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The investment that Hewlett-Packard made in an entity called Foppingadreef back in 1996, thinking that it would give rise to significant tax benefits over the next seven years, was not typical of so-called “foreign tax credit generators”.
Barclays’ structured trust advantaged repackaged securities (Stars) are perhaps the most well-known FTC generators and they have allowed multiple US banks to reduce their tax liabilities — though the Internal Revenue Service is challenging this in the courts. Read more
In our last post, we presented the genesis of a transaction set up by AIG Financial Products in 1996 that stood to reap significant tax benefits by generating an abundance of foreign tax credits (FTCs) as well as a deduction arising from a capital loss.
The Internal Revenue Service fought back when some of the benefits were claimed, and on May 14, 2012 they won in the US Tax Court, leading to the benefits being disallowed. This case, along with another won by the IRS in September last year, allows a rare glimpse into the world of international tax arbitrage. Read more
On May 14th, 2012, the US government won a case against Hewlett-Packard. The company was trying to reduce its tax bill by claiming certain foreign tax credits (FTCs) and a deduction on a capital loss that arose from a transaction it had entered into in 1996 with a Dutch entity called Foppingadreef. Both were claims disallowed in the ruling. The case may go to appeal.
The type of transaction can generally be classified as a so-called “FTC Generator” as one of the main benefits, if not the main benefit, concerns positive tax attributes created by it. Read more
Hewlett-Packard is looking to sell Palm’s webOS mobile software platform, which could raise hundreds of millions of dollars but less than the $1.2bn that HP paid last year, Reuters says, citing four sources close to the matter. HP is trying to figure out how to recoup its investment in Palm, viewed by many analysts and investors as an expensive foray into the smartphone market that has not paid off. Several technology companies have expressed an interest in buying the division, which is seen as attractive for its patents, the sources said. Amazon, Research In Motion, IBM, Oracle and Intel are considered to be among the companies likely to be interested in the asset, the news agency says. The future of the unit, which HP acquired when it bought Palm in 2010, was in jeopardy after the company decided to kill its webOS-based TouchPad tablet following poor sales. Read more
Hewlett-Packard will keep its personal computer division rather than spin it off to shareholders, as its then chief executive, Léo Apotheker, had proposed before he was ousted last month. The FT reports Mr Apotheker’s successor as chief executive, Meg Whitman, said on Thursday that the biggest PC maker by revenue had studied the issue and found that the benefits of separation were outweighed by factors including the price advantages HP enjoys as a large buyer of computer components. “This was first and foremost a math exercise, and a very revealing one,” Ms Whitman said. “I also took into account the distraction that a spin-off would be.” Ms Whitman also said she was not considering whether to reverse another controversial decision by Mr Apotheker, to stop producing tablets and smartphones using HP’s webOS touch-based operating system. The company’s strategic plans for the next year are expected to be discussed on November 21, when the company reports earnings, according to Bloomberg.
Hewlett-Packard will keep its personal computer division rather than spin it off to shareholders, as its then chief executive, Léo Apotheker, had proposed before he was ousted last month. The FT reports Mr Apotheker’s successor as chief executive, Meg Whitman, said on Thursday that the biggest PC maker by revenue had studied the issue and found that the benefits of separation were outweighed by factors including the price advantages HP enjoys as a large buyer of computer components. “This was first and foremost a math exercise, and a very revealing one,” Ms Whitman said. “I also took into account the distraction that a spin-off would be.” Ms Whitman also said she was not considering whether to reverse another controversial decision by Mr Apotheker, to stop producing tablets and smartphones using HP’s webOS touch-based operating system. Read more
Hewlett-Packard is reconsidering its plan to spin off its personal computer division proposed by former chief executive Leo Apotheker, the WSJ says, citing people familiar with the matter. The report says HP has undertaken new analysis of the spin-off plan, which suggested it may not not make financial sense, in part because it would reduce HP’s buying power with suppliers. Neither new chief executive Meg Whitman nor the company’s board had made a final decision, the sources said. Read more
Hewlett-Packard on Monday night declared that it had sealed its £6.7bn ($10.4bn) acquisition of Autonomy, the FT reports. HP said that 87.3 per cent of the UK software company’s shareholders had accepted its all-cash, £25.50-a-share offer, which represents a 79 per cent premium to the price before the bid emerged in August. The markets have assumed since Friday that the deal was all but done, with the shares trading at £25.45. A number of large UK institutions holding Autonomy shares tendered their acceptances late last week. The ousting of Léo Apotheker, HP’s chief executive, in the middle of the bid process added some anxiety for Autonomy shareholders. Some investors felt Mr Apotheker had overpaid for the British software company, an impression furthered by comments last week from Larry Ellison, chief executive of Oracle, a fierce rival of HP. Read more
