HP may oust CEO, hire eBay veteran - source

Thu Sep 22, 2011 12:14am BST

HP CEO Leo Apotheker delivers the keynote address at the HP Summit in San Francisco, California March 14, 2011. REUTERS/Stephen Lam

HP CEO Leo Apotheker delivers the keynote address at the HP Summit in San Francisco, California March 14, 2011.

Credit: Reuters/Stephen Lam

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(Reuters) - Hewlett-Packard Co's board convened on Wednesday to consider ousting Chief Executive Officer Leo Apotheker after less than a year on the job and replacing him temporarily with former eBay CEO Meg Whitman, a source familiar with the matter said.

HP's board of directors -- facing shareholder lawsuits and intensifying criticism from investors -- is thrashing out a host of issues, including whether to name Whitman as the interim CEO, the source told Reuters,

The storied Silicon Valley giant is fighting to restore its crumbling credibility. During his 11-month tenure, Apotheker slashed sales forecasts repeatedly, backtracked on promises to integrate Palm's webOS software into devices, and struggled to halt a 50 percent plunge in the share price.

No decisions have yet been made about leadership, the source said on condition of anonymity because of the sensitivity of the issue.

Wall Street roared its approval, sending HP shares up 6.6 percent to close at $23.96, a gain of $3 billion (1 billion pounds) in the company's market value.

If Apotheker is let go, he would be the third CEO in a row to be ousted by the board of the largest U.S. technology company by sales.

Analysts say the odds may have been stacked against Apotheker from the beginning. Venture capitalist Ray Lane, who this year assumed chairmanship of an often-lambasted but powerful board, has argued that previous management underinvested in areas including software and services.

"He was doomed from the beginning," said Ticonderoga Securities analyst Brian White. "The die was cast for whoever stepped into that position."

INVESTOR IRE

Investors seemed to approve of Whitman, a billionaire who joined HP's board this year on an interim basis after a failed bid to become California's governor.

Apotheker, former CEO of German business software maker SAP AG, was a surprise choice to replace the popular Mark Hurd, himself ousted last year after a scandal involving expense reports and a female contractor.

Before Hurd came Carly Fiorina -- like Whitman, a candidate for California political office -- whom investors blamed for betting on a sunset PC industry by buying Compaq. She was eventually fired by the board.

Now, HP is grappling with withering criticism from Wall Street -- and a raft of shareholder lawsuits -- over recent strategic decisions and the haphazard way in which they have been communicated.

In August, it confounded investors by killing off a much-touted line of mobile devices including the TouchPad and declaring it may spin off its massive PC division. Apotheker also spearheaded a deal to buy British software maker Autonomy that many considered too costly.

The potential loss of HP's main public face raises questions about those pivotal strategic shifts, and has even triggered speculation the board might do an about-face on some of them.

Especially rankling to investors had been a decision to fork over close to $12 billion for Autonomy, without clarifying how the niche maker of cloud-computing software would fit into or help drive a sprawling empire that spans computers, printers, software and enterprise IT solutions.

"If (HP) fires Apotheker, cancels Autonomy deal, and keeps PC division, it'll be great for the stock -- and every director should be arrested," outspoken hedge fund manager Eric Jackson said on Twitter in reaction to the news.

A MATTER OF TIME

Apotheker's possible exit has been viewed by some as merely a matter of time. Chairman Lane had been taking a more visible role in past weeks, including accompanying the CEO to visit investors to try and clarify HP's strategy.

And last week, he replaced Apotheker at an industry conference to defend HP's change in strategy and clear the confusion that followed in the market.

"It was unanimously agreed to," said a second source familiar with the situation, referring to the Autonomy deal. "The board was a big part of this."

But the pricey Autonomy deal is hard to walk away from, even if HP wanted to, this person said, adding he did not think the deal was an issue right now.

The board will, however, be deliberating over the fate of HP's personal computers group, which it wants to spin off. HP has said a decision on the group's fate - which could also include a sale or no change in status -- is expected by the end of the year.

"It's unclear if they wish to change this current strategy, or just change the messenger," said Collins Stewart analyst Louis Miscioscia.

HP's board has been held up as a model of dysfunction since the wiretapping scandal of a few years ago, when HP counsel and board chairwoman Patricia Dunn authorized electronic eavesdropping on directors and journalists to try to plug a series of media leaks.

That scandal, forever associated with a company hailed as a cornerstone of Silicon Valley, forced Dunn's resignation.

Wall Street now awaits HP's decision on future leadership. Representatives for Whitman, whose track record at eBay came under attack during her campaign, did not respond to requests for comment. A representative for HP declined to comment.

News of Apotheker's potential ouster was first reported by Bloomberg.

(Reporting by Edwin Chan in Los Angeles, Poornima Gupta in San Francisco and Paritosh Bansal in New York; Editing by Lisa Von Ahn, Matthew Lewis and Richard Chang)