SAN JOSE, Calif. — The old Hewlett-Packard DNA is splitting once again. Agilent Technologies announced a plan to split itself into two companies in a move its chief executive called "the biggest and most profound change in our history."
The largest of the two new units -- the $3.9 billion group that will retain the Agilent name -- will focus on life science instruments and will consider moving into related markets such as gene sequencing. The remaining $2.9 billion group -- yet to be named -- will carry on the traditional test and measurement business started by Dave Packard and Bill Hewlett in 1939.
The rational of the move is clear, but the work to make it successful will be hard.
"The trigger point that we needed to make the separation came in November 2010 when Agilent was reclassified as a health care company in the S&P 500," explained Bill Sullivan, who will remain as CEO of the new Agilent unit.
Agilent's traditional T&M and its growing medical instruments businesses have "two distinct investment and business opportunities," Sullivan said in a conference call. "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, he added.
Sullivan's goal is to nudge profit margins of the new life sciences, diagnostics, and applied markets (LDA) company into the 20s from 18 percent today. At the same time, both new companies need to ensure they keep the costs of the split at less than a target of $50 million per year over a three-year period expected to complete the deal.
"We have spent months looking at clever ways to separate the companies without adding costs," Sullivan said. "Obviously you will have costs of two boards and two management teams with two tax filings in every country in the world, but the team has come up with detailed plan," he said.
Sullivan recalled the successful split off of Agilent from HP and the subsequent spin out of Avago from Agilent. "We know how to make it happen without disruption, within cost and on time and have done this many time before," he said.
Indeed, some observers noted with past splits that some of the better parts of HP's DNA have traveled with the test group. Parent company HP continues to struggle to set a course for growth after an embarrassing set of C-level shifts and snafus.
The new Agilent aims to grow profits faster than revenues. Taking one step in that direction, Sullivan split Agilent central R&D into two groups, focused on separate chemical analysis and life sciences product lines "to help differentiate products faster," he said.
In addition, he foresees "bolt-on acquisitions to complete a full lab-to-clinic work flow in [areas such as] gene sequencing, molecular diagnostics and consumables," he said.
The company made its largest acquisition -- a $2.2 deal for Dako in May 2012 -- to bolster its life sciences business, a deal on which Agilent has has yet to get a full return, Sullivan said. And the company is still behind competitors in academic and research markets, he added.