The lawsuit between the two tech majors Hewlett-Packard Company (HPQ) and Oracle Corporation (ORCL), relating to Mark Hurd’s appointment with the latter, is settled. The former chief of HP has been relieved from his duties, after a claim for sexual harassment was brought against him by a former marketing contractor.
The lawsuit was settled after Hurd agreed to give up $14.0 million in stock from HP, only after which he was cleared for employment elsewhere. After his extradition from Hewlett-Packard last month, Hurd was offered the position of co-president in Oracle by his friend Lawrence J. Ellison. Oracle’s chief attacked HP for its false charge. This instigated HP to initiate a lawsuit against Hurd, as he had violated the confidentiality agreement with his former employer.
Under Hurd’s capable mentorship, HP has made some important acquisitions and rationalized its workforce by 40,000. These steps ultimately helped the company to transform itself from a basic computer and printer maker to a well diversified technology giant with a huge product portfolio of hardware and business solutions.
Ellison is of the opinion that Hewlett-Packard moved its allegation against Hurd, although the internal investigation conducted by the company did not reveal adequate evidence of wrongdoing. We believe this creates an environment of uncertainty, which may negatively affect the reputation of this world class organization.
The price that Hurd was required to pay in settlement of the lawsuit is very low compared to what he is receiving from his current employer, Oracle. The company has offered Hurd $950,000 salary and an expected cash bonus of $10.0 million during the next year. This apart, Hurd is also eligible for 10 million stock options to start with.
Oracle might give Hurd another 25 million stock options during the next five years. These stocks could turn out to be million dollar investments, over the next couple of years. Clearly, Hurd has not lost much as his career with Oracle is equally if not more rewarding than before. HP on the other hand, will surely feel Hurd’s absence in the years to come.
Despite Hewlett-Packard’s market position and compelling product line, we remain cautious about its near-term growth, especially on the consumer side. We continue to believe in the growth story of the company, but a consumer-led recovery might not prove lucrative at present. Moreover, integration of newly acquired companies, coupled with some rationalization in IT spending, could pose some challenges to Hewlett-Packard.
We have a Neutral rating on Hewlett-Packard shares, with a Zacks Rank of #3 (short-term Hold).
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