Hewlett-Packard Co (HP) has given up control of its US$4.5 billion Chinese unit to try to change its fortunes after acknowledging twice this year that the performance of the business had been “disappointing.”
Hewlett-Packard rallied 5.1 percent in two days after posting higher-than-estimated earnings and saying that it would sell 51 percent of its networking and server operations in the country to an arm of Beijing’s elite Tsinghua University, the alma mater of Chinese President Xi Jinping (習近平).
The company is betting that ceding ownership to the state-owned Chinese firm will help it boost sales, as the government presses the country’s banks, military and major enterprises to stop buying most foreign technology.
The deal highlights what is necessary to succeed in the world’s No. 2 economy, as the Chinese government promotes homegrown technology at the expense of companies like Cisco Systems Inc and International Business Machines Corp.
Tsinghua beat rival bidders through its advantages as a state-owned company and ready access to capital, according to Zhao Weiguo (趙偉國), its investment arm’s billionaire chairman.
“We do have our secrets, but all of them are legal,” Zhao told reporters in Beijing on Friday. “I don’t want to talk about products, technology and so on, because when you’re dealing with M&A [mergers and acquisitions], other factors are more important.”
HP gained 2.8 percent to US$34.76 at the close on Friday in New York. On Thursday the shares gained 2.3 percent after the computer maker, which plans to separate into two companies, announced the Chinese deal.
Earnings for the quarter that ended last month, released on Thursday after the markets closed, came in at US$0.87 per share excluding some items, beating the US$0.86 average of analysts’ estimates compiled by Bloomberg.
The firm beat state-owned China Huaxin Post and Telecommunication Economy Development Center (中國華信郵電經濟開發中心) for the holding in the HP business, even though Huaxin had won pre-approval for the deal from the country’s top economic planning agency, according to people familiar with the matter. They asked not to be identified discussing private information.
The government typically gives only one company the go-ahead to pursue a deal, in order to avoid Chinese firms competing and driving up the price.
The Chinese National Development and Reform Commission did not immediately respond to a faxed request for comment.
A Beijing-based press officer for Huaxin confirmed the company received the commission’s approval for its bid.
China is moving to bolster its technology sector after Edward Snowden revealed widespread spying by the US National Security Agency and accused the intelligence service of hacking into the computers of Tsinghua University.
Xi called for faster development of the domestic technology industry at the first meeting of his newly created Internet security panel in February last year.
“If the choice comes down to choosing a domestic vendor or a Western company, there’s definitely a preference for the domestics,” Stephen Yang (楊仕祥), an analyst at brokerage Sun Hung Kai Financial Ltd (新鴻基金融) in Hong Kong, said by telephone on Friday. “The control has shifted to Tsinghua, but it’s safe to say that HP is still driving the strategy of that business.”
HP is to help appoint management for the Chinese venture, which has been named H3C (華三通信), and Tsinghua is not to make major changes to its operations, Tsinghua Unisplendour Corp (清華紫光) president Qi Lian (齊聯) said in Beijing on Friday.
The US company is to retain rights to H3C’s intellectual property and is keeping full ownership of its China-based enterprise services, software, HP Helion Cloud, Aruba Networks, printing and personal-systems businesses, which are not part of this deal.
Tsinghua is broadening the scope of its dealmaking after spending about US$2.1 billion to acquire semiconductor companies since 2013, according to data compiled by Bloomberg.
It beat an arm of the Shanghai government to acquire chip designer RDA Microelectronics Inc in an US$893 million deal completed last year, the data show.
Credit Suisse Group AG advised HP on the sale.
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