Nine Months to New Beginnings

by Zac J. Nesper, VP & Assistant Treasurer, HP Inc.

In October 2014, The Hewlett-Packard Company announced a separation between its PC/printers business (HP Inc.) and its enterprise servers and services business (Hewlett Packard Enterprise).  Not only was this the largest ever corporate separation in the technology industry, but with only 12 months between announcement and closure, treasury had a daunting task ahead to unwind the existing, highly sophisticated treasury functions and establish two distinct treasury functions that could support the ambitious plans of the new companies. In this article, Zac J. Nesper, formerly Assistant Treasurer of Hewlett Packard, and now of HP Inc., highlights aspects of the project and identifies success criteria.

Project background

HP has always had innovation and excellence at the heart of its strategy and business practices, and treasury is no exception. Before the separation was announced, we had just embarked on a transformation project to rationalise our banking partners and accounts, simplify our cash and liquidity structures, and optimise our use of technology to further automate our processes and perform sophisticated analytics. When the announcement came, therefore, we immediately put the project on hold and turned our attention to the task of building two new treasury functions. In some respects, we were fortunate compared with some other departments as I had a two-week head start on the announcement to engage in the discussions with credit rating agencies. As a result, I could start planning for the project so that we could push forward immediately once the announcement was made.

Even so, the timescales were ambitious. Realistically, although the official close period was 12 months, we could not take the risk of moving new teams and infrastructures directly into live operation, so we set a nine-month project timeline to allow for an appropriate testing and bedding down phase.

Project reach 

We appointed a leading treasury advisory services team with specific experience in mergers, acquisitions and divestitures. The team proved instrumental in maintaining project discipline, monitoring project tasks, identifying and resolving dependencies or resourcing conflicts, and putting in place the various work streams required to separate the two businesses.

We started with three days of intensive project planning, bringing the global team together in Houston to identify the ‘Day One’ requirements that had to be in place for both businesses to operate. This resulted in 200-300 milestones, some of which involved cross-departmental work streams, such as legal entity structure planning, which involved our external consultants, treasury, financial control, tax, legal and the deal team. These entities also had to have adequate funding and capitalisation in place.

[[[PAGE]]] 

From a treasury perspective, our activities centred around three key areas: first, the setup of new bank accounts;  second, the technology needed to manage the treasury operations in each treasury function, and third, capital structure and deal execution. We opted to ‘clone’ our existing treasury technology framework, and migrate to a new infrastructure in a later phase. This proved to be the right decision as the demands of the separation were intense. With the help of our external consultants and IT team, we set up a command centre structure based in the US, with regional centres in Poland and Malaysia to provide 24/7 coverage. Seventeen different systems needed to be replicated, together with over 25,000 static data configurations, and 15,000 outstanding transactions needed to transitioned and reconciled.

We made the same ‘clone and go’ decision for our banking partners, in that we would duplicate our existing relationships and bank account structures initially, and then rationalise these after deal closure in line with the needs of the two businesses. The exception was cash management in Asia, which we aimed to centralise and rationalise with a single global bank as far as possible.

The separation involved opening over 750 new accounts in more than 50 countries involving both global and local banks. This was a particular challenge given that the new entities did not yet exist, so a complex certification framework was required. Each of these accounts then needed to be reflected in a number of treasury and accounting systems. In a project of multiple dependencies, opening bank accounts was one of the most important tasks, not only for treasury, but for the wider business, as a number of actions that departments such as legal, tax etc. needed to take could not be done until the bank accounts were in place. Consequently, during regular cross-departmental status meetings, there was a great deal of attention focused on the status of bank accounts in each country.

Managing expectations

A separation of this magnitude has wide-reaching implications both internally and externally, and managing expectations is a key success criterion. For example, we recognised from the start that customers must suffer no negative impact as a result of the divestiture, so we undertook a co-ordinated campaign for customer communication and migration. This involved defining playbooks for many thousands of customers, and personal contact from senior executives during the first few days to discuss any concerns and cement relationships. Within the business too, it was important to avoid any destructive effects that uncertainty can bring, whilst ensuring that everyone continued to work together as a cohesive team. We developed new treasury organisations for each business, but recognised that we could not simply split the existing global treasury function of around 90 people into two and expect that each would be able to operate successfully.

Firstly, we had worked hard to create synergies and efficiencies in treasury, and we lost some of these synergies when setting up two discrete treasuries that had to operate entirely independently. We quickly recognised that we would need additional hires, not only from October 2015 once the deal had closed, but in good time to allow them to come up to speed and participate in the transition project. We were therefore provided with a full-time human resources specialist who helped us to identify, appoint and bring people on board across this period, in addition to an external recruitment consultant.

Secondly, we needed to decide when we would appoint people to one or the other of the new departments. On one hand, no-one likes uncertainty, but on the other, we needed everyone to continue working together rather than forming ‘silos’ based on an organisational structure that did not yet exist. We talked to other treasurers who had been through similar projects, but ultimately, we made the decision not to announce the new appointments until mid-way through the separation. This included my own role, in that I didn’t know which of the two treasury functions I would be running early on. This ‘anonymity’ was ultimately positive, as it meant that we allocated talent and skills fairly, and in fact, there were numerous examples of people to whom we could offer a new challenge and career development.

Success factors

Maintaining a clear vision of what we needed to achieve, prioritising tasks and allocating the right resources to them were all key to the ultimate success of the project, and the expertise and support of our external consulting advisors, as well as the huge effort put in by our own team was essential to achieving this. Although treasury departments have a wide range of skills and expertise, they often lack project management skills at the level required for a project of this scale and complexity, so external resourcing was very valuable.

We held three global meetings over the course of the project to talk through issues, identify dependencies and resolve any outstanding questions. It was essential to listen, and anticipate problems wherever we could. Clarity was very important, both in what our objectives were and the steps to achieving them, so that everyone could see our progress, and the role they played in it. The use of dashboards was very valuable in this respect, not only by providing a view of project progress, but also identifying potential clashes or delays early on, so we could address issues rather than risk derailing the project.

[[[PAGE]]] 

New treasury horizons

Four months since the deal close, both HP Inc. and Hewlett Packard Enterprise treasuries operate independently. We still communicate, of course, but we can now focus on the specific nature and unique dynamics of the new businesses, optimise our capital structures, redefine our liquidity and risk management approach, and resize our working capital programmes accordingly. The previous HP business had become so large that it was difficult to establish and deliver cohesive treasury strategies, but this is now far more attainable. Both companies retain the original HP commitment to innovation and excellence, so we have reinstated our transformation playbook at both companies. For example, we are now looking at rationalising our banking partners and accounts, implementing SWIFT for bank neutral connectivity and re-evaluating and revising the way that we use technology in treasury, positioning treasury to support the company we have become, and the one we are poised to be in the future.