Hewlett-Packard logo is displayed on the entrance to the company’s headquarters in Palo Alto, California. HP has given up control of its $4.5bn Chinese unit to try to change its fortunes after acknowledging twice this year that the performance of the business has been disappointing.

Bloomberg
Beijing


Hewlett-Packard Co has given up control of its $4.5bn Chinese unit to try to change its fortunes after acknowledging twice this year that the performance of the business has been “disappointing.”
Hewlett-Packard rallied 5.1% in two days after posting higher-than-estimated earnings and saying that it will sell 51% 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. 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’s necessary to succeed in the world’s No. 2 economy as the Chinese government promotes home- grown 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, 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, other factors are more important.”
Hewlett-Packard gained 2.8% to $34.76 at the close Friday in New York. On Thursday the shares gained 2.3% after the computer maker, which plans to separate into two companies, announced the Chinese deal. Earnings for the quarter ended in April, released Thursday after the markets closed, came in at 87 cents a share excluding some items, beating the 86-cent average of analysts’ estimates compiled by Bloomberg.
Zhao’s firm beat state-owned China Huaxin Post & Telecommunication Economy Development Center for the holding in the Hewlett-Packard 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 economic planning agency, called the National Development and Reform Commission, didn’t immediately respond to a faxed request for comment. A Beijing-based press officer for Huaxin confirmed the company received NDRC 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. President 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, an analyst at brokerage Sun Hung Kai Financial Ltd in Hong Kong, said by phone on Friday. “The control has shifted to Tsinghua, but it’s safe to say that HP is still driving the strategy of that business.”
Hewlett-Packard will help appoint management for the Chinese venture, which is known as H3C, and Tsinghua won’t make major changes to its operations, Tsinghua Unisplendour Corp President Qi Lian said on Friday in Beijing. The US company will 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 aren’t part of this deal.
Tsinghua is broadening the scope of its dealmaking after spending about $2.1bn 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 $893mn deal completed last year, the data show.
Credit Suisse Group AG advised Hewlett-Packard on the sale.

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