Hewlett-Packard’s board has recruited Goldman Sachs to build defences against activist investors, the WSJ reports. The company’s ouster of Leo Apotheker as chief executive has increased concerns on the board that a wave of shareholder activism will hit the company. The board has already come in for further criticism over its abrupt hiring of Meg Whitman as a replacement chief executive despite a lack of experience in the computer hardware business. Activist buyers of Hewlett-Packard’s stock could try forcing the company to streamline its software and hardware businesses, analysts have said. Read more
Hewlett-Packard has named former Ebay chief executive Meg Whitman as its new chief executive, replacing Léo Apotheker after he had served less than a year at the top of the world’s largest computer maker by revenue, the FT reports, citing people close to the process. The board also named chairman Ray Lane as full-time executive chairman. A consensus among the board had emerged over the past week that Mr Apotheker needed to go and that Ms Whitman, an HP board member since January, would be the best successor. There was some support from the board and investors for Mr Apotheker’s decisions while leading the company, but the core problem for some directors was his execution and leadership. Cutting financial projections three times during his tenure alienated shareholders and he soon lost the initial goodwill he enjoyed from executives and other employees, people inside the company said. Read more
Hewlett-Packard shares jumped nearly 7 per cent as the board of the largest computer maker by revenue met and considered replacing chief executive Léo Apotheker after less than a year in the job. HP directors on Wednesday were weighing possible temporary or permanent successors, including former Ebay executive Meg Whitman, the FT reports, citing people close to the process. Also under discussion was whether to keep the personal computer business, which Mr Apotheker said last month he planned to spin off. HP was not expected to try to reverse its planned acquisition of Autonomy, the UK software group, for $10.6bn. Under the UK takeover code, it is very difficult for a company to walk away from an offer it has made without a material adverse change in the target. Read more
Oracle’s shares rose 3 per cent on news that new software sales, a gauge of future profit because they generate high-margin long-term service contracts, grew 17 per cent in the three months to August 31, Reuters reports. A stronger-than-expected European performance helped boost sales last quarter, although this was partly credited by executives to market share gains against key rival SAP. The US software company’s unusual August quarter-end makes it an early barometer of broader demand for IT, the FT says. It also issued a forecast for the current quarter that was in line with Wall Street’s expectations. Chief executive, Larry Ellison, also counted Oracle out from making a rival bid for Autonomy, which last month agreed to a $10.3bn acquisition by Hewlett-Packard – a price that Mr Ellison described as “shockingly high”. Read more
John Paulson, one of the world’s most successful hedge fund managers, has extended losses throughout August to leave his flagship fund down almost two-fifths for the year, the FT reports. His Advantage Plus fund was down 38.7 per cent for the year as of Friday, according to a person familiar with the fund’s performance, having lost 22 per cent in the first 19 days of the month. The fund, which follows a strategy of trading around corporate events, was hit by the plunge in the price of Hewlett-Packard after the company announced it would pay $11bn for UK software maker Autonomy and consider a spin out of its PC business. At the end of June, Paulson & Co, which manages about $35bn, held 23.5m shares in HP, according to regulatory filings, a stake then worth $855m. Assuming that the hedge fund had not reduced its investment, the shares had lost more than a third of their value as of Friday. The HP share price has risen this week, as have share prices for banks, such as Citigroup and Bank of America, in which the fund has large positions. Read more
Léo Apotheker, Hewlett-Packard’s chief executive, is set to come out fighting before shareholders this week, arguing that the company’s bet on business software and its planned exit from personal computers are needed to keep pace with convulsive change in the technology industry, according to the FT. Apotheker and Cathie Lesjak, HP chief financial officer, have already spoken to dozens of investors, although long-term holders remain anxious. While Apotheker aim to “go IBM”, in fact IBM sold its PC arm in 2004 without a big acquisition to pull off at the same time, even if HP could get up to $10bn for its sale, Reuters notes. But the exit out of hardware was sealed as soon as Apotheker became CEO, says John Gruber at Daring Fireball. Read more
Hewlett Packard bosses have come out fighting in defence of their sharp change in the tech group’s strategy last week, the FT reports. Léo Apotheker, chief executive, will meet shareholders in New York, Boston and London to argue that the company’s bet on business software and its planned exit from personal computers are needed to keep pace with convulsive change in the technology industry. Mr Apotheker told the FT on Sunday the company was “at a pivotal part” of its history, and predicted that HP would regain the $40bn in revenue lost in an anticipated spinoff of the world’s best-selling PC line, while “my assumption is that in the long term we will have better margin profile and a better growth profile”. HP shares have shed 25 per cent of their value since word spread on Thursday that the company would pay $11bn, or more than 10 times sales, for Autonomy, the UK’s biggest software concern. Meanwhile Autonomy chief executive Mike Lynch spoke against protections against foreign takeover for British companies, in The Telegraph.
