Wall Street Horizon Blog

An Event Trader's View of the Hewlett Packard Spinoff

Posted by Eric Soderberg on Nov 5, 2015 10:34:34 AM

This past Monday, November 2, 2015, was the first trading day for the two new Hewlett Packard companies, HP Inc. (NYSE: HPQ) which is operating the PC and printer businesses and Hewlett Packard Enterprise Co. (NYSE: HPE) which is operating the business software, hardware and services businesses.  As with all spinoffs, there was a series of corporate events leading up to Monday when the two companies started trading independently.  And as the following chart shows, there was significant price volatility around these events that an informed investor or trader could have taken advantage of . . . or avoided altogether.   

The wheels were set in motion for this spinoff back in October 2014 when CEO Meg Whitman announced to shareholders their plans to separate HP into two independent companies.  The deal was sealed on September 30, 2015 (A) when the HP Board approved the spinoff.  At that time the Board also announced to investors their plans to have it completed on November 1, 2015.  

While HP stock still officially traded ahead of its break-up, the "when issued" shares of both HPQ and HPE began trading on October 19 (B).  Because of the spin-off, shareholders of HPQ received one share of HPE common stock for each share of HPQ common stock held as of the close of business on October 21, 2015 (C), the record date.  

The "when issued" trading for both companies ended on November 1 (D), the day the spinoff was completed, and trading for HPQ and HPE started on November 2 (E).

The lesson to be learned from this example is quite simple . . . corporate events create volatility in a stock's price.  And knowing when these events are going to happen can greatly reduce the likelihood that you (or your clients) are surprised by a sharp move in a stock's price, whether it be positive or negative.

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