HP and Symantec have reversed course and are splitting their companies: HP into PC/Printing and Enterprise/Server/Storage/Security, Symantec into Storage and Security. (Now if Symantec is correct then HP should have split into at least three companies, with Storage/Server separate from Security, but that is the subject of another blog….)

Let’s cut through the PR blitz and discuss if/why this makes sense and who are the guaranteed winners in these transactions (bankers, lawyers, directors, consultants, not employees nor customers).

Conglomerates and growth by acquisition came into “vogue” in the 1960’s/1970’s. Industrial conglomerates like ITT acquired many diverse companies with no customer-centric commonalities – from banks to hotels to pump manufacturers – and sought to achieve “synergies” by combining adminstrative functions like accounting with “superior” management skills.

This approach became problematic for two reasons. First and most importantly, administrative functions, overhead costs and bureaucratic inefficiencies increased because it actually became more complicated (not less) to manage these unrelated entities. Second, the acquiring conglomerates were publicly-traded companies. They had a fiduciary responsibility to communicate their corporate strategy to Wall Street, to promote and drive up the stock price. But the investment community could not understand their corporate strategy. So to address both problems, these conglomerates pursued spin-offs: the divestiture or selling off of businesses.

Both HP and Symantec, much like Cisco, IBM, Oracle, Microsoft and others, have pursued acquisition-driven corporate strategies within the IT space, to increase the breadth and scope of their offerings. So for instance, Symantec bought Veritas – recognizing the security issues are linked to where and how data is stored – while HP bought Compaq – believing that scale is necessary for success in PC’s. These acquisitions offered many theoretical and real benefits. They each became a larger and presumably more important supplier to customers, distributors and VAR’s/Resellers. Technical integration/links could be created within their products, maintaining interoperability across other vendors but working “better” within the company (similar to McAfee security Anti-virus running fine on AMD but better on Intel). HP in particular had greater leverage over suppliers, given the now larger PC business and many common elements between PC’s and Servers. So why the change now?

In the case of HP, two reasons. First, PC industry slowed dramatically, driven by Apple product adoption. Plus Microsoft emerged as a formidable and aggressive competitor, grabbing market share in a stagnant industry from HP. But you lose a lot of operational savings, plus you are saddling current HP shareholders with this seemingly unattractive business (unlike IBM, which generated billions in cash by selling their PC business to Lenovo, which in turn is reaping the benefits of scale/size as the dominant OEM PC manufacturer). It seems like the main catalyst was responding to Wall Street and Hedge Fund pressures, which views a challenging PC market as weighing down the HP stock price. (Now if HP hadn’t wasted over ten billion on acquiring Autonomy, maybe these financially-driven pressures wouldn’t exist but again that is the subject of another blog.)

With regard to Symantec, Wall Street pressures were again the driving force behind this spin-off, but there weren’t any extraordinary, external factors (like Apple and Microsoft coming at HP). Instead neither business unit was performing up to expectations, in growing markets. There is the hope that having two companies, each focused on a single segment of IT, will perform better. I have some personal questions if this really makes sense, plus Symantec loses lots of operational/marketing benefits.

But this is what the Board of Directors and Executive Management have decided for HP and Symantec, and I am doing some Monday Morning quarterbacking. The real answers will emerge in 2015/2016 but right now it is easy to see who the immediate winners and losers are.

Right now, employees are somewhat concerned, less in manufacturing and product design and more in centralized functions such as accounting, marketing, purchasing, legal, etc. Even though the businesses have operated somewhat independently for years, there is uncertainty, new bosses, updated logos, revised agreements, etc. Presumably there shouldn’t be any layoffs – in fact shouldn’t there be new hiring? – but most employees don’t like change, are probably taking a “wait-and-see” perspective, and updating their resume just in case.

Customers are probably more worried. They have heard countless presentations from HP and Symantec on the value of size, product integration and synergies. Now  they are getting a whole new series of talks, on product focus, eliminating bureaucracies, etc. IT executives place a great deal of trust on their vendors, and these spin-offs only increase anxiety. Another “wait-and-see” scenario, but with more downside risk.

The real winners are the bankers, lawyers, consultants and Directors, who are going to cleanup. Benefit consultant Mercer, for instance, is paid over $200,000 for executive compensation recommendations. Each Director (of which there are about ~12 per company) is paid >$300,000 to attend a few meetings. Each spin-off company can no longer share and must individually pay ~$5 million in annual compensation and Board of Director costs. To put this in perspective, if HP makes about $50/PC (best case scenario), then they have to sell another 100,000 PC’s a year, just to cover this expense. It will take ten’s of man-year’s of legal and investment banking work, to untangle all the past acquisitions, which will be billions of dollars in one time charges.

So the only thing for certain today is that a very few highly paid individuals will get even more money, while employees and customers can only hope for the best.