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Agilent Splits HP DNA Again

9/19/2013 03:20 PM EDT
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David Ashton
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Re: Inside and Out
David Ashton   9/19/2013 10:01:33 PM
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@Rick - good point.  And it's a good new market.   But yet another name change for the T&M business?  If it's a new market then the new name should go there?

DMcCunney
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This is driven by the financial markets
DMcCunney   9/19/2013 10:57:18 PM
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The key phrase in the article is Bill Sullivan's quoted comment "Our investor base has changed dramatically [and] investors [in the higher margin health care sector] have difficulty understanding the volatility of the traditional T&M business"

The shareholders like the sexy, higher-return healthcare business, and don't understand the problems posed by the T&M segment.  Their reflex response is to want to split the company up so the weaker segment isn't a drag on the stronger one.

Of course, such things are easier said than done.  Actually splitting the company in two is a complex exercise, and after it's done, the seperate components still have to generate performance.

If the current investors don't get the T&M business, one question is who will hold on to the new independent T&M company's shares, and what the market value will be as a result.  If the T&M company's market cap gets savaged by investors attempting to dispose of holdings in it, it can cause problems for the units survival, and make it a takeover target for a competitor.

The best result for the T&M side will be an ability for the T&M company to focus on the business without the distractions of investors demanding returns it can't produce, but it might find itself doing so as a unit of somebody else

That this is happening isn't really a surprise.  Original parent company HP is struggling to redefine itself, and come up with meaningful answers to questions like "What is HP, what does it do, and who does it do it for?" when some of its parts, like the PC business, are under intense pressure.

Agilent is under some of the same pressures as investors press for returns.

 

junko.yoshida
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Re: This is driven by the financial markets
junko.yoshida   9/20/2013 9:01:59 AM
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I couldn't agree with you more, DMcCunny. Investors don't get the unsexy part of the business, which is beyond unfortunate. I feel outraged. Without the basic test and measurement expertise, practically nothing in the electronics industry works, but never mind that, because the market it serves is volatile, and investment community does't want that. It's hard to imagine how the yet to be named Agilant spinoff survives.

MeasurementBlues
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Re: This is driven by the financial markets
MeasurementBlues   9/20/2013 10:09:56 AM
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Junko,

As I said in Test Equipment, Two Steps Removed, the new company will survive if it keeps putting out good products with good technical support.

Several people have suggested that the new company be named Hewlett-Packard. That won;t happen because HP still owns that name, but it would be cool for the people who still have test equipment with the HP name, as in What! They're Replacing My Meter?

For those of us in the test business, it's just another name change.

DMcCunney
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Re: This is driven by the financial markets
DMcCunney   9/20/2013 11:52:25 AM
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Not just "unsexy".  Volatility may be a bigger concern.

Offhand, I'd guess the T&M market is somewhat cyclical.  In a strong economy with lots of development, T&M equipment is in demand and times are good.  If the economy falters or goes into recession, development slows, and demand for T&M equipment drops.  Companies that use it will sit tight with what they have to keep expenses dowm, and T&M suppliers will see reduced revenues and profits.

I suspect investors in health care equipment see less volatility.  Health care is a necessity, an aging population requires more complex care with more sophisticated equipment needed to provide it, and demand will still exist, even in a recession, because health care spending isn't discretionary.  For the most part, you have to do it.

The interests of the firm and the investors in the firm aren't identical.  The firm wants to survive and open its doos again tomorrow to do more busimess.  The investor wants returns, in the form of capital gains on stock appreciation, dividends, or both.  Investors who feel they aren't getting great enough returns will push for changes they think will produce them, like shedding lagging units to concentrate on more profitable lines.  In the worst case, a company can cease to exist because investors see more value in it dead than alive.

One things we are seeing as a result is moves to go private, exemplified by Dell's LBO, with the intent of getting away from that sort of pressure.  Of course, the folks who provide the financing for LBOs expect returns, so going that route might be "out of the frying pan and into the fire", but the firm that does it will be dealing with one investor with some actual understanding of the business instead of a lot who only understand they aren't making as much money as they think they should.

As a general rule in cases like this, I play "follow the money".  The technology is largely irrelevant, and the question is who stands to make money or avoid losing money if something like this is done.

As for how the as-yet-unnamed T&M company survives, the likely routes I see are "get acquired" or "go private."  Survival as a publicly held entity is less likely.  If you're an investor looking for stability and a high rate of return, you don't hold on to stock in the new company if you have it because of the split, and you don't buy stock in it if you don't.

rick merritt
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Re: This is driven by the financial markets
rick merritt   9/20/2013 12:49:43 PM
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I'm less skeptical about the new T&M company. I think they will survive OK as a solid player with its peers in a maturing but significant industry. Indeed it is still the largest single company and a leader in several markets.

I see T&M moving forward on pretty much predictabe but importnat trend lines but this new life sciences area is still a story largely to be written.

DMcCunney
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Re: This is driven by the financial markets
DMcCunney   9/20/2013 1:27:51 PM
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@Rick: My question is mostly "Who will _own_ the new company?"

If Agilent successfully practices binary fission, and splits into a health care equipment provider and a T&M equipment provider, holders of existing equity in the current company will have their shares replaced by shares in both new companies, proportional to their investment.

Who will hold on to T&M shares they will get as part of the process?  Who will buy shares in the T&M company if they don't have them?

If there is significant enough investor pressure to split the company in the first place, it's a safe bet a number of existing investors want out of the T&M business.

If enough people dump the T&M shares to concentrate on the health care segment, and not enough people buy shares in the new T&M company, the value will plummet and leave it vulnerable.

I concur it will likely survive.  I'm just not sure it will do so as a publicly traded independent concern.

pseudoid
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Memory Lane
pseudoid   9/20/2013 1:56:35 PM
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Oh, how I remember those olden days, when we used to proudly display our yearly HP [boat anchor] T&M catalogs in our credenzas.  Them were braggin' rights.

I also remember the HP 200CD and the HP 141T: We'd worry silly when we had to send them out to the metrology lab for calibration every year or when we were forced to loan them out.  We'd make others sign in triplicate for a promisory return date.  And if they were late, we'd chase them down in the hallways!

BobsView
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It's Deja Vu all over again.
BobsView   9/20/2013 2:04:14 PM
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HP split off Agilent because it thought it would make a killing in the PC market and didn't want the Test & Measurement business dragging it down.  Now they are considering exiting the PC business because it's not as profitable as they thought.

So now Agilent is splitting off the T&M business because they think they are going to make a killing in the Health Care market and don't want T&M to drag them down.

I think 10 years from now, when everyone is making low-cost equipment for the Health-Care market, Agilent will discover it's not as rosy as they thought.

But the T&M business will still be there.  Not a fast growth market, but steady.  Everyone is looking to double the size of their company in five years.  The reality is, if the business climate for their products is that good, there will be lots of competitors. And doubling the size of the business will be next to impossible.

They should have left well enough alone...

 

 

junko.yoshida
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Re: Inside and Out
junko.yoshida   9/20/2013 8:50:46 PM
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@David Ashton, I totally agree your point here. Why a storied division of T&M fame needs to get renamed so many times?

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