HP Rating Cut by S&P After Autonomy Acquisition Boosts Debt

By Nick Turner and Aaron Ricadela - Dec 1, 2011 4:59 AM GMT+0700

Hewlett-Packard Co. (HPQ) had its corporate credit and senior unsecured ratings cut to BBB+ from A by Standard & Poor’s Ratings Services, which cited the increased debt load caused by the acquisition of Autonomy Corp.

The company’s “inconsistent” strategies and management turnover may also have raised risks, S&P said today in a statement. The outlook on the ratings is stable.

Hewlett-Packard is trying to rebound from sluggish sales and the ouster of two chief executive officers over the past two years. The $10 billion Autonomy acquisition, announced under ex- CEO Leo Apotheker, drew the ire of investors and contributed to his replacement by Meg Whitman in September. He also shook up the board during his tenure.

“We have concerns that HP’s inconsistent growth strategies and high levels of board of director and senior management turnover have elevated the level of operational and execution risk in the near term,” Martha Toll-Reed, an analyst at New York-based S&P, said in the report.

Mylene Mangalindan, a spokeswoman for Palo Alto, California-based Hewlett-Packard, declined to comment.

Hewlett-Packard’s first-quarter profit forecast and full- year earnings outlook both missed analysts’ estimates this month. Whitman’s plan for fixing Hewlett-Packard’s ailing businesses, such as PCs and information-technology services, includes boosting research spending and limiting the size of acquisitions.

Saving Cash

The idea is to conserve cash and spur homegrown innovation, something the company neglected over the past decade. She has said she will unveil more plans in the first half of next year.

On Nov. 17, the company appointed activist shareholder Ralph Whitworth to its board. Whitworth, whose investment firm oversees $6.5 billion, told management his appointment would burnish credibility and that he’d press for share buybacks, higher dividends or more investment in research, a person with knowledge of the situation said.

Hewlett-Packard also lost its title as the world’s biggest maker of server computers to International Business Machines Corp. (IBM) in the third quarter, Gartner Inc. said this week.

Hewlett-Packard fell 14 cents to $27.81 in extended trading after S&P posted its report. The shares, down 34 percent this year, had climbed 3.9 percent to $27.95 at the close in New York.

To contact the reporters on this story: Nick Turner in San Francisco at nturner7@bloomberg.net; Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net