Hewlett-Packard Shareholders: Dude, Where’s My CEO?

This begins a series of weekly posts discussing significant M&A deals.

This week we’re looking at Hewlett-Packard’s (HPQ) announced plan to acquire ArcSight (ARST), a player in the security software space, for $1.5 billion.

Remember HP? That was the company whose CEO, Mark Hurd, resigned in August and recently moved into his new executive office at Oracle (ORCL).

In August, HP’s board decided to release preliminary third quarter earnings at the same time as the resignation, ostensibly to mitigate any immediate market impact. We were assured numerous times in the earnings release that Hurd’s resignation was in “no way related to HP’s operational or financial performance,” despite the fact that the sexual harassment allegations involve deliberately inaccurate expense reports.

Life isn’t peaches and cream for HP, despite giving Hurd the boot, as the board faces a shareholder lawsuit that claims they failed to disclose the charges against Hurd and approved his too-hefty severance package. In the meantime, the Search Committee is, well, searching for a new CEO.

This past Monday, HP announced that it plans to acquire ArcSight for $43.50 per share, a 24% premium over the previous Friday’s closing price and a 70% premium over last month’s share price. Taken at face value, HP’s acquisition of ArcSight seems promising, as it will allow HP to further expand its product offerings and become an integrated solutions provider. Many big tech companies want to add security solutions to their existing portfolios, and ArcSight’s corporate monitoring software is an appropriate fit for HP.

HP has followed an acquisitive strategy since Hurd’s tenure began in 2006. In the glory days, HP sat on a $15 billion cash pile, which Hurd felt would be better spent on acquisitions, rather than R&D. After its $13 billion acquisition of Electronic Data Systems in 2008 and its $2.7 billion acquisition of 3COM in 2009, HP one-upped Dell (DELL) by 83% in its recent bid for 3PAR (PAR).

That cash pile isn’t so big anymore and R&D is weak: when Hurd took over in 2006, R&D represented 4% of revenue, and in 3Q2010, only 2.4%. “That’s why HP had no response to the Apple (AAPL) iPad,” claims a former HP engineer at Stanford University. With so little devoted to R&D, HP may face some harsh competition in the near future.

So what? HP’s got lots of potential, as it could continue to make expensive acquisitions and crowd out its competitors without a huge R&D budget. The question is, why isn’t HP getting its house in order before dropping large amounts of cash? Where is the new CEO and what’s his strategy? Will he follow in Hurd’s footsteps and continue to offer strong results for shareholders, or will he scale back on the hunt for companies and offer weaker results, in line with Hurd’s predecessor, Carly Fiorina?

Until these issues are settled, it’s difficult to get excited about HP’s prospects or its new business divisions.

Disclosure: No positions in the stocks mentioned.