A few short hits to close off the week:
- The Economist had a short piece looking at some of the challenges faced by both companies following HP’s (HPQ) spinoff of its services business HP Enterprise (HPE). While both companies have scale and more focused operations, the future for each company is murky. The PC business is shrinking and the services business is moving more towards the cloud where HPE isn’t as strong. The ‘biggest problem’ though? HP just isn’t cool anymore and doesn’t have a reputation for innovation meaning talent doesn’t want to work there (or at any of the ‘old’ tech companies). There may be some debate about how big of an issue that really is, but as many people know, bad reputations are a tough thing to shake.
- McDonald’s (MCD) wasn’t the only company to decide to hang onto its real estate. Despite facing pressure from the Starboard Value Fund to spin off its real estate into a REIT, retailer Macy’s (M) has decided that the move doesn’t make sense and that it would hang onto its portfolio. Essentially, the company determined that a spinoff would have added too much leverage and additional expenses via lease payments which could be very problematic for a company facing challenges in its core business. The most recent quarter featured a sharp drop in sales, excess inventory buildup and downward revisions to its financial forecast. Not good at all and really, those results likely just provide Starboard with more ammo. Instead, the company will ‘redevelop’ some of its stores and look at some other structures such as joint ventures. The WSJ notes that many of Macy’s challenges are likely due to a more fundamental shift in the retail business and there isn’t much the company will be able to do about it. Perhaps, but for now, lets just enjoy their parade next week.
Disclosure: Author holds no position in any stock mentioned.