting capital structure and liquidity profile implications,"
said Moody's Senior Vice President, Richard Lane. These transactions
contemplate a meaningful transformation for HP, and a rapid acceleration
of certain strategies developed since the HP's CEO joined earlier
this year. HP will be financing a large transaction and considering
strategic options for its traditional PC business during what could be
a period of considerable economic volatility. Consequently,
our ongoing assessment of HP will focus on potential diseconomies of scale
related to a potential spin off of the $40 billion PC business,
plans to reinvigorate the growth and higher value focus of HP's
$35 billion services business, and the integration challenges
associated with the Autonomy acquisition.
In addition, Moody's will also continue to monitor management's
plans to reduce incremental debt and financial leverage likely as a result
of the Autonomy acquisition, and any changes in HP's financial
philosophy as management seeks to reposition HP's broad portfolio
into higher value added areas focused moreso on enterprise class customers.
We expect HP will use some of its cash to fund the acquisition of Autonomy
(about $13 billion as of July, 2011), which is expected
to close by the end of calendar 2011. Given our expectations that
HP will continue to maintain cash balances above $10 billion,
we anticipate HP will also fund the transaction through the issuance of
debt. While a significant portion of HP's cash is held offshore,
the company has tax efficient access to material amount of this cash.
Moody's expects that HP will maintain commercial paper outstanding in
the range of $3 billion to $6 billion going forward ($3
billion at July 2011). The company maintains solid alternate liquidity
in the form of a $3.0 billion bank facility maturing May
2012 and a $4.5 billion bank facility maturing February
2015. Both have one financial covenant under which HP has ample
room, and no need to represent as to no material adverse change.
For further information, please see www.moodys.com
Please see ratings tab on the issuer/entity page on Moodys.com
for the last credit rating action and the rating history.
The principal methodology used in rating HP is the Global Technology Hardware,
published in September 2010 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Rating Methodologies
sub-directory on Moody's website.
Hewlett-Packard, headquartered in Palo Alto, California,
with $128 billion in revenue for the twelve months ended July 2011,
is the world's largest technology firm that designs, manufactures,
and services computing and imaging systems and provides information technology
and consulting services.
Richard J. Lane
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
Moody's Investors Service, Inc.
Moody's revises the outlook of Hewlett-Packard (A2/P-1) to negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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