Don’t write off that HP-EMC merger just yet

Hewlett-Packard, which is about to split itself in half, has “material non-public information,” which may mean that reported discussions to merge with EMC are still on the table. At least that’s the scuttlebutt coming out of the company’s Monday morning analyst call.

[company]HP[/company] CFO Cathie Lesjak made the comment about mystery material information and set everyone’s spidey senses a-tingle. HP’s plan is to re-organize itself into two roughly equal sized companies with about $57 billion in annual revenue each: HP Enterprise for cloud, servers, storage, etc. and HP Inc. for printers and PCs.

Meg Whitman, CEO and Chairman of the current HP configuration, said that any “M&A activity will be targeted and returns-based.” Of course, the definition of targeted can vary widely and it was clear that analysts on the call were thinking back on that thought-to-be-aborted EMC deal.

Last month the Wall Street Journal reported that HP and [company]EMC[/company], which compete in storage but not across all product lines, talked seriously about doing a “merger of equals” but dropped the plan earlier in the year out of concern for shareholder reaction.

The topic of M&A came up several times on Monday’s call, prompting Bernstein Research senior analyst Toni Sacconaghi to ask how a slimmed down HP Enterprise — with its smaller cash flow — would be able to pursue even targeted M&A that could improve its competitive stance vis a vis the same IT behemoths — IBM, Oracle, Cisco and, yes, EMC — it faces now.

Whitman said new “nimbleness” and a different capital structure could compensate “somewhat reduced cash flow.”

She also said that the “one HP” strategy she espoused three years ago was the right move at the time, but that times change and now HP has to split itself up to take the best advantage of new opportunities. The separations will let each management team focus on different markets, Whitman said.

Skeptics among the listeners pointed out that HP is now in year four of a five-year turnaround and this rather dramatic split up move shows that the turnarond isn’t getting traction. Whitman, obviously, stated otherwise, saying that the company is now on solid footing. “The turnaround makes this deal possible,” she said.

HP also upped the number of jobs it will cut as part of its previously announced restructuring. Earlier this year the company had disclosed plans to cut between 35,000 and 50,000 jobs, but it now anticipates that 55,000 reductions will take place.  As of the third quarter, 36,000 employees had left the company. The cuts are not linked to the company’s separation plans, Lesjak said.