Shares in Autonomy soared after Hewlett-Packard announced an $11bn (£6.7bn) deal to buy the UK’s largest software company in the latest takeover of a FTSE 100 company by a foreign acquirer, the FT reports. If completed, the deal would be the largest in Europe’s IT sector and the second-largest software deal after Symantec secured Veritas for $13.5bn in 2005. On Friday morning Autonomy’s share rose 79 per cent to hit HP’s £25.50-a-share cash offer price, which is being recommended by Autonomy’s board. Analysts were in agreement that the deal offered excellent value for Autonomy shareholders but were more sceptical about the benefits for HP. Paul Morland, a tech analyst at Peel Hunt, called it an “amazing” premium for a company whose earnings grew by just 6 per cent in the first half of the year. “It doesn’t get any better than this, and holders should accept the offer before HP changes its mind. HP’s CEO used to be in charge at SAP, so he should understand software, but this bid seems to defy logic. We believe HP shareholders should be worried.” Read more
Autonomy, the UK’s largest software company, is being bought by Hewlett-Packard with an enterprise value of $11bn (£6.7bn) in the latest takeover of a FTSE 100 company by a foreign acquirer, reports the FT. In another big announcement, the FT notes that the double barrelled IT giant said it plans to exit its leading personal computer business, probably through a spin-off to shareholders, as it grapples with a deteriorating economic environment and the overhang from past acquisitions. The WSJ reminds us that we’re now in a “post-PC” world: Steve Jobs told the Apple June developer meeting that “We’re going to demote the PC and the Mac”. The Telegraph profiles the founder of Autonomy, Mike Lynch. Read more
US shareholders have used new powers to stage protest votes over executive pay during this year’s annual meeting season, the FT reports, with pay packages rejected outright at Hewlett-Packard and Jacobs Engineering while other big companies such as Monsanto and Northern Trust faced shareholder protest votes. Overall, of the first 100 companies in the Fortune 500 to hold votes on pay, 12 suffered significant protest votes – where more than 30 per cent of shareholders voting chose not to support pay arrangements, according to ClearBridge, a compensation consultant. Read more
Hewlett-Packard shares dropped to their lowest level in almost two years after the top computer maker by sales cut its profit forecast on weak consumer demand and planned changes in its services unit, the FT reports. As it released second-quarter earnings early on Tuesday, HP said it had been surprised by the depth of a 23 per cent fall-off in consumer PC revenue, which will make it more dependent on its forthcoming entrance to the tablet market, albeit late, with the TouchPad. Results from Dell, meanwhile, saw the rival computer maker’s stock rise as much as 5.8 per cent in extended trading after its profit topped analysts’ estimates. Bloomberg reports this marks the second straight quarter that Dell’s results have outshined those of rival Hewlett-Packard. Read more
Hewlett-Packard shares on Tuesday fell to their lowest level in almost two years after the US computer giant cut its profit forecast on weak consumer demand and planned changes in its services unit, reports the FT. As it reported 2Q earnings, HP noted that a 23% fall-off in consumer PC revenue would make it more reliant on its forthcoming entrance to the tablet market with the TouchPad. HP reported a 12% rise in PC sales to businesses, which provide the bulk of its revenue, and met overall expectations for the second quarter. But investors sold shares after HP said they should expect profit of “more than $5” a share, instead of the $5.24 previously indicated, and on news of CEO Léo Apotheker’s plan to invest more in pursuit of higher-value services business at the expense of profitability. Lex however says it may well be HP’s execution, “and not its model”, that needs retooling. Read more
There was a mixed start to the European portion of the global session, with the underlying tenor one of caution as traders remained wary about the ongoing eurozone debt crisis, the FT’s global market overview reports. Worries about a slowing of global growth as central banks tackle inflationary pressures, coupled with the imminent demise of the Federal Reserve’s $600bn QE2 market support programme, were also weighing on strategies. Technology stocks were struggling following reports that Hewlett-Packard’s boss Leo Apotheker expected “another tough quarter”, leaving the FTSE Eurofirst 300 down 0.1 per cent. S&P 500 futures were up 0.2 per cent. The FTSE All-World equity index was down 0.3 per cent after an Asian session thinned by various national holidays absorbed Wall Street’s decline to a three-week low into Monday’s close, the FTSE Asia Pacific index losing 0.4 per cent. Read more
Shares in Hewlett-Packard dropped as much as 12% in early trading on Wednesday following the tech giant’s decision to slash revenue forecasts for its current fiscal year by $2bn late the day before, reports the FT. For Léo Apotheker, who took over as CEO four months ago, the sharp sell-off highlighted spreading unease among HP investors that deep cost cuts at the tech conglomerate were starting to hamper revenue growth, and that efforts to rebuild its competitiveness in markets ranging from tablet computers to services would dent future profits. The sell-off came the day after HP reported that revenue for Apotheker’s first complete quarter rose an annual 16% but fell short of its own forecast, as consumer PC sales slumped along with the IT services business. The AP adds that the latest numbers show that HP is benefiting from the changes in its business model — “just not as much as some investors would like”. Read more